U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
ID Technologies Corporation
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(Name of Small Business Issuer in Its Charter)
North Carolina 56-1866233
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Venture II Building, 920 Main Campus Drive, Suite 400
NCSU Centennial Campus, Raleigh, North Carolina 27606
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, (919) 454-3722
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
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PART I
This Form 10-SB contains forward-looking statements. Any statements
contained in this Form 10-SB that are not statements of historical fact may be
deemed to be forward-looking statements and, accordingly, involve risks and
uncertainties which could cause actual results or outcomes to differ materially
from those expressed in the forward-looking statements. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
expectations, future events or performance and underlying assumptions and other
statements which are other than statements of historical facts. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "estimate" or "continue" or comparable terminology are
intended to identify forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, and actual results may
differ materially depending on a variety of factors, many of which are not
within the Company's control. These factors include, but are not limited to,
economic conditions generally and in the industries in which the Company may
participate; competition within the Company's chosen industry, including
competition from much larger competitors; technological advances; and failure by
the Company to successfully develop business relationships and strategic
alliances. In addition to other factors and matters discussed elsewhere herein,
the following are important factors that, in the view of the Company, could
cause actual results to differ materially from those discussed in the
forward-looking statements: ability of the Company to obtain acceptable forms
and amounts of financing to fund current and future operations, research and
development and acquisitions; competition; the Company's operating losses; the
Company's ability to commercially develop its proposed products; the Company's
ability to attract, hire and retain employees and management personnel; and the
Company's ability to regain control over the development and exploitation of its
technology. The Company disclaims any intent or obligation to update these
forward-looking statements, whether as a result of new information, future
events or otherwise.
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
ID Technologies Corporation, a North Carolina corporation (the
"Company" or "IDTEK") was incorporated on March 16, 1994, under the name
CardGuard International, Inc. On July 23, 1998, the Company changed its name
from CardGuard International, Inc. to ID Technologies Corporation. The Company's
corporate headquarters are located in Raleigh, North Carolina. Since inception,
the Company has had no significant revenues and is considered to be a
development stage company.
The Company is primarily a licensing company and is in the business of:
(i) developing and marketing its patented self-authenticating fingerprint
technology for applications where authentication of the identity of the owner of
the card is important (the "Technology") and (ii) selling
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exclusive and nonexclusive licenses to use the Technology. The Company does not
currently design, manufacture, market or sell any finished goods or products
which make use of the Technology and has no current plans or ability to do so.
Consequently, the Company intends to continue development of the Technology and
to promote its position as a licensor of the Technology to both sublicensors and
manufacturers of finished goods and products.
During the period from inception to December 1996, the Company focused
on obtaining a patent for the Technology. In December 1996, the Company received
the Notice of Allowance from the United States Patent Office for issuance of its
patent.
In July of 1997, the Company entered into an exclusive licensing
agreement (the "IRE Agreement") with Information Resource Engineering, Inc.
("IRE"), a leading provider of computer network security and encryption products
and services. Pursuant to the IRE Agreement, IRE provides research and
development assistance to IDTEK to develop the Technology. Currently, the
success of the Company is substantially dependent on the operations, research
and development of IRE. For more information regarding the IRE Agreement, see
Exhibit 6.02 attached hereto and the section below entitled "LICENSING AND
LICENSE AGREEMENTS."
THE TECHNOLOGY
The Technology includes patented and trade secret technologies which
are designed to allow authentication and re-authentication of biometric skin
surfaces, including finger and thumbprints. The Technology is designed to
identify authorized card, document and other item users by means of
self-authenticating panels/substrates which register and re-authenticate
authorized users without the assistance of databases or external devices of any
sort. The biometric sensing panel component of the Technology will enable
instantaneous fingerprint identification. The sensing panel is designed to
utilize microchip-assisted and electrically-powered sensing, storing, computing
transmitting/signaling and associated technologies which are designed to be
housed in a credit card-sized surface panel.
As a result of the Technology's design, it will not be dependent upon
storing a user's fingerprint in a central database, but will store and confirm
fingerprints in a self-contained unit. All present verification systems known to
the Company utilize databases to store user fingerprint information. In such
systems, valuable biometric signatures (fingerprint, eye scan, etc.) are kept
with hundreds of thousands of other such signatures in databases. This method of
storing biometric information raises privacy concerns because such databases
become, in effect, national registries for fingerprints or other biometric
signatures. Moreover, database technology has long been characterized by
problems such as data mismatches, high costs, unauthorized access to files and
unauthorized access to the database itself. Although the Technology is not
dependent upon databases or external devices, it is possible for the Technology
to malfunction, leaving the user without a working card or other identification
system.
Certain methods, processes and technologies which comprise the
Technology are generally patent protected by US Patent No. 5623552. The original
US patent has been augmented with other trade secret technologies acquired or
developed by IRE to cover many types of identification and security cards, as
well as other devices enabling applications which make use of the Technology.
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The Technology has not yet been fully developed into a finished
product. However, there are three progressive prototype cards incorporating the
Technology now in development. The first prototype is the discrete components
card ("DCC"), which is a credit or debit card sized model that contains a memory
chip to store the fingerprint. A working prototype of this card was completed in
November 1999. The second prototype is the chip on board card ("COB"), which
will combine the components of the first prototype into two distinct on-board
microelectronic chips that will perform all necessary functions, lower expenses
of the system and allow initial mass production of the device. A fully working
COB card is scheduled to be completed in the fall of 2000. Finally, the third
prototype is the unified chip card ("UCC"), which the Company believes will
further lower the production cost and increase the strength and durability of
the product. A fully working UCC is scheduled to be completed by the end of the
last quarter of 2000.
THE MARKET
The market for cards employed for the storage of confidential
information, the maintenance of stored value, debit and credit cards, and
security access and control presently represents over one billion cards in use
today worldwide. This market includes the private credit, medical/insurance,
airport and airline security, hotel security, banking and telecommunications
industries. The advent and acceptance of a worldwide standard operating system
to both read and write on stored value and information cards has raised serious
concerns about how to protect unauthorized access to such information. To the
knowledge of the Company, there are currently only commercial biometric
processors which rely on special card readers, expensive specialized software
and separate equipment in order to capture biometric signatures (such as
fingerprints) on a card. While almost all of the applications mentioned above
have the potential to support the use of a self-authenticating fingerprint
evaluator device, the Company will focus on markets that have demonstrated early
interest in the technology.
MARKETING PLANS
The Company has commenced pre-marketing of the Technology to government
and industry. The Company's Technology system concept was demonstrated for the
public in May of this year at Card Tech/Secure Tech 99, the world's leading card
technology and security tradeshow. Internet and conventional marketing have also
generated interest in the Technology both internationally and domestically,
which has resulted in several further demonstrations of the Company's Technology
system concept. Thirty-one demonstrations have been given to many potential
licensees, including IBM, VISA International, MasterCard, American Express,
Lockheed-Martin, General Electric, WhoVision, US Immigration and Naturalization
Services, Citibank, Bank of America, Cabletron, Bull and other companies and
governmental agencies. However, there can be no assurance that any such
companies or agencies will become licensees or users of the Technology.
Upon completion of a fully-working prototype of the COB card which is
expcected to be in the fall of 2000, the Technology will be marketed to those
industries that demonstrate the potential for early exposure, publicity,
profitability and diversification into other licensing areas. To achieve this
goal, the Company intends to pursue licensing, partnerships and strategic
alliances with industry and government agencies through both direct contact and
the use of consulting services. However, there can be no assurance that the
Company will develop such relationships.
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COMPETITION
At present, identification and security verification processes range
from simple devices used to store personal information such as names and
addresses (non-biometric) to highly secretive security systems which can verify
complex biometric data such as fingerprints, voice prints and eye
characteristics (biometric). The Company expects to compete with both
non-biometric and biometric technologies. With current non-biometric
technologies, the user must typically possess a key, card or bit of information,
such as a personal identification number or password. These systems are easily
defeated by obtaining possession of the key, card or password, or by
counterfeiting the key or the card. With respect to existing biometric
technology, some of the perceived disadvantages are as follows:
o Hand geometry devices are subject to physical changes in the user.
The devices are also typically large and, therefore, difficult to
integrate into many applications.
o Facial recognition technology can be fooled by photographs and is
typically cost-prohibitive, thereby limiting its application in
mass-market uses.
o Iris scanning has remained costly, subject to user motion and
requires large databases.
o Retinal scanning has also remained expensive and is subject to user
health concerns regarding laser scanning of the retina.
o Signature verification is subject to user physical changes over time
and is susceptible to forgery.
o Voice analysis is subject to user physical changes and can be forged
through the use of devices capable of recording and altering
individual voices.
Furthermore, most currently available biometric identity verification
systems share a reliance upon database technology, which the Company believes is
problematic. Most valuable biometric signatures (fingerprints, voiceprints, eye
scans, etc.) commonly are stored with hundreds of thousands of other such
signatures in databases. This method of storing information often presents
multiple problems, including data mismatches, the high cost of storage and
retrieval and unauthorized access to both the files and the database itself.
The Company believes that the Technology system addresses more problems
than many competing products by providing a means of identifying users at the
point of authentication access without relying on information stored in a
database. The information stored on the card incorporating the Technology is
intended not to function in any reader or scanner without the authorized user's
fingerprint first being placed on and matched with the data stored in the card
itself. The user's fingerprint data never leaves the card. As a result, no
databases or special readers will be required. Moreover, it is anticipated that
all present readers such as ATMs and point of purchase terminals will be
compatible with the Technology system because the Company currently plans to
incorporate magnetic stripe simulators into each card system that will activate
only for authorized users and allow these cards to operate with database, or
"legacy," systems worldwide.
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The Company considers companies such as Identix, Identicator, NRI,
Harris, NEC, Motorola, Siemens and other larger and smaller companies to be its
competition. Almost all present competitors use card systems that require
special readers and software applications to store digitized information and
depend on power sources independent of the card device. The Company believes
that it will offer a technological advantage over the current products of its
competitors because the Technology is expected to reduce costs and eliminate the
need for special equipment and software and will include a power source within
the card. However, there can be no assurance that competitors will not introduce
improved products or that the Company's product will function as the Company
anticipates. The Technology, however, will not replace all competitive biometric
systems since database systems will be of continuing value in certain
applications. Indeed, even as retailers and other end-users of credit or
identification cards accept cards utilizing alternative authentication
technology, they will continue to need specialized equipment and software.
LICENSING AND LICENSE AGREEMENTS
IDTEK is primarily a licensing company. The Company's initial licensing
strategy consisted of granting exclusive licenses in broad fields of use. More
recently, however, the Company has proposed to restructure its licensing
strategy so that exclusive licenses would be granted in discrete markets only
and licenses would otherwise be limited to non-exclusive licenses. Examples of
discrete markets in which exclusive licenses may be granted include residential
home security in the United States, copying equipment use in the United States,
commercial building access and security in the Southeastern United States
(specifying the states) and prison system access and security in a particular
state. Such licenses would have the following common components: a one-time
standard license fee payable to the Company; a right retained by the Company to
select the manufacturer of the product for the licensee; and either an ongoing
royalty payable by the licensee or a manufacturing surcharge paid by the card
manufacturers.
The Company currently has five main license holders: IRE, Protective
Technologies Inc. ("Protek"), Power^Up Marketing Corporation ("Power^Up"),
Revolution Labs, Inc. ("Revolution") and BrentScott Associates, LLC
("BrentScott").
In July of 1997, pursuant to the IRE Agreement, the Company granted IRE
an exclusive license to the Technology for use in IRE's primary business fields,
including dedicated computer networks, the Internet, and treasury and banking
areas. In consideration for this license (to which the Company ascribed a value
of over $500,000) and an initial 13.7% equity interest in the Company, IRE
agreed to provide (i) development of the Company's Technology and complimentary
technology, (ii) $300,000 in cash and (iii) additional engineering, design and
sales assistance. Also, IRE agreed to pay the Company a royalty equal to five
percent (5%) of IRE's future gross revenues (subject to certain discounts,
shipping, customs and insurance charges, taxes and allowances for returns)
related to the use of the Company's patent in IRE's fields of license during the
eighteen-year term of the IRE Agreement. This license was granted prior to the
Company's change to a non-exclusive licensing system. For more information
regarding the IRE Agreement, see Exhibit 6.02 attached hereto.
In April of 1998, the Company granted three separate exclusive licenses
to three different licensees in the medical/pharmacy, telecommunications and
private card/credit markets. In March of
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1999, as part of the Company's shift to a non-exclusive licensing system, the
Company entered into a new agreement (the "Protek Agreement") whereby these
three exclusive licenses were canceled and Protek was granted the following:
(1) For a 20 year period, if the Company receives a
manufacturing surcharge payment under any license agreement in the
areas of medical/pharmacy, telecommunications and private card/credit,
the Company will pay Protek a portion of the license fees and/or the
manufacturing surcharge and any other revenue the Company actually
receives from those licenses.
(2) For a period of seven years, Protek has the right to sell
or use itself (or with allied concerns) nonexclusive licenses from the
Company for the Technology in areas not subject to exclusive licenses
granted by the Company. Protek will receive a credit of up to
$2,625,000 to be applied to the initial license fees required to be
paid in connection with such agreements.
(3) For a period of 20 years, Protek has the nonexclusive
right to sell nonexclusive license agreements in fields not covered by
an exclusive license and shall receive a sales commission fee and
manufacturing surcharges.
(4) For the 20 year period, if the Company returns to the
issuance of exclusive licenses in any of the original areas of license
covered by the cancelled agreements, Protek will have the right to
acquire an exclusive license in such field of license, subject to
non-exclusive licenses previously granted.
For more information regarding the Protek Agreement, see Exhibit 6.04 attached
hereto.
In the last quarter of 1998, the Company entered into an exclusive
licensing agreement with Revolution with a term expiring in January 2014 (the
"Revolution Agreement"). Revolution and Protek have entered into an agreement
that provides that Protek may acquire Revolution's rights under this license,
subject to Protek's obtaining adequate financing for such purchase. Pertaining
to the field of FAA-controlled airport and airline employee security and
identification systems, the license was granted for a fee of $500,000, payment
of which is subject to delivery of a biometric fingerprint recognition card
incorporating the Technology at a cost of less than $20 per card. The license
also includes an agreement for on-going royalty payments to the Company of 6% of
Revolution's gross product sales. The Company considers this license to be
within a narrow and definable field so as to cause no material problems for the
Company's new, non-exclusive licensing system. The $500,000 license fee has not
been paid to date. For more information regarding the Revolution Agreement, see
Exhibit 6.03 attached hereto.
In February of 1999, the Company granted to Power^Up an exclusive
license (the "Power^Up Agreement") to use the Technology in connection with
identification, access and security cards, associated systems and equipment of
whatever type used in the hotel security industry, including hotel door locking
devices, in-room safes, mini bars and all associated security systems worldwide.
The initial term of the license is twenty years. The license was granted for an
initial fee of $25,000, and an additional fee of $350,000 will be due upon
delivery and acceptance of
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a first working prototype. The license also includes an agreement for on-going
royalty payments to the Company of 6% of Power^Up's gross product sales. The
Company considers this license to be within a narrow and definable field so as
to cause no material problems for the Company's new, non-exclusive licensing
system. The $350,000 fee has not been paid to date. For more information
regarding the Power^Up Agreement, see Exhibit 6.05 attached hereto.
In October of 1999, the Company granted to BrentScott an exclusive
license (the "BrentScott Agreement") to use the Technology in connection with
identification, access and security cards, associated systems and equipment of
whatever type for all fields of use (except fields of use already subject to
license) within the member States of the Gulf Cooperation Counsel States in the
Middle East, consisting of the Kingdom of Saudi Arabia, Kuwait, Bahrain, U.A.E.,
Oman and Qatar. The initial term of the license is three (3) years and may be
renewed for sequential one (1) year periods for a renewal fee of $10,000 per
year. The license was granted for an initial fee of $25,000, paid and payable as
follows: $2,000 upon execution of the agreement and $23,000 payable within ten
(10) days after BrentScott's receipt of a functioning/demonstrable and
stand-alone operational product. Pursuant to the terms of the license, the
Company does not collect a royalty from BrentScott, but instead collects a
surcharge from authorized manufacturers from whom BrentScott must purchase the
finished products. For more information regarding the BrentScott Agreement, see
Exhibit 6.01 attached hereto.
RESEARCH AND DEVELOPMENT
IDTEK has spent considerable management time on the development of the
Technology over the last three years; however, pursuant to the IRE Agreement,
IRE is responsible for research and development with respect to the Technology.
IRE has expended over $500,000 in engineering development costs from July 1997
to September 1999 on the development of the current DCC prototype. Pursuant to
the IRE Agreement, IRE is currently responsible for developing the Technology
for its intended uses. The Company has entered into negotiations with IRE with
respect to taking over and completing such development. Although the IRE
Agreement provides that IRE must proceed diligently to develop the technology,
the Company is not prohibited from engaging in its own research and development.
However, there can be no assurances that the Company will have the financial
resources or ability to conduct such research and development. Furthermore,
there can be no assurance that the Company will (or will have the resources to)
enforce IRE's contractual obligation if IRE ceases its research and development
activities. IRE has also taken the position in its negotiations with the Company
that the Company is not entitled to access, possession or ownership of the
development work-product to date unless the Company makes additional financial
concessions to IRE. If the negotiations with IRE are successful, the Company
would expect to take over such development by early 2000, and the Company
expects that an additional $2,000,000 in capital will be required and that two
engineers would be engaged to implement the development.
EMPLOYEES
As of September 30, 1999, the Company engaged two full-time employees,
three part-time employees and twelve independent contractors. Both full-time
employees are involved in administrative and finance matters, and the three
part-time employees assist the full-time employees
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with administrative and finance matters. The independent contractors are engaged
primarily in marketing and sales of licenses of the Technology.
REPORTS TO SECURITY HOLDERS
Prior to the filing of this Form 10-SB, the Company was not subject to
the reporting requirements of Section 13(a) or 15(d) of the Exchange Act. Upon
effectiveness of this registration statement, the Company will file annual and
quarterly reports with the Securities and Exchange Commission ("SEC"). The
public may read and copy any materials filed by the Company with the SEC at the
SEC's Public Reference Room at 150 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The Company is an electronic filer and the
SEC maintains an Internet site that contains reports and other information
regarding the Company which may be viewed at http://www.sec.gov.
CERTAIN ADDITIONAL CONSIDERATIONS
In addition to the other information presented herein, the following
information should be considered carefully in evaluating the Company and its
business.
LACK OF PROFITS AND GOING CONCERN. The Company has yet to generate any
significant revenues or profits and, for the years ended December 31, 1997 and
1998, and for the period from January 1, 1998 to September 30, 1999, the Company
incurred net losses of $1,684,313, $1,426,725 and $349,936, respectively.
The Company anticipates that net losses will continue for the foreseeable
future. There can be no assurance that the Company will be able to generate
significant revenues or operate successfully. The report of the Company's
independent certified public accountants on the Company's audited financial
statements includes an additional paragraph which refers to uncertainties as to
the Company's ability to continue to operate as a going concern.
DEVELOPMENT STAGE COMPANY. IDTEK is in its development stage and has no
commercial products. Further, the Company will face the same challenges
experienced by other development stage companies, including, but not limited to,
developing market acceptance for its proposed products.
TECHNOLOGY. The Company owns the Technology, subject to the licenses
which the Company has already granted (see LICENSING AND LICENSE AGREEMENTS,
above). Accordingly, the Company does not have complete rights to exploit the
Technology in all markets. The success of the Company, therefore, will depend
upon collection of royalties, fees and manufacturing surcharges from its
licensees and manufacturers of products containing the Technology, and its
ability to sell licenses in other markets. Furthermore, to date, the Company has
depended on IRE for research and development of the Technology. The Company has
initiated discussions with IRE regarding taking over further development of the
Technology. If the Company is not successful in such negotiations, or cannot
reach mutually acceptable terms with IRE, the Company would have to engage in
research and development without the benefit of the materials and work performed
by IRE. If the Company is successful in such negotiations, there can be no
assurance that the Company will have the technical ability or financial
resources to successfully develop the Technology.
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LIMITED SALES AND MARKETING; MARKET ACCEPTANCE. The Company has
recently begun developing its licensing, marketing and distribution system.
However, there can be no assurance that such efforts will be successful or that
the Company will be able to attract and retain qualified individuals with
marketing and sales expertise. The Company's future success will depend, among
other factors, upon the extent to which end users acquire, adopt and continue to
use the Company's products. There can be no assurance that the Company's
products will gain wide acceptance.
CHANGES IN TECHNOLOGY. The Company's industry is subject to rapid
technological change and intense competition. There can be no assurance that the
Company will be able to keep pace with this change. The Company's products could
become subject to technological obsolescence and there can be no assurance that
the Company will be able to adapt to rapidly changing technology. If the Company
is unable for technological or other reasons to develop products on a timely
basis in response to technological changes, or if the Company's products or
product enhancements do not achieve market acceptance, the Company's business
would be materially and adversely affected.
NEED FOR ADDITIONAL FUNDS. The Company expects that it will need to
raise substantial additional capital to fund the ongoing development and
expansion of its business, including its research, development, marketing and
sales efforts, and to attain profitability. There is no assurance that any
additional funds needed will be available to the Company on favorable terms, or
at all. Although based on assumptions that the Company considers reasonable,
there is also no assurance that the Company's estimate of its anticipated
liquidity needs is accurate or that new business developments or other
unforeseen events will not occur, resulting in the need to raise additional
funds. In addition, it is probable that raising additional funds will result in
a substantial dilution to the Company's existing investors.
COMPETITION. The Company is engaged in a rapidly evolving field.
Competition from other companies is intense and expected to increase. Many of
the Company's competitors have substantially greater resources, research and
development staffs, sales and marketing staffs, and facilities than does the
Company. In addition, other recently developed technologies are, or may in the
future be, the basis of competitive products. There can be no assurance that the
Company's competitors will not develop technologies and products that are more
effective than those being developed by the Company or that would render the
Company's technology and products obsolete or noncompetitive.
DEPENDENCE ON KEY PERSONNEL. The Company's operations are materially
dependent upon the services of Mr. J. Phillips L. Johnston, the President and
CEO of the Company, and Mr. William F. Lane, the Chairman, Treasurer and founder
of the Company. The loss of the services of either of these individuals could
have a material adverse effect on the Company. There can be no assurance that
the Company will retain Mr. Johnston or Mr. Lane in its employ, or that it will
successfully attract and retain additional or replacement personnel with the
requisite experience and capabilities to enable the Company to profitably and
effectively evaluate, develop and market the Technology. The Company expects to
secure a term life insurance policy on the life of Mr. Johnston in the amount of
$500,000 (payable to the Company) in January 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company has had only nominal revenue since inception, consisting
primarily of non-refundable earnest payments for licenses of the Technology. No
additional revenue is expected until the two-chip COB card is completed, which
is expected to occur in the fall of 2000. Initially, such revenues will be
derived from contractually-required license balances, but are expected to be
less than $1,000,000. The Company does not expect to generate additional
revenues until 2002 when the Company anticipates that royalties will commence as
licensees begin selling cards incorporating the Technology to end users.
However, the Company can give no assurances that it will generate any such
additional revenues.
To date, the Company has financed its operations primarily through the
sale of its common stock and the issuance of debentures and has been dependent
upon outside sources of financing for continuation of operations. The Company
currently has sufficient cash to satisfy its cash requirements into the first
quarter of 2000. The Company plans to seek additional equity financing of
$1,000,000 in December 1999, although there can be no assurance that such
financing will be obtained. The Company's current cash expenditure (burn) rate
is $37,000 per month.
The Company has entered into negotiations with IRE with respect to
taking over and completing development of the Technology. If such negotiations
are successful, the Company would expect to take over such development by early
2000, and the Company expects that an additional $2,000,000 in capital will be
required and that two engineers would be engaged to implement the development.
Further, the Company believes that monthly cash expenditures would likely
double.
The Company's capital requirements will depend on numerous factors,
including the progress of its research and development and whether it takes over
from IRE development of the Technology; the cost of filing, prosecuting,
defending and enforcing any patent claims and other intellectual property
rights; the economic impact of competing technologies; the costs of implementing
and operating a marketing and licensing system; and the terms of any new
collaborative, licensing and other arrangements that the Company may establish.
Management has identified three principal risks that may have a
material impact on the Company: (1) inability to raise additional capital; (2)
inability to complete development of the Technology; and (3) inability to
attract customers to applications in which benefits exceed the costs of the
card. In management's view, because of the two and one-half year development
period to date, raising additional capital is the Company's major risk. Further,
management believes that the second most important risk for the Company is
selecting the most appropriate applications and markets for the Company's
initial product(s). If the Company is not successful in placing the Technology
in the most suitable applications and markets initially, the Company's current
and anticipated capital will not enable the Company to generate positive cash
flow.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's principal office is located on North Carolina State
University's Centennial Campus at 920 Main Campus Drive, Suite 400, Raleigh,
North Carolina 27606. These offices contain approximately 500 square feet and
are leased on a month-to-month basis. The Company also
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maintains an office in Wilson, North Carolina at 2506 West Nash Street, Suite C,
Wilson, North Carolina 27896. This lease is for approximately 150 square feet
and is also on a month-to-month basis. The Company's aggregate monthly rent
obligation is $1,700.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the shares of the Company's common stock as of October
31, 1999, by (i) each person who is known to the Company to be the beneficial
owner of more than five percent (5%) of the issued and outstanding shares of the
Company's common stock, (ii) each of the Company's directors and executive
officers and (iii) all directors and executive officers as a group:
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF CLASS
OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED (1) OUTSTANDING
- ------------------- ----------------------------- -----------
William F. Lane (2) (3) 2,527,104 30.17%
2506 W. Nash Street
Suite C
Wilson, NC 27896
J. Phillips L. Johnston (3) 50,000 0.06
Venture Bldg. II
NCSU Centennial Campus
920 Main Campus Drive
Suite 400
Raleigh, NC 27606
Ira A. Hunt, Jr.(3) 490,000 5.85
7102 Capitol View Drive
McLean, VA 22101
Joe S. Wakil (3) 97,006 1.16
2928 Carnagie Street
Houston, TX 77005
Glenn J. Kline (3) 0 0.00
Venture Bldg. II
NCSU Centennial Campus
920 Main Campus Drive
Raleigh, NC 27606
Harold H. Reddick, Jr. (3) 0 0.00
1216 Hunting Ridge Road
Raleigh, NC 27615
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF CLASS
OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED (1) OUTSTANDING
- ------------------- ----------------------------- -----------
Kaye B. Amick 858,939 10.25
1809 Faison Road
Durham, NC 27896
Information Resource Engineering, Inc. 1,120,660 13.38
8029 Corporate Drive
Baltimore, MD 21236
All Directors and Executive Officers as 3,164,110 37.77
a Group (6 persons)
</TABLE>
- --------------------------
(1) Includes shares as to which such persons have the right to
acquire beneficial ownership upon exercise of options which are
exercisable within sixty (60) days hereof, as follows: Mr. Lane -
100,000; Mr. Hunt - 250,000; Mr. Johnston - 50,000; and Mr. Wakil -
90,000.
(2) Mr. Lane owns his shares as a joint tenant with his wife,
Barbara D. Lane.
(3) Officer and/or Director of the Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following is a list of the names and ages of all directors and
executive officers of the Company:
DIRECTOR OR
NAME AGE POSITION OFFICER SINCE
- ---- --- -------- -------------
William F. Lane 66 Chairman and Treasurer March 1994
Ira A. Hunt, Jr. 75 Director July 1997
J. Phillips L. Johnston 59 CEO, President June 1997
and Director
Joe S. Wakil, MD 37 Director July 1999
Glenn J. Kline 36 Director September 1999
Harold H. Reddick, Jr. 44 Secretary December 1997
Mr. Lane served as Chairman, President, Treasurer and Chief Executive
Officer of the Company from March 1994 to September 1999. He currently serves as
Chairman of the Board and Treasurer and his term of office as a Director is set
to expire in March 2000. He is the Company's founder and has been active in
various industries for over thirty-five years. Mr. Lane has been president of
three different trade associations and served the State of North Carolina as
Assistant
12
<PAGE>
Secretary of Commerce for three years and as a Deputy Commissioner of Motor
Vehicles for two years. Mr. Lane was the founder of four companies which he
later sold to public companies. Mr. Lane is a graduate of North Carolina State
University. He is also a graduate of The National Association of Small Business
Investment Companies Management School and the Governor's Executive Management
Program.
Mr. Hunt has served the Company as a Director since July of 1997. His
term of office as a Director is set to expire in March 2000. Mr. Hunt is a
graduate of the United States Military Academy in West Point, New York. He
served thirty-three years in various command and staff positions in the United
States Army before retiring from active service as a Major General in 1976.
Subsequently, Mr. Hunt was President of Pacific Architects and Engineers in Los
Angeles, California, and as a Vice President of Frank E. Basil, Inc. in
Washington, DC; both organizations maintain worldwide operations focusing upon
security matters. Currently, Mr. Hunt serves as a Director of IRE. Mr. Hunt has
a Masters of Science degree in civil engineering from the Massachusetts
Institute of Technology, an MBA from the University of Detroit, a Doctor of the
University degree from the University of Grenoble, France, and a Doctor of
Business Administration degree from George Washington University.
Mr. Johnston has served the Company as a Director since June of 1997.
His term of office as a Director is set to expire in March 2000. Mr. Johnston
was formerly the Chairman, President and CEO of Pilot Therapeutics, Inc. from
October 1998 to September 1999, Digital Recorders, Inc. (NASDAQ-TBWS) for nine
years until April 30, 1998, DataPix, Inc. and Currier Piano Company. He was the
CEO and Chairman of Norman Perry and Chantry Lamp Company and the Erwin-Lambeth
Company. He is the former administrator of North Carolina Credit Unions. Mr.
Johnston is a co-founder and founding Chairman of the Board of the North
Carolina Electronics and Information Technology Association. In 1997, Mr.
Johnston was named the Emerging Entrepreneur of the Year by the Council for
Entrepreneurial Development. Mr. Johnston has a Bachelor degree in Economics
from Duke University and a Doctor of Jurisprudence degree from the University of
North Carolina Chapel Hill Law School. Additionally, he attended New York
University Business School and the John F. Kennedy School of Government at
Harvard University.
Dr. Wakil has served the Company as a Director since July of 1999. His
term of office as a Director is set to expire in March 2000. Dr. Wakil has over
fifteen years of experience in the medical products industry. In 1983, he
co-founded Corazonix Corporation, a cardiovascular instrument manufacturer
concentrating in the ultrasound and electrophysiology products areas. Corazonix
eventually licensed technologies to A.H. Robins, Hewlett Packard and Arrhythmia
Research Technologies. In 1986, Dr. Wakil founded Eyesys Technologies, Inc.
("Eyesys"), a technology development company focusing on the eye-care field.
Eyesys has grown to become a $10 million operation and is largely credited with
establishing the field of corneal topography. Eyesys markets and sells its
products worldwide to over 30,000 ophthalmologists and optometrists in more than
80 countries. Dr. Wakil has held various positions with Eyesys, including
President, CEO and Chairman of the Board. In 1997, Eyesys was sold to Premier
Laser Systems, Inc. Dr. Wakil has served on the boards of several wellness and
prevention companies, including Science Based Health, Inc., an international
laser refractive surgery center operator with over $24 million in annual
revenues. His formal education includes a Bachelor of Science degree in
Biomedical Engineering from Duke University, a Master's in Electrical
Engineering from Rice University, and a medical
13
<PAGE>
degree from Baylor College of Medicine in Houston, Texas. Dr. Wakil is also on
the boards of Tray Technologies, LLC and Aris Vision Institute.
Mr. Kline has served the Company as a Director since September of 1999.
His term of office as a Director is set to expire in March 2000. Mr. Kline is
currently the managing director of Centennial Venture Partners, LLC, a venture
capital investment firm, and he has served in such capacity since February of
1998. During the period from September 1994 to January 1998, Mr. Kline was a
senior director of Del Monte Foods Co. and served as head of the Strategic
Planning and Business Development Group. Mr. Kline received his Bachelor of Arts
degree from Pomona College and his Master's of Business Administration from
UCLA.
Mr. Reddick has served the Company as its Secretary since December
1997. His term of office as the Company's Secretary expires in March 2000. Since
1992, Mr. Reddick has served as an independent financial advisor, marketing
consultant and management advisor to early-stage companies. Mr. Reddick is a
graduate of Wake Forest University.
SIGNIFICANT EMPLOYEES OR CONTRACTORS
Katherine A. Chandler is an independent contractor and has been engaged
to provide controller services to the Company. Ms. Chandler formed Chandler
Consulting, Inc. ("CCI") in 1997. CCI provides temporary controller services and
performs all types of finance related projects for small businesses. During the
period from 1992 to 1997, Ms. Chandler served as Finance Director for Qualex,
Inc., a photofinishing company with $1 billion in revenues and 12,000 employees.
Prior to Qualex, Ms. Chandler was a senior accountant at Ernst & Young, LLP. Ms.
Chandler received her Bachelor of Science degree in accounting from the
University of North Carolina at Chapel Hill.
Edward M. Collins is engaged as the assistant to the President. Mr.
Collins received his Bachelor of Arts degree from the University of North
Carolina at Charlotte in 1992 and expects to receive his Master of Business
Administration from Wake Forest University in May 2000. Mr. Collins served as an
intern in the Information Technology Special Projects Unit at Carolina Power &
Light during the Summer of 1999 and was a Senior Application Consultant at Marsh
Software Systems from 1995 to 1998 and an Application Consultant for Marsh from
1992 to 1995.
FAMILY RELATIONSHIPS
There are no family relationships among directors or executive
officers.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth certain information regarding the annual
compensation for services to the Company for the fiscal year ended December 31,
1998 with respect to the Company's Chief Executive Officer and all other
executive officers as of December 31, 1998 who earned more than $100,000 in
salary and bonus during such fiscal year:
14
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------- -------------------------------------
Name and Principal Securities
Position Underlying Options
Year Salary
- -------------------------------- ---------------- ---------------------------------- -------------------------------------
<S> <C> <C> <C>
10/99-12/99 $37,500 None
J. Phillips L. Johnston, 1998 $ 0
President and CEO (1) 1997 $ 0
1996 $ 0
1/99-12/99 $30,000 None
William F. Lane Chairman and 1998 $26,125
Treasurer (2) 1997 $ 4,320
1996 $ 0
</TABLE>
- -------------------
(1) Mr. Johnston is the current President and CEO of the
Company. The effective date of his appointment to such positions was
September 1, 1999. Mr. Johnston is not currently serving as an officer
of the Company pursuant to any written employment agreement; however,
the Company has presented to Mr. Johnston a compensation package (which
Mr. Johnston has not yet accepted) containing the following salient
points: (a) annual salary of $150,000, subject to possible increases
once the Company has raised additional capital; (b) incentive stock
options to purchase 250,000 shares of the Company's common stock to
vest quarterly over three years, subject to the terms and conditions of
the Company's 1999 Incentive Stock Option Plan (as described below);
(c) eligibility for additional stock options, salary increases and
bonuses based on the attainment of mutually agreed upon annual
milestones; (d) participation in employee benefit plans made available
from time to time to the Company's executive officers; and (e) the
arrangement is deemed to be at will so that either party may terminate
the arrangement at any time for any reason.
(2) Mr. Lane served as the Company's CEO and President from
March 1994 to September 1999. He currently serves as the Company's
Chairman and Treasurer.
STOCK OPTION PLAN
The Company's Board of Directors adopted the Company's 1999 Stock
Option Plan (the "Plan") in September 1999. The Plan has not yet been approved
by shareholders. Prior to adoption of the Plan, the Company issued options
(non-qualified) to purchase 666,000 shares of the Company's common stock to
officers, directors and consultants of the Company. The purchase price for
shares pursuant to such non-qualified options ranges from $1.00 to $1.50 per
share.
The purpose of the Plan is to enable the Company to offer to its key
employees, officers, directors, consultants and sales representatives whose
past, present and/or potential contributions to the Company have been, are or
will be important to the success of the Company, an opportunity to acquire a
proprietary interest in the Company. The total number of shares of the Company's
common stock reserved and available for distribution under the Plan is 1,383,148
shares. These
15
<PAGE>
shares will underlie the options issued by the Company pursuant to the Plan. The
optionholders will not be protected against dilution if the Company should issue
additional shares in the future. Neither the options nor the shares underlying
the options have preemptive rights. For more information regarding the Plan, see
Exhibits 6.07 and 6.08 attached hereto.
The Company does not currently maintain any performance-based incentive
plans, although the compensation committee of the Board of Directors expects to
consider such a plan in 2000 for the Company's President and CEO.
Non-officer board members are entitled to receive $250 plus travel
expenses for attending meetings of the Company's Board of Directors. Since
inception, the Company has granted Directors of the Company non-qualified
options to purchase Company common stock, as follows:
No. of Purchase Price
Name of Director Year Options Granted Per Share
- ---------------- ---- --------------- ---------
William F. Lane 1999 0 --
1998 100,000 $1.00
1997 0 --
J. Phillips L. Johnston 1999 50,000 (1) $1.00
1998 0 --
1997 0 --
Ira A. Hunt, Jr. 1999 50,000 $1.00
1998 0 --
1997 200,000 $1.00
Joe S. Wakil, MD 1999 90,000 $1.00-$1.50
1998 0 --
1997 0 --
Glenn J. Kline 1999 0 --
1998 0 --
1997 0 --
- -------------------------
(1) These options were granted to Mr. Johnston prior to his
being named as the Company's CEO and President.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In July 1997, Director Ira A. Hunt, Jr. was granted options
(non-qualified) to purchase 200,000 shares of the Company's common stock for
$1.00 per share for his efforts in negotiating and
16
<PAGE>
securing the IRE Agreement. Director Hunt also earned $250 for his efforts in
securing the BrentScott Agreement. Director Hunt loaned the Company $5,460 in
the summer of 1999 and was repaid in full in July 1999.
Director William F. Lane loaned the Company $15,000 in 1999 and was
repaid in full in September 1999. Director Lane received 1,927,750 shares of the
Company's common stock when the Company was capitalized in 1996.
In September 1999, Director Joe S. Wakil received $5,000 from the
Company to conduct a marketing study for the Company.
ITEM 8. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of 50,000,000
shares designated as follows: (a) 49,700,000 shares of common stock, no par
value per share, of which 8,377,583 shares are outstanding as of October 31,
1999, and (b) 300,000 shares of Series A Preferred Stock, $0.001 par value per
share, of which no shares are outstanding as of October 31, 1999. The following
summary description of the Company's securities is qualified in its entirety and
should be read in conjunction with the Company's Articles of Incorporation, as
amended (see Exhibit 2.01 attached hereto), Bylaws (see Exhibit 2.02 attached
hereto), the Investor Rights Agreement (as described below and attached hereto
as Exhibit 3.10) and the various warrant and debenture documents described below
and attached hereto as exhibits.
COMMON STOCK
Holders of the Company's common stock are entitled to one vote per
share on each matter submitted to a vote at any meeting of shareholders. Shares
of common stock do not carry cumulative voting rights and, therefore, holders of
a majority of the outstanding shares of common stock will be able to elect the
entire board of directors and, if they do so, minority shareholders would not be
able to elect any members of the board of directors. However, holders of a
majority of the Company's common stock have executed an Investor Rights
Agreement (see Exhibit 3.10 attached hereto) together with Centennial Venture
Partners, LLC ("CVP") that provides that such shareholders shall vote their
shares in such a manner so that the Company's board of directors will be
comprised of five (5) directors and that a designee of CVP shall be elected as a
director so long as CVP owns 50,000 shares of common stock or the Company's
Series A Preferred Stock, or has rights to acquire 266,667 shares of the
Company's Series A Preferred Stock. All of the shares of common stock currently
issued and outstanding are fully paid and non-assessable. The holders of common
stock are entitled to such dividends as may be declared from time to time by the
board of directors from funds available therefor (provided, however, that no
dividends may be paid on the common stock unless equivalent dividends are then
declared and paid on the Series A Preferred Stock), and upon liquidation they
are entitled to receive pro rata all assets of the Company available for
distribution to such holders (subject to the rights of the holders of the Series
A Preferred Stock).
The Company's transfer agent for its common stock is Florida Atlantic
Stock Transfer, Inc.
PREFERRED STOCK
The Company's Articles of Incorporation, as amended, provide for the
issuance of Series A Preferred Stock; however, no shares of such stock are
currently issued and outstanding. Shares of
17
<PAGE>
the Series A Preferred Stock are convertible into shares of common stock by the
holders thereof at any time. Such shares are also automatically convertible upon
the Company's initial public offering of its common stock. The conversion rate
is set forth in the Company's Articles of Incorporation, as amended, and
provides for full-ratchet anti-dilution protection. The holders of Series A
Preferred Stock are entitled to receive dividends out of the assets of the
Company legally available therefor as declared from time to time by the board of
directors. Holders of the Series A Preferred Stock are entitled to receive,
prior and in preference to any distribution to holders of common stock, an
amount equal to $2.00 per share in the event of any liquidation, dissolution or
winding up of the Company. After payment of such liquidation preference, holders
of the Series A Preferred Stock and holders of the common stock will share
ratably the remaining assets and funds of the Company legally available for
distribution. Holders of shares of Series A Preferred Stock are entitled to the
number of votes equal to the number of shares into which such Series A Preferred
Stock could be converted and otherwise have voting rights and powers equal to
the voting rights and powers of the common stock. The Series A Preferred Stock
also enjoys the benefits of redemption rights and preemptive (or first
participation) rights, as more fully described in the Company's Articles of
Incorporation, as amended. The Investor Rights Agreement restricts the ability
of the Company to merge, sell all or substantially all of the assets of the
Company or take certain other actions unless holders of fifty percent (50%) or
more of the Series A Preferred Stock consent to the taking of such actions.
12% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002
The Company has issued $185,000 worth of debentures that mature in
April of 2002 at 12% interest, paid annually in arrears (the "12% Debentures")
(see Exhibits 3.01 and 3.02 attached hereto). Upon conversion by the holder at
any time, the 12% Debentures will be converted into the Company's common stock
at $2.00 per share, including accrued interest. Upon forced conversion by the
Company in the event of an acquisition, merger or new public share offering, the
12% Debentures will be converted at $2.50 per share or greater. The 12%
Debentures carry a three-year option to buy 10,000 shares of the Company's
common stock for every $50,000 in principal amount held at a purchase price of
$2.75 per share. The debenture holders have been granted certain demand and
piggy-back registration rights to register shares of the Company's common stock
received upon conversion of the 12% Debentures. The indebtedness evidenced by
the 12% Debentures is subordinated to the prior payment of all senior debt of
the Company. Senior debt is defined as any indebtedness of the Company for
borrowed money outstanding at any time, except debt that by its terms is not
senior in right of payment to the 12% Debentures.
CENTENNIAL VENTURE PARTNERS, LLC DEBENTURES AND WARRANTS
The Company has also issued a $300,000 debenture to CVP (see Exhibits
3.05 and 3.10 attached hereto; the "CVP Debenture"). The CVP Debenture is
payable on demand of CVP not earlier than September 24, 2000 (unless an event of
default or certain exercise events have occurred, such as mergers or sales
effecting a change in control of the Company). The CVP Debenture bears simple
interest at the rate of eight percent (8%) per annum from the date of issuance
until the date paid. The CVP Debenture is convertible into shares of Series A
Preferred Stock on demand of CVP at any time or automatically upon a qualified
public offering (as defined in Exhibit 3.02 attached hereto). The initial
conversion rate is $2.00 per share and CVP enjoys full-ratchet anti-dilution
protection.
18
<PAGE>
In connection with the issuance of the CVP Debenture, the Company
issued to CVP various warrants (collectively, the "CVP Warrants") to purchase
shares of the Company's common stock, as follows:
Title of Purchase Price
Warrant No. of Shares Per Warrant Share
------- ------------- -----------------
WC-1 450,000 $0.30 to $5.00 (increasing
sliding scale over 10 years)
WC-2 150,000 $0.01
WC-3 200,000 $0.50
WC-4 Variable; up to Fair market value (based on
$500,000 worth most recent financing by in-
of common stock stitutional investors or, if none
within prior 12 months, as
determined by third-party
valuation expert)
The CVP Warrants are exercisable at various times (as described in Exhibits
3.06, 3.07, 3.08 and 3.09) at the election of CVP. Each CVP Warrant is subject
to full-ratchet anti-dilution protection. Furthermore, CVP may exercise each CVP
Warrant and receive shares of common stock without the payment of any additional
consideration to the Company based on the value of the warrant as determined in
accordance with the formula set forth in each warrant. The Company has granted
CVP certain demand and piggy-back registration rights to register shares of the
Company's common stock received upon conversion of the CVP Debentures or upon
exercise of the CVP Warrants.
HUTCHISON & MASON PLLC WARRANTS
The Company has issued to Hutchison & Mason PLLC (the Company's former
counsel) a warrant (the "H&M Warrant") to purchase 20,000 shares of the
Company's common stock at a purchase price of $3.33 per share. The warrant
expires on November 15, 2001. The Company has granted Hutchison & Mason PLLC
certain piggy-back registration rights to register shares of the Company's
common stock received upon exercise of the H&M Warrant (see Exhibit 3.03
attached hereto).
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.
The Company's common stock is listed on the Over the Counter Bulletin
Board ("OTCBB") under the symbol "IDTK." Although quotations for the Company's
common stock appear on the
19
<PAGE>
OTCBB, there is no established trading market for the Company's common stock.
For the past calendar year and from December 31, 1998 to the present,
transactions in the common stock can only be described as sporadic.
Consequently, the Company believes that any published prices cannot be
attributed to a liquid and active trading market and, therefore, are not
indicative of any meaningful market value.
The following table sets forth for the respective periods indicated,
the prices of the Company's common stock in the over-the-counter market, as
reported and summarized by the OTCBB. Such prices are based on inter-dealer bid
and asked prices, without markup, markdown, commissions or adjustments and may
not represent actual transactions.
Calendar Quarter Ended High Bid ($) Low Bid ($)
- ---------------------- ------------ -----------
June 30, 1998 5.500 1.500
September 30, 1998 4.000 1.938
December 31, 1998 3.250 1.125
March 31, 1999 2.750 1.063
June 30, 1999 3.500 1.188
September 30, 1999 2.000 0.875
The Company's common stock is subject to the provisions of Section
15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g)
sets forth certain requirements for transactions in penny stocks and Rule
15g-9(d)(1) incorporates the definition of penny stock as that used in Rule
3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity security
that has a market price less than $5.00 per share, subject to certain
exceptions. Rule 3a51-1 provides that any equity security is considered to be a
penny stock unless that security is: registered and traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for quotation on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at least $5.00 per
share) or the issuer's net tangible assets; or exempted from the definition by
the Commission. If the Company's shares are deemed to be a penny stock, trading
in the shares will be subject to additional sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors, generally persons with assets in excess of $1,000,000
or annual income exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions
20
<PAGE>
payable to both the broker-dealer and the registered representative, and current
quotations for the securities. Finally, the monthly statements must be sent
disclosing recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. Consequently, these rules may
restrict the ability of broker dealers to trade and/or maintain a market in the
Company's common stock and may affect the ability of shareholders to sell their
shares.
As of October 31, 1999, there were 214 holders of record of the
Company's common stock and the Company had 8,377,583 shares of common stock
issued and outstanding. Of the issued and outstanding common stock, 2,126,780
shares are free trading and 6,250,803 shares are restricted stock as that term
is used in Rule 144.
As of the date hereof, approximately 1,765,500 shares of the Company's
common stock are subject to outstanding warrants, option and conversion rights.
The foregoing number of shares does not include the $500,000 worth of common
stock issuable pursuant to the CVP warrant entitled WC-4 since the fair market
value purchase price has not been calculated.
The Company has not declared or paid cash dividends or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make distributions in the foreseeable future. The Company
currently intends to retain and reinvest future earnings, if any, to finance its
operations.
ITEM 2. LEGAL PROCEEDINGS.
The Company is not a party to any pending material legal proceeding,
nor is any such proceeding contemplated. To the knowledge of management, no
federal, state or local governmental agency is presently contemplating or
proceeding against the Company. To the knowledge of management, no director,
officer or affiliate of the Company or owner of more than 5% of the Company's
common stock is a party adverse to the Company or has a material interest
adverse to the Company in any proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There have been no changes in or disagreements with the Company's
accountants since the formation of the Company required to be disclosed pursuant
to Item 304 of Regulation S-B.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During an offering period ending on November 21, 1997, the Company sold
153,333 shares of common stock at a price of $5.00 per share in a private
placement offering. The private placement offering was exempt from registration
in reliance on Rule 504 of Regulation D under the Securities Act for limited
offerings under $1,000,000.
During an offering period from April 1999 through the end of June 1999,
the Company sold $185,000 worth of the 12% Debentures. The 12% Debentures were
issued to nine individuals living in North Carolina, one individual living in
Ohio, one individual living in California and one individual living in Georgia.
The transaction was exempt from registration in reliance on Section
21
<PAGE>
4(2) and Regulation D promulgated under the Securities Act. For more details
regarding the terms of the 12% Debentures, see Exhibits 3.01 and 3.02 attached
hereto and the section above entitled "Item 8. Description of Securities; 12%
CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002."
On December 31, 1997, the Company issued the H&M Warrant. The H&M
Warrant was initially issued for 80,000 shares at a purchase price $5.00 per
share, but was later amended to its current terms of 20,000 shares at a purchase
price of $3.33 per share. For more information regarding the terms of the H&M
Warrant, see Exhibit 3.03 attached hereto and the section above entitled "Item
8. Description of Securities; HUTCHISON & MASON PLLC WARRANT."
On September 24, 1999, the Company issued the CVP Debenture and the CVP
Warrants. For more information regarding the terms of the CVP Debenture and the
CVP Warrants, see Exhibits 3.05, 3.06, 3.07, 3.08, 3.09, 3.10 and 3.11 attached
hereto and the section above entitled "Item 8. Description of Securities;
CENTENNIAL VENTURE PARTNERS, LLC DEBENTURES AND WARRANTS."
ITEM 4. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The North Carolina Business Corporation Act (the "NCBCA") requires the
Company to indemnify its officers and directors who have been wholly successful,
on the merits or otherwise, in the defense of any actual or threatened
proceeding to which he was, or was threatened to be made, a party because he is
or was a director or officer of the Company. Additionally, the NCBCA allows the
Company, under certain circumstances, to indemnify its officers and directors
who have been named or threatened to be named a party to a proceeding because he
or she was acting in that capacity.
The Company's Articles of Incorporation, as amended, provide that a
director's personal liability shall be eliminated or limited to the fullest
extent permitted by applicable law. The Company's Bylaws provide for the
indemnification of the Company's directors, officers, employees or agents under
certain circumstances. The full text of such indemnification provisions is set
forth in the copy of the Articles of Incorporation, as amended, attached hereto
as Exhibit 2.01 and the copy of the Bylaws attached hereto as Exhibit 2.02.
22
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FINANCIAL STATEMENTS
Copies of the financial statements specified in Item 310 of Regulation
S-B are filed with this Form 10-SB, as follows:
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
Report of Certified Public Accountant
Balance Sheet - As of December 31, 1998 and 1997
Combined Statements Of Operations And Retained Earnings
Period from March 16, 1994 (Date of Inception) to
December 31, 1998
Statement of Cash Flows
Period from March 16, 1994 (Date of Inception) to
December 31, 1998
Notes to Financial Statements
Condensed Balance Sheet
September 30, 1999 and December 31, 1998 (Unaudited)
Condensed Statements of Income
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
Condensed Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998 (Unaudited)
Notes to Condensed Financial Statements (Unaudited)
23
<PAGE>
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
150 Fayetteville Street Mall
Suite 2300
Raleigh NC 27601
Telephone (919) 755 3000
Facsimile (919) 755 3030
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
ID Technologies Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of ID Technologies Corporation
(the "Company"), a development stage company, at December 31, 1998 and 1997, and
the results of its operations and its cash flows for the years then ended and
the period from inception (March 16, 1994) through December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage company, has not yet
generated significant sustainable revenues, has suffered recurring losses from
operations, has a working capital deficit, and has a net capital deficiency that
raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
August 26, 1999
F-1
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,254 $ 141,412
Notes receivable 13,270 3,000
Prepaid expenses 150 1,650
------------ -------------
Total current assets 21,674 146,062
Equipment, net 1,174 335
Intangible assets, net 21,537 25,622
------------ ------------
Total assets $ 44,385 $ 172,019
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 61,612 $ 51,015
Note payable to shareholder 42,750 -
----------- ---------------
Total current liabilities 104,362 51,015
---------- ----------
Deferred revenue 93,000 18,000
Commitments and contingencies (Note 11) - -
Shareholders' equity (deficit):
Common stock, no par value, 50,000,000 shares authorized,
8,175,833 and 8,153,333 shares issued and outstanding
at December 31, 1998 and 1997, respectively 282,953 282,953
Additional paid-in capital 2,707,383 1,536,639
Deficit accumulated during development stage (3,143,313) (1,716,588)
----------- -----------
Total shareholders' equity (deficit) (152,977) 103,004
Total liabilities and shareholders' equity (deficit) $ 44,385 $ 172,019
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE
PERIOD FROM INCEPTION (MARCH 16, 1994) THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 16,
1994) THROUGH
DECEMBER 31,
1998 1997 1998
<S> <C> <C> <C>
License revenue $ 50,000 $ 40,000 $ 90,000
Operating expenses:
Research and development 192,319 201,908 394,227
Selling, general and administrative 1,284,904 1,522,405 2,839,584
----------- ----------- -----------
Loss from operations (1,427,223) (1,684,313) (3,143,811)
Other income (expense):
Interest income 1,157 - 1,157
Interest expense (659) - (659)
--------------- --------------- ---------------
Other income (expense), net 498 - 498
-------------- --------------- --------------
Net loss $(1,426,725) $(1,684,313) $(3,143,313)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
PERIOD FROM INCEPTION (MARCH 16, 1994) THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING
------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
Balance at March 16, 1994 - $ - $ - $ - $ -
<S> <C> <C> <C> <C> <C>
Issuance of common shares for cash and
noncash consideration 1,595,200 366 33 - 399
Net loss - - - (123) (123)
=========== ========== ========== ========== ==========
Balance at December 31, 1994 1,595,200 366 33 (123) 276
Issuance of common shares for
noncash consideration 404,800 - 101 - 101
Net loss - - - (2,263) (2,263)
=========== ============ =========== ======= =======
Balance at December 31, 1995 2,000,000 366 134 (2,386) (1,886)
Issuance of common shares for
noncash consideration 6,000,000 - 1,500 - 1,500
Net loss - - - (29,889) (29,889)
=========== ============ =========== ======== ========
Balance at December 31, 1996 8,000,000 366 1,634 (32,275) (30,275)
Issuance of common shares for cash,
net of issuance costs 153,333 282,587 - - 282,587
Capital contribution in form of research
and development services - - 201,405 - 201,405
Stock-based compensation - - 1,333,600 - 1,333,600
Net loss - - - (1,684,313) (1,684,313)
============ ============= ============ =========== ===========
Balance at December 31, 1997 8,153,333 282,953 1,536,639 (1,716,588) 103,004
Issuance of common shares for noncash
consideration 22,500 - 45,000 - 45,000
Capital contribution in form of research
and development services - - 192,319 - 192,319
Stock-based compensation - - 933,425 - 933,425
Net loss - - - (1,426,725) (1,426,725)
============ =========== ========== =========== ===========
Balance at December 31, 1998 $ 8,175,833 $ 282,953 $ 2,707,383 $ (3,143,313) $ (152,977)
=========== ========= =========== ============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE
PERIOD FROM INCEPTION (MARCH 16, 1994) THROUGH DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 16,
1994) THROUGH
DECEMBER 31,
1998 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,426,725) $ (1,684,313) $ (3,143,313)
Adjustments to reconcile net loss to net cash used
in operation activities:
Depreciation and amortization 4,462 2,401 6,827
Deferred revenue 75,000 (12,000) 93,000
Stock-based compensation 933,425 1,333,600 2,267,025
Noncash marketing expenses 45,000 - 45,000
Noncash research and development expenses 192,319 201,405 395,353
Change in operating assets and liabilities:
Notes receivable (10,270) (3,000) (13,270)
Prepaid expenses 1,500 (1,537) (150)
Accounts payable and accrued liabilities 10,597 31,797 61,612
------------- ------------- -------------
Net cash used in operating activities (174,692) (131,647) (287,916)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs - - (27,903)
Purchase of equipment (1,216) (419) (1,635)
-------------- --------------- --------------
Net cash used in investing activities (1,216) (419) (29,538)
-------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable to shareholder 42,750 - 57,750
Payment of note payable to shareholder - (15,000) (15,000)
Financing costs - 2,500 -
Proceeds from issuances of common shares, net - 282,587 282,958
--------------- ---------- -----------
Net cash provided by financing activities 42,750 270,087 325,708
---------- ---------- ----------
Increase in cash and cash equivalents (133,158) 138,021 8,254
Cash and cash equivalents, beginning of period 141,412 3,391 -
--------- ----------- --------------
Cash and cash equivalents, end of period $ 8,254 $ 141,412 $ 8,254
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 659 $ - $ 659
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
BACKGROUND
ID Technologies Corporation ("the Company") is a development stage
company incorporated in North Carolina on March 16, 1994. The Company
was formed to develop and commercialize certain technologies allowing
for self-authenticating fingerprint identification and transmission and
signaling devices housed together in a microelectronic panel suitable
for, but not limited to, the confines of a credit card.
STATUS OF DEVELOPMENT
During the period from inception to December 1996, the Company focused
on obtaining a patent for its proposed technology. In December 1996,
the Company received the Notice of Allowance from the United States
Patent Office for issuance of its patent. Since December 1996, the
Company has outsourced its research and development efforts to
Information Resource Engineering, Inc. ("IRE"). The Company, in
conjunction with IRE, a significant shareholder of the Company, has
developed a computer assisted version of a prototype card.
The Company incurred a net loss of $1,426,725 for the year ended
December 31, 1998, and had an accumulated deficit of $3,143,313 at
December 31, 1998. The Company has yet to generate any significant
revenues and has no assurance of future revenues. Even if successful,
substantial time may pass before significant revenues might be
realized. As a development stage enterprise, the Company is also
subject to a number of risks including obtaining adequate financing,
successfully developing and marketing its technologies, successfully
defending its rights under the patent, and attracting and retaining key
personnel, among others.
Management plans to obtain the capital necessary to execute its
business plan through several sources, which include (1) the sale of
additional licenses of the Company's fingerprint identification
technology, (2) obtaining venture capital financing and (3) obtaining
debt financing. Management expects that these efforts will result in
the introduction of additional capital to the Company. There can be no
certainty the Company will be able to raise sufficient capital or find
a sufficient number of purchasers of its licenses to fund the future
operating expenses of the Company. In the event the Company is unable
to raise the capital to finance its operations, it could impact the
Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
F-6
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all unrestricted cash accounts and highly liquid
investments with original maturities of three months or less to be cash
equivalents. The fair value of these instruments approximates their
carrying value.
INTANGIBLE ASSETS
In filing its patent, the Company incurred direct legal costs in the
amount of $27,903 which it capitalized. The patent costs are being
amortized on a straight-line basis over seven years, the estimated
economic life of the patent. Accumulated amortization at December 31,
1998 and 1997 was $6,366 and $2,281, respectively.
EQUIPMENT
Equipment is recorded at cost and is being depreciated over its
estimated useful life of three years. Accumulated depreciation totaled
$461 and $84 at December 31, 1998 and 1997, respectively.
INCOME TAXES
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for the
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and tax carryforwards. A valuation
allowance is recorded to reduce net deferred tax assets to an amount
which management believes is more likely than not to be realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"). No compensation is recorded for
stock options or other stock-based awards to employees that are granted
with an exercise price equal to or above the estimated fair value per
share of the Company's common stock on the grant date. The pro forma
affect of recording stock-based compensation at the estimated fair
value of awards on the grant date, as prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), is disclosed in Note 7.
F-7
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
The Company recognizes revenue from the licensing of its technology as
well as from the associated royalties. Licensing revenue is recognized
based on the specific terms of each agreement. Royalty revenue is
recognized as earned pursuant to the applicable royalty agreement.
REVERSE STOCK SPLIT
On November 15, 1996, the Board of Directors of the Company approved a
1-for-2.5 reverse stock split. Amounts presented for the periods prior
to the reverse stock split have been restated to reflect the reverse
stock split on a retroactive basis.
3. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
In 1998 and 1997, one customer accounted for all of the Company's
license revenue. The Company had no outstanding accounts receivable
from this customer at December 31, 1998 and 1997. Credit risk
represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Management believes the likelihood of incurring material
losses due to concentration of credit risk is remote.
4. DEFERRED REVENUE
In 1998, the Company entered into three exclusive license agreements
and received an aggregate of $75,000 in license fees upon the execution
of these agreements. In accordance with the terms of the three
exclusive license agreements, which include additional obligations on
the part of the Company, the $75,000 was recorded as deferred revenue
at December 31, 1998. On March 30, 1999, the Company entered into a
nonexclusive licensing agreement with Protective Technologies, Inc.
("Protek") (see Note 12). In conjunction with this new agreement, the
three exclusive license agreements were terminated.
In 1998 and 1997, the Company received $15,000 and $18,000,
respectively, from potential licensees as deposits on options to
acquire certain license rights. These amounts are reflected as deferred
revenue in the accompanying balance sheets until such time as the
Company enters into binding agreements with the potential licensees,
and completes development of the licensed technology and delivers such
to the licensees.
In March 1996, the Company signed a non-binding letter of intent,
whereby for consideration of $30,000, the Company granted an option to
IRE to acquire certain license rights to use the Company's technology
and to sublicense, market, manufacture, distribute or utilize the
technology. In July 1997, the Company entered into a license agreement
with IRE, receiving an additional fee of $10,000 plus the right to
receive a royalty equal to 5% of the licensee's gross sales of related
products as defined. The $30,000 option fee and the $10,000 license fee
were recognized as revenue during 1997 as the Company had no ongoing
obligation to IRE. See Note 6 for additional discussion of this
agreement.
F-8
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS
In 1998, the Company received a loan from a shareholder totaling
$42,750. The loan bears interest at 12% per annum and is due June 1999.
This amount, together with accrued interest was repaid in April 1999.
The Company borrowed an additional $45,000 from the shareholder during
1999.
In August 1997, the Company repaid a loan of $15,000 from the
shareholders of the Company. The loan was non-interest bearing,
unsecured and due immediately in the event of a successful sale of any
common shares of the Company's stock to a third party for cash.
The Company received management assistance services during the last six
months of 1997 for a monthly fee of $10,000 from an entity owned by
certain of the Company's significant shareholders. In early 1998, the
amount of such fee was reduced to $6,500 per month. Payments under this
agreement amounted to $68,500 and $51,000 in 1998 and 1997,
respectively.
During 1997, the Company paid $33,000 to a member of its Board of
Directors for commissions relating to the sale of the license option
agreement to IRE (see Note 4).
6. STOCKHOLDERS' EQUITY (DEFICIT)
The Company has authorized 50,000,000 shares of common stock, with no
par value per share. Holders of these shares have voting rights.
During the period from inception to December 31, 1996, the Company
issued 6,537,800 shares of common stock for noncash consideration,
primarily comprised of services, to certain of its shareholders.
Management has estimated the fair value of these shares based on the
initial per share cash contribution to form the Company, as there were
no events which would indicate a change in this value prior to the
Company receiving a Notice of Allowance for the patent on its
identification technology in December 1996. Compensation expense
recognized related to these stock issuances totaled $1,634.
In 1998, the Company issued 22,500 shares of common stock in exchange
for marketing services. Advertising expense related to this issuance
totaled $45,000.
In conjunction with the IRE license agreement, in 1997, the Company
issued 121,000 shares of common stock for cash consideration of
$140,000, or approximately $1.16 per share. As additional non-monetary
consideration for these shares, IRE will perform certain research and
development expenses on behalf of the Company for which the Company
will not be billed (see Note 8).
During the period from September 15, 1997 to December 31, 1997, the
Company issued 32,333 shares of common stock at an average price of
approximately $5.00 per share prior to recognition of $19,078 in stock
issuance costs. The net cash consideration received by the Company was
$142,587.
F-9
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
7. STOCK OPTION PLAN
During 1997, the Company's Board of Directors approved the granting of
stock options to certain employees and non-employee members of the
Board of Directors as compensation for their services as members of the
Company's Board of Directors. Prior to 1997, the Company had not
previously issued stock options to its employees or its directors. As
of December 31, 1998, the Company had not formally adopted the terms of
its stock option plan. Once adopted, options granted prior to the date
of adoption will be considered grants under the plan.
The following table summarizes stock option activity for the years
ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE EXERCISE
OF EXERCISE FAIR PRICE
OPTIONS PRICE VALUE RANGE
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1996 - $ - $ - $ -
Granted 300,000 1.00 5.00 1.00
Forfeited - - - -
Expired - - - -
------------- --------------- ------------------ ---------------
Outstanding as of December 31, 1997 300,000 $ 1.00 $ 5.00 $ 1.00
Granted 216,000 $ 1.00 $ 5.00 $ 1.00
Forfeited - - - -
Expired - - - -
------------- --------------- ----------------- ----------------
Outstanding as of December 31, 1998 516,000 $ 1.00 $ 5.00 $ 1.00
============= =============== ================= ================
Exercisable as of December 31, 1998 516,000
=============
</TABLE>
All of the stock options granted during 1997 and 1998 were immediately vested at
the date of grant. Total expense recognized in 1998 and 1997 for these option
grants totaled $933,425 and $1,200,000, respectively. In accordance with the
provisions of APB No. 25 and SFAS No. 123, the Company has chosen to account for
stock-based compensation through the intrinsic value method. If the Company had
elected to recognize compensation cost based on the fair value of the options at
grant date as prescribed by SFAS No. 123, the Company's net loss would be as
follows:
1998 1997
Net loss reported $1,426,725 $1,684,313
Net loss pro forma $1,486,573 $1,750,250
F-10
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
To determine the impact of SFAS No. 123, the fair value of these option
grants were estimated on the date of grant using the minimum value
method based upon the following assumptions: dividend yield - 0%;
volatility - 118%; risk free interest rate - 5.5%; and weighted average
expected option term - 4 years.
In 1996, the Company issued warrants to a law firm, in exchange for
legal services, which entitled the holders to acquire 80,000 shares of
common stock at a price of $5 per share. The warrants immediately
vested and expire in 2001. Management believed the fair value of these
warrants on the date of the grant was nominal, and as such, no legal
expense was recognized. In 1997, an amendment lowered the exercise
price of these warrants to $3.33 per share of common stock. Legal
expense of $133,600 was recognized due to the repricing of these
warrants. Subsequent to the amendment, the warrants were canceled and
new warrants were issued which entitled the holders to acquire 20,000
shares of common stock at $3.33 per share. No warrants were issued in
1998.
8. INFORMATION RESOURCES ENGINEERING AGREEMENT
On July 30, 1997, the Company and IRE entered into a patent license
agreement (the "Patent License Agreement"), whereby, in exchange for
consideration of $10,000 in cash and IRE's commitment to conduct
research and development programs to develop prototypes of products
utilizing the Company's fingerprint identification technology, IRE was
granted an exclusive worldwide license to the use of the Company's
patented technology in the markets defined in the Patent License
Agreement. In addition, the Company is entitled to receive royalties of
5% of the net selling price, as defined in the patent License
Agreement, of all products sold by IRE which use the Company's
fingerprint identification technology.
IRE has agreed to consider proposals of sublicenses from any of the
Company's prospective licensees for the use of the Company's
fingerprint identification technology in the markets in which IRE was
granted an exclusive license. In the event that the Company, with IRE's
consent, sells licenses to other parties in IRE's exclusive markets,
the Company will be required to pay IRE 50% of the gross royalty income
it receives from these licenses.
Under the Patent License Agreement, the Company was granted the rights
to license the technology developed by IRE in markets other than those
in which IRE was granted an exclusive license. The Company is required
to pay to IRE 10% of the gross royalty income received from such
licenses.
As a part of the Patent License Agreement, the Company agreed to sell
or cause its existing shareholders to sell to IRE 1,120,660 shares of
the Company's common stock, which represented 13.70% of the outstanding
common stock of the Company on a fully diluted basis on the effective
date of the Patent License Agreement, for total consideration of
$290,000 or $.26 per share. The Company issued 121,000 shares of
F-11
<PAGE>
common stock to IRE for cash consideration of $1.16 per share or
$140,000 (see Note 6) and the Company's existing shareholders sold to
IRE 999,660 shares for total consideration of $150,000.
If after four years from the date of the Patent License Agreement IRE
has not commercially developed the licensed technology to a reasonable
level, the Company shall have the right to terminate the Patent License
Agreement for a payment of $10,000. If the Company elects to terminate
the Patent License Agreement, IRE can require the Company to repurchase
all or part of the 1,120,660 shares of the Company's common stock
purchased by IRE pursuant to the Patent License Agreement at a price of
$.26 per share.
As discussed above, IRE is performing research and development services
on behalf of the Company for which the Company is not required to
reimburse IRE for the costs incurred in such research and development
effort. The costs incurred by IRE on the Company's behalf are recorded
by the Company as research and development expenses and as a capital
contribution which is reflected as an increase in additional paid-in
capital because the performance of these services represents a part of
the purchase price of the shares of common stock sold to IRE by the
Company (see Note 6). IRE has incurred $394,227 in costs in developing
the licensed technology through December 31, 1998, which is reflected
in the accompanying financial statements. IRE anticipates incurring an
additional $180,000 to $200,000 in costs to complete the development of
the licensed technology. Such additional costs will be reflected as
research and development expenses and an increase in additional paid-in
capital in the Company's financial statements when they are incurred by
IRE.
9. INCOME TAXES
Under Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS No. 109"), a deferred tax asset is established
for the complete amount of tax benefits available in future periods
from the assumed realization of tax net operating loss carryforwards
(NOL) and tax credits. In addition, a deferred tax asset or liability
is established for the complete amount of tax benefits or liabilities
from the assumed effect of temporary differences. A valuation
allowance, if necessary, is established to adjust the deferred assets
to their estimated net realizable value.
F-12
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Significant components of the Company's deferred tax assets and
liabilities at December 31 are as follows:
1998 1997
<S> <C> <C>
NOL carryforwards $ 237,564 $ 56,000
Deferred tax assets related to temporary differences as follows:
Deferred revenue 36,244 -
Stock-based compensation 883,006 466,760
Other 1,322 -
------------ --------------
Total deferred tax assets 1,518,136 522,760
Valuation allowance (1,518,136) (508,029)
----------- ---------
Net deferred tax assets - 14,731
Deferred tax liabilities related to temporary differences as follows:
Deferred revenue - (5,000)
Patent costs - (9,731)
---------------- ----------
Net deferred taxes $ - $ -
================ =============
</TABLE>
As of December 31, 1998 and 1997, the Company had net operating loss
carryforwards for tax purposes of approximately $610,000 and $144,000,
respectively. Such carryforwards will begin to expire in 2011. The
utilization of the federal net operating loss carryforwards may be
subject to limitation under the rules regarding a change in stock
ownership as determined by the Internal Revenue Code. No benefit for
the losses has been recognized in the accompanying financial
statements, due to uncertainty of the Company's ability to generate
taxable income in the future.
10. GENERAL AND ADMINISTRATIVE EXPENSE
Following is an analysis of the general and administrative expenses
incurred by the Company for the years ended December 31, 1998 and 1997:
1998 1997
Commission expense $ 2,750 $ 33,000
Marketing expense 118,323 65,938
Salaries 43,625 12,000
Professional fees 129,435 187,881
Noncash stock-based compensation 933,425 1,200,000
Other 57,346 23,586
----------- -----------
$1,284,904 $1,522,405
=========== ===========
F-13
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
11. COMMITMENTS AND CONTINGENCIES
The Company leases its office facility under an operating lease which
is renewable on an annual basis. Rental expense for this lease in 1998
and 1997 was approximately $1,800 and $4,650, respectively.
The Company is subject to various legal matters in the ordinary course
of business. In the opinion of management, the ultimate outcome of any
such matters will not have a material adverse effect on the financial
condition, results of operations or cash flows of the Company.
12. SUBSEQUENT EVENT
On March 30, 1999, the Company entered into a nonexclusive licensing
agreement with Protek, in which Protek will act as a marketing agent
and will sell the Company's licenses to third parties. Upon the
execution of the agreement, Protek received a credit totaling
$2,625,000 for future purchases of the Company's licenses. The unused
portion, if any, of this credit will expire seven years after the
execution of the license agreement. In addition, for a 20 year period
beginning on the date of the execution of the agreement, Protek is
entitled to a sales commission fee ranging between five and ten percent
of the initial license fees and manufacturing surcharges.
F-14
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1999 DECEMBER 31, 1998 SEPTEMBER 30, 1998 DECEMBER 31, 1997
- ------ ------------------ ----------------- ------------------ -----------------
(Unaudited) (Audited) (Unaudited) (Audited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 151,715 $ 8,254 $ 9,096 $ 141,412
Notes receivable $ 3,270 $ 13,270 $ 13,270 $ 3,000
----------- ----------- ----------- -----------
Total current assets $ 154,985 $ 21,524 $ 22,366 $ 144,412
Deposits $ 150 $ 150 $ 150 $ 1,650
Equipment, net $ 806 $ 1,174 $ 1,635 $ 335
Patents, net $ 18,547 $ 21,537 $ 22,534 $ 25,622
----------- ----------- ----------- -----------
Total Assets $ 174,488 $ 44,385 $ 46,685 $ 172,019
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable and $ 99,400 $ 61,612 $ 33,186 $ 51,015
accrued liabilities
Notes payable to shareholder $ -- $ 42,750 $ 12,250 $ --
Current portion of debentures $ 300,000 $ -- $ --
----------- ----------- -----------
Total current liabilities $ 399,400 $ 104,362 $ 45,436 $ 51,015
Deferred Revenue $ 93,000 $ 93,000 $ 93,000 $ 18,000
Long term portion of debentures $ 185,000 $ -- $ --
Shareholders' equity (deficit):
Common stock $ 282,953 $ 282,953 $ 282,953 $ 282,953
Additional paid in capital $ 2,707,383 $ 2,707,383 $ 2,707,383 $ 1,536,639
Deficit accumulated during $(3,493,248) $(3,143,313) $(3,082,087) $(1,716,588)
----------- ----------- ----------- -----------
development stage
Total shareholders' equity (deficit) $ (502,912) $ (152,977) $ (91,751) $ 103,004
Total liabilities and sharehholders' $ 174,488 $ 44,385 $ 46,685 $ 172,019
equity (deficit)
</TABLE>
F-15
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
9 MONTHS ENDING 9 MONTHS ENDING 12 MONTHS ENDING INCEPTION 3/16/94 INCEPTION 3/16/94
9/30/99 9/30/98 12/31/98 THROUGH 12/31/98 THROUGH 9/30/99
------- ------- -------- ---------------- ---------------
(UNAUDITED) (UNAUDITED) (AUDITED) (AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
License Revenue $ 0 $ 50,000 $ 50,000 $ 90,000 $ 90,000
Research & Development $ 0 $ 192,319 $ 192,319 $ 394,227 $ 394,227
Selling, general and administrative $ 322,488 $ 1,222,879 $ 1,284,904 $ 2,839,584 $ 3,162,072
expenses
Other Income & Expense:
Interest income $ 1,000 $ 358 $ 1,157 $ 1,157 $ 2,157
Interest expense $ (28,448) $ (659) $ (659) $ (659) $ (29,107)
NET INCOME $ (349,936) $(1,365,499) $(1,426,725) $(3,143,313) $(3,493,249)
</TABLE>
F-16
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
9 MONTHS ENDING SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DEFICIT ACCUMULATED
COMMON STOCK ADDITIONAL DURING DEVELOPMENT
SHARES AMOUNT PAID-IN-CAPITAL STAGE TOTAL
------ ------ --------------- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 8,175,833 $ 282,953 $ 2,707,383 $ (3,142,313) $ (152,977)
Net loss $ (349,936) $ (349,936)
Balance at September 30, 1999 8,377,583 $ 282,953 $ 2,707,383 $ (3,492,249) $ (502,913)
</TABLE>
F-17
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1988 AND FOR THE PERIOD
FROM INCEPTION (MARCH 16, 1994)
<TABLE>
<CAPTION>
9 MONTHS ENDING 9 MONTHS ENDING 12 MONTHS ENDING
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 DECEMBER 31, 1998
------------------ ------------------ -----------------
(UNAUDITED) (UNAUDITED) (AUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (349,936) $(1,365,499) $(1,426,725)
Adjustments to reconcile net loss to net cash used
in operation activities:
Depreciation and amortization $ 3,359 $ 3,004 $ 4,462
Deferred revenue $ -- $ 75,000 $ 75,000
Stock based compensation $ -- $ 933,425 $ 933,425
Noncash marketing expenses $ -- $ 45,000 $ 45,000
Noncash development expenses $ -- $ 192,319 $ 192,319
Change in operating assets and liabilities: $ --
Notes receivable $ 10,000 $ (10,270) $ (10,270)
Deposits $ -- $ 1,500 $ 1,500
Accounts payable and accrued liabilities $ 37,788 $ (17,829) $ 10,597
----------- ----------- -----------
Net cash used in operating activities $ (298,789) $ (143,350) $ (174,692)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs $ -- $ -- $ --
Purchase of equipment $ -- $ (1,216) $ (1,216)
----------- ----------- -----------
Net cash used in investing activities $ -- $ (1,216) $ (1,216)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable to shareholder $ 12,250 $ 42,750
Payment of note payable to shareholder $ (42,750) $ -- $ --
Financing costs $ -- $ --
Proceeds from sale of debentures $ 485,000 $ --
Proceeds from issuances of common shares, net $ -- $ -- $ --
----------- ----------- -----------
Net cash provided by financing activities $ 442,250 $ 12,250 $ 42,750
Increase in cash and cash equivalents $ 143,461 $ (132,316) $ (133,158)
Cash and cash equivalents, beginning of period $ 8,254 $ 141,412 $ 141,412
----------- ----------- -----------
Cash and cash equivalents, end of period $ 151,715 $ 9,096 $ 8,254
<CAPTION>
INCEPTION 3/16/94 INCEPTION THROUGH
THROUGH 12/31/98 SEPTEMBER 30, 1999
---------------- -----------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,143,313) $(3,493,249)
Adjustments to reconcile net loss to net cash used
in operation activities:
Depreciation and amortization $ 6,827 $ 10,186
Deferred revenue $ 93,000 $ 93,000
Stock based compensation $ 2,267,025 $ 2,267,025
Noncash marketing expenses $ 45,000 $ 45,000
Noncash development expenses $ 395,353 $ 395,353
Change in operating assets and liabilities: $ --
Notes receivable $ (13,270) $ (3,270)
Deposits $ (150) $ (150)
Accounts payable and accrued liabilities $ 61,612 $ 99,400
----------- -----------
$ --
Net cash used in operating activities $ (287,916) $ (586,705)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent costs $ (27,903) $ (27,903)
Purchase of equipment $ (1,635) $ (1,635)
----------- -----------
Net cash used in investing activities $ (29,538) $ (29,538)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable to shareholder $ 57,750 $ 57,750
Payment of note payable to shareholder $ (15,000) $ (57,750)
Financing costs $ -- $ --
Proceeds from sale of debentures $ 282,958 $ 767,958
Proceeds from issuances of common shares, net $ -- $ --
----------- -----------
Net cash provided by financing activities $ 325,708 $ 767,958
Increase in cash and cash equivalents $ 8,254 $ 151,715
$ --
Cash and cash equivalents, beginning of period $ -- $ 8,254
----------- -----------
Cash and cash equivalents, end of period $ 8,254 $ 159,969
</TABLE>
F-18
<PAGE>
ID TECHNOLOGIES CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. CONVERTIBLE DEBENTURES
In April 1999, the Company issued $185,000 worth of debentures that mature April
2002 at 12% annual interest. These debentures are convertible by the holder at
any time into the Company's common stock at $2.00 per share, including accrued
interest. In the event of an acquisition, merger or new public offering, the
debentures will be converted at $2.50 per share or greater. The debentures carry
a three year option to buy 10,000 shares of the Company's common stock for every
$50,000 in principal amount held at a purchase price of $2.75 per share.
In September 1999, the Company issued $300,000 worth of debentures that mature
September 2000 at 8% annual interest. In the event of an acquisition, merger or
new public offering prior to the maturity date, the debentures are payable
immediately, at the option of the holder, by delivery of Company common stock at
$2.00 per share or immediately available funds.
2. RELATED PARTY TRANSACTIONS
Loans from shareholders having an outstanding aggregate balance of $42,750 at
December 31, 1998 (and bearing 12% interest), were repaid in 1999.
On September 1, 1999, board member J. Phillips L. Johnston, Sr. was appointed
President and CEO of ID Technologies Corporation. In addition to being an ID
Technology board member, Mr. Johnston was CEO of a public company, Digital
Recorders, Inc., from April, 1990 through May, 1998. He held the position of CEO
of Pilot Theraputics from October, 1998 until September, 1999. See narrative for
additional information.
In September 1999, the Company contracted a board member to conduct a marketing
study for compensation of $5,000. This is included in the accrued liabilities at
September 30, 1999.
3. COMMITMENTS AND CONTINGENCIES
In 1999, the Company enterred into an office lease on a month-to-month basis at
a monthly rental rate of $1,500.
4. STOCK OPTION PLAN
In 1999, 150,000 additional stock options were granted to board members at or
above fair market value.
F-19
<PAGE>
PART III
EXHIBITS
INDEX TO EXHIBITS
Exhibit No. Exhibit
- ----------- -------
2.01 Articles of Incorporation, together with all amendments thereto
2.02 Bylaws
3.01 Form of Debenture Purchase Agreement by and among the Company
and purchasers of the Company's 12% Convertible Subordinated
Debentures due 2002
3.02 Form of 12% Convertible Subordinated Debenture Due 2002
3.03 Registration Rights Agreement, dated as of December 31, 1997,
between the Company and Hutchison & Mason PLLC
3.04 Stock Purchase Agreement, dated as of August 1, 1997, by and
among the Company, Li-Pei Wu and William F. Lane (as agent for
certain sellers), together with Addendum to Stock Purchase
Agreement of even date therewith
3.05 Convertible Debenture, dated September 24, 1999, made by the
Company in favor of Centennial Venture Partners, LLC ("CVP")
3.06 Common Stock Purchase Warrant, dated September 24, 1999, made
by the Company in favor of CVP (450,000 shares)
3.07 Common Stock Purchase Warrant, dated September 24, 1999, made
by the Company in favor of CVP (150,000 shares)
3.08 Common Stock Purchase Warrant, dated September 24, 1999, made
by the Company in favor of CVP (200,000 shares)
3.09 Common Stock Purchase Warrant, dated September 24, 1999, made
by the Company in favor of CVP (up to $500,000)
3.10 Investor Rights Agreement, dated as of September 24, 1999, by
and among the Company and certain holders of its capital stock
3.11 Shareholders Agreement, dated September 24, 1999, by and among
the Company and certain shareholders and investors
<PAGE>
6.01 License Agreement, dated October 1, 1999, between the Company
and BrentScott Associates, LLC
6.02 Patent License Agreement, dated July 30, 1997, between the
Company and Information Resource Engineering, Inc.
6.03 License Agreement, dated October 31, 1999, between the Company
and Revolution Labs, Inc. ("Revolution"), together with the
agreement among the Company, Revolution and Protective
Technologies, Inc. ("Protek") regarding the potential purchase
by Protek of Revolution's fields of license
6.04 Agreement, dated March 30, 1999, among Safe Guard Corporation,
Protek, Secure Card International, Inc., International
Biometrics Incorporated, Tele-Guard, Inc. and the Company
6.05 License Agreement dated February 2, 1999 between the Company
and Power^Up Marketing Corporation
6.06 Debenture Purchase Agreement, dated September 24, 1999, between
the Company and certain purchasers
6.07 1999 Stock Option Plan
6.08 Form of Incentive Stock Option Agreement
27.1 Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ID Technologies Corporation
---------------------------
(Registrant)
Date: November 30, 1999 By: /s/ J. Phillips L. Johnston
------------------
J. Phillips L. Johnston
President and CEO
Exhibit 2.01
ARTICLES OF INCORPORATION
Pursuant to Section 55-2-02 of the General Statutes of North Carolina, the
undersigned does hereby submit these Articles of Incorporation for the purpose
of forming a business corporation.
1. The name of the corporation is CardGuard International, Inc.
2. The number of shares the corporation is authorized to issue is five
million (5,000,000).
a. All of one class, designated as common stock
3. The street address and county of the initial registered office of the
corporation is
3020 Pickett Road, Suite 427-784
Durham, North Carolina 27705 Durham County
4. The mailing address of the initial registered office is the same.
5. The name of the initial registered agent is Matthew D. Heller.
6. The corporation adopts the following additional provision:
Pursuant to G.S. 55-2-02(b)(3), and subject only to the
limitations set out therein and elsewhere in North Carolina law, no
Director of CardGuard International Inc. shall incur any personal
liability arising out of an action whether by or in the rights of the
corporation or otherwise for monetary damages for breach of any duty as
Director.
7. The name and address of the incorporator is:
Matthew D. Heller
1012 Burch Avenue
Durham, North Carolina 27701
8. These articles will be effective upon filing.
This the sixteenth day of March, 1994.
/s/ Matthew D. Heller
-------------------------------
Matthew D. Heller, Incorporator
<PAGE>
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
CARDGUARD INTERNATIONAL, INC.
Pursuant to Section 55-10-05 of the North Carolina General Statutes,
the undersigned corporation hereby submits the following Articles of Amendment
for the purpose of amending its Articles of Incorporation:
1. The name of the corporation is CARDGUARD INTERNATIONAL, INC.
2. The following amendment to the Articles of Incorporation of the
corporation was approved by the sole director of the corporation prior
to the issuance of any shares of the authorized capital stock of the
corporation in the manner required by Chapter 55 of the North Carolina
General Statutes on March 17, 1994:
Article 2 shall be deleted in its entirety and the following
substituted in lieu thereof.
"The number of shares the corporation is authorized to issue is
Fifty Million (50,000,000) at no par value per share."
This the 6th day of November, 1996.
CARDGUARD INTERNATIONAL, INC.
By: /s/ William F. Lane
-------------------------
William F. Lane
Sole Director
<PAGE>
ARTICLES OF AMENDMENT OF
ARTICLES OF INCORPORATION
OF
CARDGUARD INTERNATIONAL, INC.
Pursuant to Section 55-10-06 of the North Carolina General Statutes,
the undersigned corporation hereby submits the following Articles of Amendment
for the purpose of amending its Articles of Incorporation:
1. The name of the corporation is CARDGUARD INTERNATIONAL, INC.
2. The following amendment to the Articles of Incorporation of the
corporation were approved by the shareholders of the corporation in the
manner required by Chapter 55 of the North Carolina General Statutes on
December 31, 1996:
Article 6 shall be deleted in its entirety and the following
substituted in lieu thereof.
"No director of the corporation shall have personal
liability arising out of an action whether by or in the right
of the corporation or otherwise for monetary damages for
breach of any duty as a director; provided, however, that the
foregoing shall not limit or eliminate the personal liability
of a director with respect to (i) acts or omissions that such
director at the time of such breach knew or believed were
clearly in conflict with the best interests of the
corporation, (ii) any liability under Section 55-8-33 of the
North Carolina General Statutes or any successor provision,
(iii) any transaction from which such director derived an
improper personal benefit, or (iv) acts or omissions occurring
prior to the date of the effectiveness of this Article. As
used in this Article, the term "improper personal benefit"
does not include a director's reasonable compensation or other
reasonable incidental benefit for or on account of his or her
services as a director, officer, employee, independent
contractor, attorney, or consultant of the corporation.
Furthermore, notwithstanding the foregoing provision,
in the event that Section 55-2-02 or any other provision of
the North Carolina General Statutes is amended or enacted to
permit further limitation or elimination of the personal
liability of the director, the personal liability of the
corporation's directors shall be limited or eliminated to the
fullest extent permitted by the applicable law.
This Article shall not affect a provision permitted
under the North Carolina General Statutes in the articles of
incorporation, bylaws or contract or resolution of the
corporation indemnifying or agreeing to indemnify a director
against personal liability. Any repeal or modification of this
Article shall not adversely affect any limitation hereunder on
the personal liability of the director with respect to acts or
omissions occurring prior to such repeal or modification."
<PAGE>
3. The foregoing amendment does not provide for the exchange,
reclassification or cancellation of any issued shares.
This the 31st day of December, 1996.
CARDGUARD INTERNATIONAL, INC.
By: /s/ William F. Lane
--------------------------
William F. Lane
President
<PAGE>
ARTICLES OF AMENDMENT
OF
CARDGUARD INTERNATIONAL, INC.
The undersigned corporation hereby submits these Articles of Amendment
for the purpose of amending its articles of incorporation:
1. The name of the corporation is CardGuard International, Inc.
2. The following amendment to the articles of incorporation of the
corporation was adopted by its shareholders on the 22nd day of July,
1998, in the manner prescribed by law:
To change the name of the corporation to ID TECHNOLOGIES
CORPORATION
This the 22nd of July, 1998.
CARDGUARD INTERNATIONAL, INC.
By: /s/ William F. Lane
------------------------------
William F. Lane, President and
Chairman of the Board
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ID TECHNOLOGIES CORPORATION
Pursuant to North Carolina General Statutes Section 55-10-06, the
undersigned corporation (the "CORPORATION") hereby submits these Articles of
Amendment for the purpose of amending its Articles of Incorporation:
(1) The name of the Corporation is ID Technologies Corporation.
(2) Article 2 of the Articles of Incorporation of the Corporation is
deleted, and a new Article 2 is adopted, which reads as follows:
"ARTICLE 2
CAPITAL STOCK; PREFERENCES
A. The number of shares the Corporation is authorized to issue
is Fifty Million (50,000,000), of which (i) Forty-Nine Million Seven
Hundred Thousand (49,700,000) shares shall be designated as Common
stock (the "COMMON STOCK"), and (ii) Three Hundred Thousand (300,000)
shares shall be designated as Series A Preferred stock (the "SERIES A
PREFERRED STOCK"). The Series A Preferred Stock is hereinafter
sometimes referred to as the "PREFERRED STOCK." The shares of Common
Stock shall have no par value per share. The shares of Series A
Preferred Stock shall have a par value of $0.001 per share.
B. The preferences, limitations and relative rights relating
to the Common Stock and the Series A Preferred Stock are as set forth
below.
Unless otherwise indicated, all references to sections or
subsections set forth in this Section B of Article 2 are deemed to
refer to sections or subsections within this Section B of Article 2.
1. Dividends.
(a) Dividends on Series A Preferred Stock. The holders of
Series A Preferred Stock shall be entitled to receive out of the assets
of Corporation legally available therefor, dividends when, as and if
declared by the Board of Directors of Corporation.
(b) Dividends On Common Stock. The holders of Common Stock
shall be entitled to receive out of the assets of Corporation legally
available therefor, dividends when, as and if declared by the Board of
Directors of Corporation, PROVIDED, HOWEVER, that no dividend may be
declared or paid by
<PAGE>
Corporation upon any share of Common Stock unless equivalent dividends
are then declared and paid on the Series A Preferred Stock.
2. Liquidation Preference.
(a) Series A Preferred Stock. In the event of any liquidation,
dissolution or winding up of Corporation, either voluntary or
involuntary (the "EVENT"), the holders of the Series A Preferred Stock
shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of Corporation to
the holders of the Common Stock by reason of their ownership thereof,
an amount equal to Two Dollars ($2.00) per share (as adjusted for any
combination, consolidation, stock distributions or stock dividends with
respect to such shares) plus all (or any) accrued but unpaid dividends
on such shares (the "SERIES A LIQUIDATION PREFERENCE"). If upon the
occurrence of such Event, the assets and funds to be distributed among
the holders of the Series A Preferred Stock shall be insufficient to
permit the payment to such holders of the full Series A Liquidation
Preference, then the entire assets and funds of Corporation legally
available for distribution shall be distributed ratably among the
holders of Series A Preferred Stock based upon the number of shares of
Series A Preferred Stock then held by them.
(b) Common Stock. In the event of any Event, and subject to
the payment in full of the Series A Liquidation Preference, the entire
remaining assets and funds of Corporation legally available for
distribution shall be distributed ratably among the holders of Common
Stock based upon the number of shares of Common Stock then held by
them. For purposes of this subparagraph (b), the holders of the Series
A Preferred Stock shall be considered holders of the number of shares
of Common Stock as such holder would be entitled to receive if such
shares of Series A Preferred Stock held by such holder were converted
to Common Stock, as set forth in Section 4 herein.
(c) Consolidation, Merger, etc. A consolidation, merger of
Corporation with or into any other corporation or corporations or other
corporate reorganization in which Corporation is not the surviving
entity (unless the stockholders of Corporation hold in excess of fifty
percent (50%) of the voting power of the surviving corporation after
such merger or reorganization), a transaction or series of related
transactions in which in excess of fifty percent (50%) of Corporation's
voting power is transferred to a third party (or group of affiliated
third parties) who were not previously stockholders of Corporation, or
a sale of all or substantially all of the assets of Corporation (unless
the stockholders of Corporation hold in excess of fifty percent (50%)
of the voting power of the purchasing entity), shall, at the option of
the holders of a majority of the Series A Preferred Stock, be deemed to
be a liquidation, dissolution or winding up within the meaning of this
Section 2, and entitle the holders of Series A Preferred Stock and
Common Stock to receive at the closing thereof in cash, securities
(valued as
<PAGE>
provided in subsection 2(d) hereof) or other property amounts as
specified in subsections 2(a) and 2(b) hereof.
(d) Valuation of Securities. Any securities to be delivered
pursuant to this Section 2 shall be valued as follows:
1. Securities not subject to investment letter or
other similar restrictions on free marketability covered by
subsection 2(d)2 hereof:
(i) If traded on a securities exchange, the
value shall be deemed to be the average of the
closing prices of the securities on such exchange
over the thirty (30)-day period ending three (3)
business days prior to the date of the Notice as
defined in Section 2(e) below;
(ii) If actively traded over-the-counter,
the value shall be deemed to be the average of the
closing bid or sale prices (whichever are applicable)
over the thirty (30)-day period ending three (3) days
prior to the closing; and
(iii) If there is no active public market,
the value shall be the fair market value thereof, as
determined in good faith by either: (a) a majority of
the Board of Directors, which majority shall include
at least one (1) representative of the holders of the
Series A Preferred Stock or (b) if a majority of the
Board cannot reach consensus or the majority of the
Board does not include at least one (1)
representative of the holders of the Series A
Preferred Stock, by an independent appraiser selected
by a majority of the Board of Directors and approved
by at least one (1) representative of the holders of
the Series A Preferred Stock.
2. The method of valuation of securities subject to
investment letter or other restrictions on free marketability
other than restrictions arising solely by virtue of a
stockholder's status as an affiliate or former affiliate shall
be to make an appropriate discount from the market value
determined as provided in clauses (i), (ii) or (iii) of
subsection 2(d)1 hereof, to reflect the adjusted fair market
value thereof.
(e) Notice. Written notice (the "NOTICE") of any such
liquidation, dissolution or winding up (or deemed liquidation,
dissolution or winding up) of Corporation within the meaning of this
Section 2, which states the payment date, the place where said payments
shall be made and the date on which Conversion Rights (as defined in
Section 4 hereof) terminate as to such shares (which shall be not less
than ten (10) days after the date of such Notice), shall be given by
first class mail, postage prepaid, or by telecopy or facsimile, not
less than twenty (20) days prior to the payment date stated therein, to
the then holders of record of
<PAGE>
Series A Preferred Stock and Common Stock, such Notice to be addressed
to each such holder at its address as shown on the records of
Corporation.
3. Voting Rights.
(a) Generally.
(i) Except as otherwise expressly provided herein or
as required by law, the holder of each share of Series A
Preferred Stock shall be entitled to the number of votes equal
to the number of shares of Common Stock into which such share
of Series A Preferred Stock could be converted on the
appropriate record date and shall have voting rights and
powers equal to the voting rights and powers of the Common
Stock (except as otherwise expressly provided herein or as
required by law, voting together with the Common Stock as a
single class) and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of
Corporation. Fractional votes shall not be permitted and any
fractional voting rights resulting from the above formula
(after aggregating all shares of Common Stock into which
shares of Series A Preferred Stock held by each holder could
be converted) shall be rounded to the nearest whole number
(with one-half being rounded upward).
(ii) Each holder of Common Stock shall be entitled to
one vote per share of Common Stock owned by such holder.
(b) Quorum. Except as otherwise required by law, the presence
in person or by proxy of the holders of a majority of the outstanding
shares of Common Stock and Series A Preferred Stock shall constitute a
quorum.
4. Conversion. The holders of Series A Preferred Stock shall have
conversion rights as follows (the "CONVERSION RIGHTS"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share (but prior to the date that
Conversion Rights terminate as set forth in the liquidation Notice
issued pursuant to Section 2(e), if any), at the office of Corporation
or any transfer agent for such stock, into fully paid and nonassessable
shares of Common Stock. The number of shares of Common Stock into which
each share of the Series A Preferred Stock may be converted shall be
determined by dividing the Series A Conversion Value (as hereinafter
defined) by the Series A Conversion Price (determined as hereinafter
provided) in effect at the time of the conversion. For purposes of this
Section 4, the "SERIES A CONVERSION VALUE" is Two Dollars ($2.00) per
share. The "SERIES A CONVERSION PRICE," before any adjustment is
required pursuant to Section 4(d), shall be equal to the Series A
Conversion Value.
<PAGE>
(b) Automatic Conversion. Each share of Series A Preferred
Stock shall automatically be converted into shares of Common Stock at
the then effective applicable Conversion Price immediately upon the
closing of the sale of Corporation's Common Stock in an underwritten
public offering registered under the Securities Act of 1933, as amended
(the "1933 ACT") (other than a registration relating solely to a
transaction under Rule 145 under such Act or any successor rule
thereto) in which (before deduction of underwriter commissions and
selling expenses) the public offering price is equal to or exceeds Five
Dollars ($5.00) per share of Common Stock (subject to adjustment for
stock splits, reverse stock splits and other similar corporate
reorganizations) and the gross proceeds to Corporation equal or exceed
Fifteen Million Dollars ($15,000,000) (hereinafter, a "QUALIFIED PUBLIC
OFFERING").
(c) Mechanics of Voluntary Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into
shares of Common Stock, such holder shall surrender the certificate or
certificates thereof, duly endorsed, at the office of Corporation or of
any transfer agent for such stock, and shall give written notice to
Corporation at such office that it elects to convert the same and shall
state therein the name or names in which it wishes the certificate or
certificates for shares of Common Stock to be issued. Corporation
shall, as soon as practicable thereafter and at its expense, issue and
deliver at such office to such holder a certificate or certificates for
the number of shares of Common Stock to which it shall be entitled as
aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of
the shares of Series A Preferred Stock to be converted, and the person
or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues.
1. Special Definitions. For purposes of this
subsection 4(d), the following definitions apply:
(i) "OPTIONS" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible
Securities, as hereinafter defined.
(ii) "ORIGINAL ISSUE DATE" shall mean the
date on which the first share of Series A Preferred
Stock was first issued.
(iii) "CONVERTIBLE SECURITIES" shall mean
any evidences of indebtedness, shares or other
securities directly or indirectly convertible into or
exchangeable for Common Stock.
<PAGE>
(iv) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Common Stock issued (or,
pursuant to subsection 4(d)3. hereof, deemed to be
issued) by Corporation after the Original Issue Date,
other than shares of Common Stock issued or issuable
at any time:
(1) upon conversion of shares of
Series A Preferred Stock authorized herein;
(2) to directors, officers,
employees, advisors or consultants of
Corporation pursuant to a plan or agreement
approved by the Board of Directors of
Corporation (the "MANAGEMENT OPTION POOL"),
not to exceed One Million Three Hundred
Eighty-Three Thousand One Hundred
Forty-Eight (1,383,148) shares appropriately
adjusted for any stock split, stock dividend
or other recapitalization;
(3) upon conversion of those certain
convertible debentures to be issued by
Corporation on September 24, 1999 in the
aggregate original principal amount of Three
Hundred Thousand Dollars ($300,000) (the
"DEBENTURES");
(4) upon exercise of those certain
Stock Purchase Warrants to be issued by
Corporation to the holders of Debentures on
September 24, 1999 for the purchase of
shares of Common Stock (the "WARRANTS")(the
shares of Common Stock issued or issuable
upon exercise of the Warrants are referred
to herein as the "WARRANT SHARES");
(5) by way of dividend or other
distribution on shares excluded from the
definition of Additional Shares of Common
Stock by the foregoing clauses (1), (2),
(3), (4) or this clause (5).
2. No Adjustment of Conversion Price. No adjustment
in the Conversion Price of a particular share of Series A
Preferred Stock shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per
share for an Additional Share of Common Stock issued or deemed
to be issued by Corporation is less than the respective
Conversion Price in effect on the date of, and immediately
prior to such issue, for such share of Series A Preferred
Stock.
3. Deemed Issue of Additional Shares of Common Stock.
In the event Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a
<PAGE>
record date for the determination of holders of any class of
securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to
any provisions contained therein for a subsequent adjustment
of such number) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issue or,
in case such a record date shall have been fixed, as of the
close of business on such record date. In any such case in
which Additional Shares of Common Stock are deemed to be
issued:
(i) no further adjustments in the respective
Conversion Prices shall be made upon the subsequent
issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion
or exchange of such Convertible Securities;
(ii) if such Options or Convertible
Securities by their terms provide, with the passage
of time or otherwise, for any increase in the
consideration payable to Corporation or decrease in
the number of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the
respective Conversion Prices computed upon the
original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be
recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of
conversion or exchange under such Convertible
Securities (PROVIDED, HOWEVER, that no such
adjustment of the respective Conversion Prices shall
affect Common Stock previously issued upon conversion
of the Series A Preferred Stock);
(iii) upon the expiration of any such
Options or any rights of conversion or exchange under
such Convertible Securities which shall not have been
exercised, the respective Conversion Prices computed
upon the original issue thereof (or upon the
occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:
(1) in the case of Convertible
Securities or Options for Common Stock, the
only Additional Shares of Common Stock
issued were the shares of Common Stock, if
any, actually issued upon the exercise of
such Options or the conversion or exchange
of such Convertible Securities and the
consideration received therefor was the
<PAGE>
consideration actually received by
Corporation for the issue of all such
Options, whether or not exercised, plus the
consideration actually received by
Corporation upon such exercise, or for the
issue of all such Convertible Securities
which were actually converted or exchanged,
plus the additional consideration, if any,
actually received by Corporation upon such
conversion or exchange, and
(2) in the case of Options for
Convertible Securities, only the Convertible
Securities, if any, actually issued upon the
exercise thereof were issued at the time of
issue of such Options and the consideration
received by Corporation for the Additional
Shares of Common Stock deemed to have been
then issued was the consideration actually
received by Corporation for the issue of all
such Options, whether or not exercised, plus
the consideration deemed to have been
received by Corporation (determined pursuant
to subsection 4(d)5. hereof) upon the issue
of the Convertible Securities with respect
to which such Options were actually
exercised;
(iv) no readjustment pursuant to clauses (1)
or (2) above shall have the effect of increasing the
respective Conversion Prices to an amount which
exceeds the lower of (1) such Conversion Price on the
original adjustment date, or (2) such Conversion
Price that would have resulted from any issuance of
Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(v) in the case of any Options which expire
by their terms not more than thirty (30) days after
the date of issue thereof, no adjustment of the
respective Conversion Prices shall be made (except as
to shares of Series A Preferred Stock converted in
such period) until the expiration or exercise of all
such Options, whereupon such adjustment shall be made
in the same manner provided in clause (iii) above;
and
(vi) if any such record date shall have been
fixed and such Options or Convertible Securities are
not issued on the date fixed thereof, the adjustment
previously made in the respective Conversion Prices
which became effective on such record date shall be
canceled as of the close of business on such record
date, and shall instead be made on the actual date of
issuance, if any.
4. Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event Corporation
shall issue
<PAGE>
Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to subsection
4(d)3. hereof) without consideration or for a consideration
per share less than the Series A Conversion Price in effect on
the date of and immediately prior to such issue, then and in
such event, such Series A Conversion Price shall be reduced
concurrently with such issue, to a price (calculated to the
nearest cent) determined by the following formula:
CP' = CP x O + C
-------
O + AS
where:
CP = the Conversion Price prior to
adjustment
CP' = the Conversion Price as so adjusted
O = the number of shares of Common Stock
outstanding immediately prior to such issue (determined on a
fully-diluted basis)
C = the number of shares of Common Stock
which could be purchased at the Conversion Price prior to
adjustment with the aggregate of the consideration received or
deemed to be received by Corporation for the total number of
Additional Shares of Common Stock so issued or deemed to be
issued, and
AS = the number of Additional Shares of
Common Stock so issued or deemed to be issued.
5. Determination of Consideration. For purposes of
this subsection 4(d), the consideration received by
Corporation for the issue of any Additional Shares of Common
Stock shall be computed as follows:
(A) Cash and Property: Such consideration
shall:
(1) insofar as it consists of cash,
be computed at the aggregate amount of cash
received by Corporation excluding amounts
paid or payable for accrued interest or
accrued dividends;
(2) insofar as it consists of
property other than cash, be computed at the
fair value thereof at the time of such
issue, as determined in good faith by the
Board of Directors; and
<PAGE>
(3) in the event Additional Shares
of Common Stock are issued together with
other shares or securities or other assets
of Corporation for consideration which
covers both, be the proportion of such
consideration so received, computed as
provided in clauses (1) and (2) above, as
determined in good faith by the Board of
Directors.
(B) Options and Convertible Securities. The
consideration per share received by Corporation for
Additional Shares of Common Stock deemed to have been
issued pursuant to subsection 4(d)3. relating to
Options and Convertible Securities shall be
determined by dividing:
(1) the total amount, if any,
received or receivable by Corporation as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent
adjustment of such number) payable to
Corporation upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities, or in the case
of Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities, by
(2) the maximum number of shares of
Common Stock (as set forth in the
instruments relating thereto, without regard
to any provision contained therein for a
subsequent adjustment of such number)
issuable upon the exercise of such Options
or the conversion or exchange of such
Convertible Securities.
6. Adjustment for Combinations or Subdivisions of
Common Stock. In the event that Corporation at any time or
from time to time after the Original Issue Date shall declare
or pay any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by stock split,
reclassification or otherwise), or in the event the
outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the respective
Conversion Prices in effect immediately prior to such event
shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate.
<PAGE>
7. No Additional Adjustment Resulting from
Adjustments of Other Instruments. Notwithstanding any
provision hereof, if an adjustment of any Conversion Price is
made pursuant to this Section 4(d) (or any subsection hereof)
and the event causing such adjustment also causes an
adjustment to the purchase price, number of warrant shares or
otherwise under any Warrants or a similar adjustment under any
other instrument to which Corporation is a party, no
additional adjustment under this Section 4(d) shall be made
solely as a result of such adjustment(s) under the Warrants or
such other instrument.
(e) Other Distributions. In the event Corporation shall at any
time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of Corporation or
any of its subsidiaries, other than Additional Shares of Common Stock,
then in each such event provision shall be made so that the holders of
Series A Preferred Stock shall receive, upon the conversion thereof,
the securities of Corporation which they would have received had their
stock been converted into Common Stock on the date of such event.
(f) No Impairment. Corporation shall not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder
by Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking
of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of Series A Preferred
Stock against impairment.
(g) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of a Conversion Price pursuant to this
Section 4, Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and
cause independent public accountants selected by Corporation to verify
such computation and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment
or readjustment is based. Corporation shall, upon the written request
at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a certificate of its chief financial
officer setting forth (i) such adjustments and readjustments, (ii) the
applicable Conversion Price at the time in effect, and (iii) the number
of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of Series A
Preferred Stock.
(h) Notices of Record Date. In the event of any taking by
Corporation of a record of the holders of any class of securities for
the purpose of determining
<PAGE>
the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of retained earnings) or other
distribution, any security or right convertible into or entitling the
holder thereof to receive Additional Shares of Common Stock, or any
right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or and other securities or property, or to receive
any other right, Corporation shall mail to each holder of Series A
Preferred Stock, at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be
taken for the purpose of such dividend, distribution, security or
right, and the amount and character of such dividend, distribution,
security or right.
(i) Issue Taxes. Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series A Preferred
Stock pursuant hereto; PROVIDED, HOWEVER, that Corporation shall not be
obligated to pay any transfer taxes resulting from any transfer
requested by any holder in connection with any such conversion.
(j) Reservation of Stock Issuable Upon Conversion. Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting
the conversion of the shares of Series A Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of Series A
Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Series A Preferred Stock,
Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary
amendment to these Articles of Incorporation.
(k) Fractional Shares. No fractional share shall be issued
upon the conversion of any share or shares of Series A Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A Preferred Stock by a
holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share.
If, after the aforementioned aggregation, the conversion would result
in the issuance of a fraction of a share of Common Stock, Corporation
shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined
in good faith by the Board of Directors).
(l) Adjustments. In case of any reorganization or any
reclassification of the capital stock of Corporation, any consolidation
or merger of Corporation
<PAGE>
with or into another corporation or corporations or the conveyance of
all or substantially all of the assets of Corporation to another
corporation, each share of Series A Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or
property (including cash) to which a holder of the number of shares of
Common Stock deliverable upon conversion of such share of Series A
Preferred Stock would have been entitled upon the record date of (or
date of, if no record date is fixed) such reorganization,
reclassification, consolidation, merger or conveyance; and, in any
case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of
such Series A Preferred Stock, to the end that the provisions set forth
herein shall thereafter be applicable, as nearly as equivalent as is
practicable, in relation to any shares of stock or the securities or
property (including cash) thereafter deliverable upon the conversion of
the shares of Series A Preferred Stock.
(m) Satisfaction of Accrued But Unpaid Dividends. Prior to
converting any shares of Series A Preferred Stock into Common Stock as
provided herein, the holder thereof shall be entitled to receive
payment in satisfaction of all accrued but unpaid dividends thereon as
provided in Section 1(a).
(n) Notices. Any notice required by the provisions of this
Section 4 to be given to the holders of shares of Series A Preferred
Stock shall be deemed given upon confirmed transmission by facsimile or
telecopy or five days after deposit in the United States mail, first
class postage prepaid, and addressed to each holder of record at its
address appearing on the books of Corporation. Notwithstanding the
foregoing, if a stockholder to whom notice is to be given has an
address of record which is outside of the United States, then any
notice to such stockholder under this subsection 4(n) shall be deemed
given upon confirmed transmission by facsimile or telecopy or ten days
after deposit in the United States mail, first class postage prepaid,
and addressed to such holder at its address appearing on the books of
Corporation.
5. Redemption.
(a) Optional Redemption. In the event that holders of at least
fifty percent (50%) of the outstanding shares of Series A Preferred
Stock, voting together as a single group on an as-converted basis,
request in writing on or after the fifth (5th) anniversary of the
Original Issue Date (as that term is defined in subsection 4(d)1.(ii)
hereof) that their shares of Series A Preferred Stock be redeemed (the
"REDEMPTION REQUEST"), Corporation shall, on a date within ninety (90)
days of the Redemption Request (the "REDEMPTION DATE") commence the
redemption of such number of shares of the Series A Preferred Stock as
are specified in the Redemption Request, with any partial redemption of
Series A Preferred Stock to be pro rata among the holders of Series A
Preferred Stock. The Series A Preferred Stock shall have a redemption
price for each share equal to the
<PAGE>
greater of (i) the fair market value of the Series A Preferred Stock
(valued in accordance with Section 2(d) hereof) plus all accrued but
unpaid dividends, or (ii) the Series A Liquidation Preference (the
"REDEMPTION PRICE").
(b) Notice of Redemption. Corporation shall send to each
holder of Series A Preferred Stock notice (the "REDEMPTION NOTICE") at
least twenty (20) days prior to the Redemption Date, which shall
specify the Redemption Date as to such shares.
(c) Payment. Corporation shall redeem such shares by paying
the holders of the Series A Preferred Stock an amount equal to the
Redemption Price, plus accrued interest thereon from the Redemption
Date at the rate of eight percent (8%) per annum, in equal monthly
installments over the thirty-six (36) months following the Redemption
Date. Such payments shall be made out of funds legally available for
redemption of Series A Preferred Stock, as determined by Corporation's
independent auditors. The holders of the shares of Series A Preferred
Stock shall remain shareholders with respect to such shares, and shall
retain all rights as a shareholder (including without limitation
Conversion Rights), until payment in full of the Redemption Price and
accrued interest with respect thereto. Upon payment of the Redemption
Price for a share of Series A Preferred Stock, and accrued interest
with respect thereto, the holder of the share of Series A Preferred
Stock shall surrender its certificate for such share of Series A
Preferred Stock, and all rights with respect to such share shall
terminate, whether or not said certificate have been surrendered.
6. Right of First Participation.
(a) Pro Rata Right. Corporation hereby grants to each holder
of Series A Preferred Stock or Debentures (each hereinafter referred to
in this Section 6 as "HOLDER"), the right of participation to purchase
up to its pro rata share of all New Securities (as defined in Section 6
(b) hereof) which Corporation may, from time to time, propose to sell
and issue. A Holder's pro rata share, for purposes of this right of
participation, is the ratio (A) the numerator of which is the number of
shares of Common Stock held by such Holder or issuable to such Holder
upon the conversion of Debentures and/or Series A Preferred Stock as of
the date of Corporation's written notice pursuant to Section 6 (c)
hereof, and (B) the denominator of which is the number of shares of
Common Stock outstanding on a fully diluted basis. Each Holder shall
have a right of over-allotment such that if any Holder fails to
exercise its right hereunder to purchase its pro rata share of New
Securities, the other Holders may purchase the non-purchasing Holder's
portion on a pro rata basis within five (5) days from the date such
non-purchasing Holder fails to exercise its right. This right of
participation shall be PARI PASSU with any right of participation
granted by Corporation to any other person or entity prior to September
24, 1999. This right of participation shall be subject to the following
provisions of this Section 6.
<PAGE>
(b) New Securities. "NEW SECURITIES" shall mean any capital
stock of Corporation, whether now authorized or not, and rights,
options or warrants to purchase capital stock, and securities of any
type whatsoever that are, or may become, convertible into capital
stock; provided that the term "New Securities" does not include (i) the
sale by Corporation of Debentures in an aggregate original principal
amount of Three Hundred Thousand Dollars ($300,000.00); (ii) securities
(including Series A Stock or any other series of Preferred Stock)
issuable upon conversion of or with respect to such Debentures
described in item (i) above; (iii) securities issuable upon conversion
of or with respect to Series A Preferred Stock or any other series of
Preferred Stock; (iv) securities issued pursuant to the acquisition of
another corporation by Corporation by merger, purchase of substantially
all the assets or other reorganization whereby Corporation owns more
than fifty percent (50%) of the voting power of such corporation; (v)
up to One Million Three Hundred Eighty-Three Thousand One Hundred
Forty-Eight (1,383,148) shares appropriately adjusted for any stock
split, stock dividend or other recapitalization issued pursuant to the
Management Option Pool (as defined in subsection 4(d)1.(iv)(2) hereof);
(vi) securities issued pursuant to any stock dividend, stock split,
combination or other reclassification by Corporation of any of its
capital stock; or (vii) securities issued upon exercise of the
Warrants.
(c) Required Notices. In the event Corporation proposes to
undertake an issuance of New Securities, it shall give each Holder
written notice of its intention, describing the type of New Securities,
the price and the general terms upon which Corporation proposes to
issue the same. Each such Holder shall have forty-five (45) days from
the date of receipt of any such notice to agree to purchase the
Holder's pro rata share of such New Securities for the price and upon
the general terms specified in the notice by giving written notice to
Corporation and stating therein the quantity of New Securities to be
purchased.
(d) Corporation's Right to Sell. In the event the Holders fail
to exercise the right of participation as to all New Securities offered
within said forty-five (45)-day period and after expiration of the five
(5)-day period for exercise of the over-allotment provisions of this
Section 6, Corporation shall have one hundred eighty (180) days
thereafter to sell all such New Securities respecting which such
Holder's right of participation hereunder was not exercised, at a price
and upon general terms no more favorable in any material respect to the
purchasers thereof than specified in Corporation's notice. In the event
Corporation has not sold all such New Securities within said one
hundred eighty (180)-day period, Corporation shall not thereafter issue
or sell any New Securities, without first offering such securities to
the Holders in the manner provided herein.
(e) Expiration of Right. The right of participation granted
under this Section 6 shall not apply to, and shall expire upon, the
closing of a Qualified Public Offering.
<PAGE>
(f) Assignment. The right of participation set forth in this
Section 6 is nonassignable, except that (a) such right is assignable by
each Holder to any wholly-owned subsidiary or parent of, or to any
corporation, entity or other person which is, within the meaning of the
1933 Act, controlling, controlled by or under common control with, such
Holder, (b) such right is assignable between and among any of such
Holders, and (c) such right is assignable in any Permitted Transfer (as
hereinafter defined) by a Holder. A "PERMITTED TRANSFER" shall mean:
(i) a transaction not involving a change in beneficial ownership; (ii)
transactions involving distribution without consideration by a
partnership to any of its partners, retired partners, or to the estate
of any of its partners, or by a limited liability company to any of its
members, retired members or to the estate of any of its members; (iii)
transfers by an individual to a trust for the benefit of such
individual or his family; (iv) transfers by gift, will or intestate
succession to the spouse, lineal descendants or ancestors of any Holder
or spouse of a Holder; or (v) transfers in connection with any transfer
of shares of Registrable Securities.
7. Board Members; Restrictions and Limitations Set Forth In
Investor Rights Agreement.
Until the closing of a Qualified Public Offering, for as long
as there remain outstanding any Debentures or any principal, accrued
interest or other amounts owed thereunder, or at least Fifty Thousand
(50,000) shares of Series A Preferred Stock or Common Stock issued upon
conversion thereof (as adjusted for any combination, consolidation,
stock distribution or stock dividend with respect to such shares), or
at least Two Hundred Sixty-Six Thousand Six Hundred Sixty-Seven
(266,667) Warrant Shares (as adjusted for any combination,
consolidation, stock distribution or stock dividend with respect to
such shares):
(a) Board Membership. The authorized number of members of the
Board of Directors of Corporation shall be five (5), to be nominated
and elected as provided in the Investor Rights Agreement to be entered
into between Corporation and all of its shareholders, dated September
24, 1999, as amended from time-to-time (the "INVESTOR RIGHTS
AGREEMENT").
(b) Restrictions on Sale of Assets, Mergers, Dissolution, Etc.
Corporation shall be subject to the restrictions on sale of assets,
mergers, dissolution, reorganization, issuance of additional shares of
stock, indebtedness, investments and other restrictions set forth in
Section 3.3 of the Investor Rights Agreement, such restrictions being
incorporated herein by this reference.
8. No Reissuance of Preferred Stock.
No share or shares of Preferred Stock acquired by Corporation
by reason of redemption, purchase, conversion or otherwise shall be
reissued as shares of
<PAGE>
Preferred Stock. All such shares shall be canceled and shall not be
held as treasury shares.
(3) The amendments do not provide for the exchange,
reclassification, or cancellation of issued shares.
(4) Shareholder approval of the amendments was obtained as
required by Chapter 55 of the General Statutes of North Carolina.
(5) The date of adoption of each amendment was the 23rd day of
August, 1999.
(6) These Articles will be effective upon filing.
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This the 17th day of September, 1999.
ID TECHNOLOGIES CORPORATION
By: /s/ J. Phillips L. Johnston
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J. Phillips L. Johnston, President
Exhibit 2.02
BYLAWS
OF
CARDGUARD INTERNATIONAL, INC.
ARTICLE I
OFFICES
1. Principal Office. The principal office of the Corporation shall be
located in Wilson County, North Carolina or such other place as is designated by
the Board of Directors.
2. Registered Office. The registered office of the Corporation required
by law to be maintained in the State of North Carolina may be, but need not be,
identical with the principal office.
3. Other Offices. The Corporation may have offices at such other
places, either within or without the State of North Carolina, as the Board of
Directors may from time to time determine or as the affairs of the Corporation
may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
1. Place of Meetings. All meetings of shareholders shall be held at the
principal office of the Corporation or at such other place, either within or
without the State of North Carolina, as shall be designated in the notice of the
meeting or agreed upon by the Board of Directors.
2. Annual Meeting. The annual meeting of the shareholders shall be held
at the principal office of the Corporation or at such other place, either within
or without the State of North Carolina, during the month of March of each year,
on any day in that month (except Saturday, Sunday or a legal holiday) and at
such time as is determined by the Board of Directors, for the purpose of
electing Directors of the Corporation and for the transaction of such other
business as may be properly brought before the meeting.
3. Substitute Annual Meeting. If the annual meeting shall not be held
on the day designated by these Bylaws, a substitute annual meeting may be called
in accordance with the provisions of Paragraph 4 of this Article II. A meeting
so called shall be designated and treated for all purposes as the annual
meeting.
4. Special Meetings. Special meetings of the shareholders may be called
at any time by the President, the Secretary or the Board of Directors of the
Corporation, or shall be called pursuant to the written request of the holders
of not less than one-tenth of all the votes entitled to be cast on any issue
proposed to be considered at the meeting.
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5. Notice of Meetings.
(a) Oral or written notice stating the time and place of the
meeting shall be delivered not less than ten (10) nor more than sixty (60) days
before the date thereof, either personally or by telephone, telegraph, teletype
or other form of wire or wireless communication, or by facsimile transmission,
mail or by private carrier, or by any other means permitted by law, by or at the
direction of the Board of Directors, President, Secretary or other person
calling the meeting, to each shareholder of record entitled to vote at such
meeting, provided that such notice must be given to all shareholders, including
nonvoting shareholders, with respect to any meeting at which a merger, share
exchange, sale of assets other than in the regular course of business, or
voluntary dissolution is to be considered and in such other instances as
required by law. Oral notice shall be effective when communicated to the
shareholder entitled to such notice. If mailed, such notice shall be deemed to
be delivered when deposited in the United States mail addressed to the
shareholder at his address as it appears on the record of shareholders of the
Corporation, with postage thereon prepaid.
(b) In the case of an annual or substitute annual meeting, the
notice of meeting need not specifically state the business to be transacted
thereat unless it is a matter, other than election of Directors, on which the
vote of the shareholders is expressly required by the provisions of the North
Carolina Business Corporation Act or notice of such purpose is otherwise
required by law to be provided. In the case of a special meeting, the notice of
meeting shall specifically state the purpose or purposes for which the meeting
is called.
(c) When a meeting is adjourned for more than one hundred
twenty (120) days or a new record date is or must be fixed as required by law,
notice of the adjourned meeting shall be given as in the case of an original
meeting. When a meeting is adjourned for one hundred twenty (120) days or less
in any one adjournment, it shall not be necessary to give any notice of the new
date, time and place of the adjourned meeting or of the business to be
transacted thereat other than by announcement at the meeting at which the
adjournment is taken.
(d) A shareholder in a signed writing may waive notice of any
meeting before or after the date and time stated in the notice by delivering
such waiver to the Corporation for inclusion in the minutes. Attendance by a
shareholder at a meeting constitutes a waiver of notice of such meeting, unless
at the beginning of the meeting the shareholder objects to holding the meeting
or transacting business at the meeting, or objects to considering a matter not
within the purpose or purposes described in the meeting notice before it is
voted on.
6. Shareholders List. After fixing the record date for a meeting, the
Secretary of the Corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting or any adjournment thereof,
arranged by voting group, class and series, with the address of and number of
shares held by each. Such list shall be kept on file at the principal office of
the Corporation, or at a place identified in the meeting notice in the city
where the meeting will be held, beginning two (2) business days after notice of
such meeting is given and continuing through the meeting, and on written demand
shall be subject to inspection or copying by any shareholder, his agent or
attorney at any time during regular business hours. This list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to inspection by any shareholder, his agent or attorney during the entire time
of the meeting.
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7. Quorum.
(a) Unless otherwise provided by law, a majority of the votes
entitled to be cast on a matter by a separate voting group shall constitute a
quorum of such voting group on that matter at a meeting of shareholders. A
separate voting group may only take action on a matter at a meeting if a quorum
of those shares are present with respect to that matter. In the absence of a
quorum at the opening of any meeting of shareholders, such meeting may be
adjourned from time to time by the vote of a majority of the shares voting on
the motion to adjourn, but no other business may be transacted until and unless
a quorum is present. When a quorum is present at any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting. If a quorum is present at the original meeting, a quorum need not be
present at an adjourned meeting to transact business.
(b) At a meeting at which a quorum is present, a separate
voting group may continue to do business until adjournment, notwithstanding the
withdrawal of sufficient shareholders to leave less than a quorum of the
separate voting group.
8. Voting of Shares and Voting Groups.
(a) Except as otherwise provided by the Articles of
Incorporation or by law, each outstanding share having voting rights shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. All shares entitled to vote and be counted together collectively
on a matter as provided by the Articles of Incorporation or by the North
Carolina Business Corporation Act shall constitute a single voting group.
Additional required voting groups shall be determined in accordance with the
Articles of Incorporation, the Bylaws and the North Carolina Business
Corporation Act.
(b) Except in the election of Directors, at a shareholder
meeting duly held and at which a quorum is present, action on a matter by a
voting group shall be approved if the votes cast within the voting group
favoring the action exceed the votes cast opposing the action, unless the vote
by a greater number is required by law or by the Articles of Incorporation or
Bylaws of the Corporation. For such actions, abstentions shall not be treated as
negative votes. Corporate action on such matters shall be taken only when
approved by each and every voting group entitled to vote as a separate voting
group on such matter as provided by the Articles of Incorporation or Bylaws or
by the North Carolina Business Corporation Act.
(c) Voting on all matters except the election of Directors
shall be by voice vote or by a show of hands unless the holders of one-tenth of
the shares represented at the meeting shall, prior to the voting on any matter,
demand a ballot vote on that particular matter.
(d) Shares of the Corporation shall not be entitled to vote if
they are owned, directly or indirectly, by another corporation in which the
Corporation owns, directly or indirectly, a majority of the shares entitled to
vote for directors of the second corporation; provided that this provision does
not limit the power of the Corporation to vote its own shares held by it in a
fiduciary capacity.
9. Proxies. Shares may be voted either in person or by one or more
agents authorized by a written proxy executed by the shareholder or by his duly
authorized attorney-in-
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fact. A proxy shall not be valid after the expiration of eleven (11) months from
the date of its execution, unless the person executing it specifies therein the
length of time for which it is to continue in force, or limits its use to a
particular meeting. Any proxy shall be revocable by the shareholder unless the
written appointment expressly and conspicuously provides that it is irrevocable
and the appointment is coupled with an interest as required by law.
10. Inspectors of Election.
(a) Appointment of Inspectors of Election. In advance of any
meeting of shareholders, the Board of Directors may appoint any persons, other
than nominees for office, as inspectors of election to act at such meeting or
any adjournment thereof. If inspectors of election are not so appointed, the
chairman of any such meeting may appoint inspectors of election at the meeting.
The number of inspectors shall be either one or three. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the meeting
or at the meeting by the person acting as chairman.
(b) Duties of Inspectors. The inspectors of election shall
determine the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes, ballots or consents, hear and
determine all challenges and questions in any way arising in connection with the
right to vote, count and tabulate all votes or consents, determine the result
and do such acts as may be proper to conduct the election or vote with fairness
to all shareholders. The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as
is practical.
(c) Vote of Inspectors. If there are three inspectors of
election, the decision, act or certificate of a majority shall be effective in
all respects as the decision, act or certificate of all.
(d) Report of Inspectors. On request of the chairman of the
meeting, the inspectors shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
fact found by them. Any report or certificate made by them shall be a prima
facie evidence of the facts stated therein.
11. Informal Action by Shareholders. Any action which is required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the persons who would be entitled to vote upon such action at a
meeting and filed with the Secretary of the Corporation to be kept in the
corporate minute book, whether done before or after the action so taken. Such
consent shall have the same force and effect as a unanimous vote of
shareholders. Any shareholder may retract his consent until the last shareholder
entitled to vote has signed the appropriate written consent and all consents
have been delivered to the Secretary of the Corporation. When notice of a
proposed action is required to be given to nonvoting shareholders as provided in
Paragraph 5(a) of Article H of these Bylaws, the Corporation shall give the
nonvoting shareholders notice at least ten (10) days before action is taken in
lieu of a meeting by unanimous consent of the voting shareholders. Such notice
to nonvoting shareholders shall contain or be accompanied by any
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material that would have been required to be sent to the nonvoting shareholders
in a notice of meeting at which the proposed action would have been submitted to
the shareholders for action.
ARTICLE III
DIRECTORS
1. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed by, the Board of Directors or by such committees as the Board of
Directors may establish pursuant to these Bylaws.
2. Number, Term and Qualification. The number of Directors of the
Corporation shall be not less than one (1) nor more than seven (7) as may be
fixed or changed from time to time, within the minimum and maximum, by the
shareholders or by the Board of Directors. Each Director shall hold office until
his death, resignation, retirement, removal, disqualification or his successor
is elected and qualifies. Directors need not be residents of the State of North
Carolina or shareholders of the Corporation.
3. Election of Directors. Except as provided in Paragraph 5 of this
Article III, Directors shall be elected at the annual meeting of shareholders;
and those persons who receive the highest number of votes at a meeting at which
a quorum is present shall be deemed to have been elected. If any shareholder so
demands, election of Directors shall be by ballot.
4. Removal. Directors may be removed from office with or without cause
by a vote of shareholders holding a majority of the outstanding shares entitled
to vote at an election of Directors provided the notice of the shareholders'
meeting at which such action is to be taken states that a purpose of the meeting
is removal of the director and the number of votes cast to remove the Director
exceeds the number of votes cast not to remove him. If a director is elected by
a voting group of shareholders, only the shareholders of that voting group may
participate in the vote to remove him. If any Directors are so removed, new
Directors may be elected at the same meeting.
5. Vacancies. A vacancy occurring in the Board of Directors, including,
without limitation, a vacancy created by an increase in the authorized number of
Directors or resulting from the shareholders' failure to elect the full
authorized number of Directors, may be filled by the Board of Directors or if
the Directors remaining in office constitute less than a quorum of the
Directors, they may fill the vacancy by the affirmative vote of a majority of
all remaining Directors or by the sole remaining Director. If the vacant office
was held by a Director elected by a voting group, only the remaining Director or
Directors elected by that voting group or the holders of shares of that voting
group are entitled to fill the vacancy. A Director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office. The
shareholders may elect a Director at any time to fill any vacancy not filled by
the Directors.
6. Chairman. There may be a Chairman of the Board of Directors elected
by the Directors from their number at any meeting of the Board of Directors. The
Chairman shall preside at all meetings of the Board of Directors and of
shareholders and perform such other duties as may be directed by the Board of
Directors. Until a Chairman of the Board of Directors
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is elected, the President of the Corporation shall preside at the meetings of
the Board of Directors and shareholders.
7. Compensation. The Board of Directors may provide for the
compensation of Directors for their services as such and may provide for the
payment of any and all expenses incurred by the Directors in connection with
such services.
8. Executive and Other Committees.
(a) The Board of Directors, by resolution adopted by a
majority of the number of Directors then in office, may designate from among its
members an Executive Committee and one or more other committees, each consisting
of two or more Directors and each of which, to the extent authorized by law or
provided in the resolution, shall have and may exercise all of the authority of
the Board of Directors, except no such committee shall have authority as to the
following matters: (1) the dissolution, merger or consolidation of the
Corporation; or the sale, lease or exchange of all or substantially all of the
property of the Corporation; (2) the designation of any such committee or the
filling of vacancies in the Board of Directors or in any such committee; (3)
distributions, reacquisitions of shares or issuance or sale of shares, except as
provided by the North Carolina Business Corporation Act; (4) the adoption or
repeal of the Bylaws or the amendment of the Bylaws or the Articles of
Incorporation; and (5) the amendment or repeal of any resolution of the Board of
Directors which by its terms shall not be so amendable or repealable.
(b) Any resolutions adopted or other action taken by any such
committee within the scope of the authority delegated to it by the Board of
Directors shall be deemed for all purposes to be adopted or taken by the Board
of Directors. The designation of any committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility or liability imposed upon it or him by law.
(c) Regular meetings of any such committee may be held without
notice at such time and place as such committee may fix from time to time by
resolution. Special meetings of any such committee may be called by any member
thereof upon not less than one day's notice stating the place, date and hour of
such meeting, which notice may be written or oral and if mailed, shall be deemed
to be delivered when deposited in the United States mail addressed to any member
of the committee at his business address. Any member of any committee may in a
signed writing waive notice of any meeting and no notice of any meeting need be
given to any member thereof who attends in person. The notice of a meeting of
any committee need not state the business proposed to be transacted at the
meeting.
(d) A majority of the members of any such committee shall
constitute a quorum for the transaction of business at any meeting thereof and
actions of such committee must be authorized by the affirmative vote of a
majority of the members of such committee.
(e) Any member of any such committee may be removed at any
time with or without cause by resolution adopted by a majority of the Board of
Directors.
(f) Any such committee shall elect a presiding officer from
among its members and may fix its own rules of procedure which shall not be
inconsistent with these
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Bylaws. It shall keep regular minutes of its proceedings and report the same to
the Board of Directors for its information at the meeting thereof held next
after the proceedings shall have been taken.
ARTICLE IV
MEETINGS OF DIRECTORS
1. Regular Meetings. A regular meeting of the Board of Directors shall
be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
2. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board (if one has been duly
elected), the President or any two Directors. Such meetings may be held either
within or without the State of North Carolina.
3. Notice of Meetings.
(a) Regular meetings of the Board of Directors may be held
without notice.
(b) The person or persons calling a special meeting of the
Board of Directors shall, at least two (2) days before the meeting, give notice
thereof either personally or by telephone, telegraph, teletype or other form of
wire or wireless communication or by facsimile transmission, mail or private
carrier or by any other means permitted by law. Such notice need not specify the
business to be transacted at, or the purpose of, the meeting that is called.
Notice of an adjourned meeting need not be given if the time and place are fixed
at the meeting adjourning and if the period of adjournment does not exceed ten
(10) days in any one adjournment.
(c) A Director, in a signed writing, may waive notice of any
meeting before or after the date and time stated in the notice. Attendance by a
Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened and does not vote for or assent to action taken at the meeting.
4. Quorum. A majority of the Directors in office immediately before the
meeting shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors.
5. Manner of Acting.
(a) Except as otherwise provided in this paragraph, the act of
a majority of the Directors then in office shall be the act of the Board of
Directors, unless a greater number is required by law, the Articles of
Incorporation or a Bylaw adopted by the shareholders.
(b) A Director who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his contrary vote is recorded or his
dissent is otherwise entered in the minutes of the
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meeting or unless he shall file his written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right of
dissent shall not apply to a Director who voted in favor of such action.
(c) The vote of a majority of the number of Directors then in
office shall be required to adopt a resolution constituting an Executive
Committee or other committee of the Board of Directors. The vote of a majority
of the Directors then holding office shall be required to adopt, amend or repeal
a Bylaw or to adopt a resolution dissolving the Corporation without action by
the shareholders in circumstances authorized by law. Vacancies in the Board of
Directors may be filled as provided in Paragraph 5 of Article III of these
Bylaws.
6. Informal Action by Directors. Action taken by the Directors or
members of a committee of the Board of Directors without a meeting is
nevertheless Board or committee action if written consent to the action in
question is signed by all of the Directors or members of the committee, as the
case may be, and filed with the minutes of the proceedings of the Board of
Directors or committee, whether done before or after the action so taken. Such
action will become effective when the last Director or committee member signs
the consent, unless the consent specifies a different date. Such consent will
have the same force and effect as a unanimous vote of the Board of Directors or
the committee, as the case may be.
7. Attendance by Telephone. Any one or more Directors or members of a
committee may participate in a meeting of the Board of Directors or committee by
means of a conference telephone or similar communications device which allows
all persons participating in the meeting to hear each other simultaneously, and
such participation in the meeting shall be deemed presence in person at such
meeting.
ARTICLE V
OFFICERS
1. Number. The officers of the Corporation shall consist of a
President, a Secretary, a Treasurer and such Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers as the Board of Directors
may from time to time appoint. Any two or more offices, other than that of
President and Secretary, may be held by the same person. In no event, however,
may an officer act in more than one capacity where action of two or more
officers is required.
2. Appointment and Term. The officers of the Corporation shall be
appointed by the Board of Directors. Such appointment may be held at any regular
or special meeting of the Board of Directors. Each officer shall hold office
until his death, resignation, retirement, removal, disqualification, or his
successor is appointed and qualifies.
3. Removal. Any officer or agent appointed by the Board of Directors
may be removed by the Board with or without cause; but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
4. Compensation. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors.
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5. President. The President shall be the chief executive officer of the
Corporation and, subject to the control of the Board of Directors, shall
supervise and control the of the Corporation in accordance with these Bylaws. He
shall, in the absence of a Chairman of the Board of Directors, preside at all
meetings of the Board of Directors and shareholders. He shall sign, with any
other proper officer, certificates for shares of the Corporation and any deeds,
mortgages, bonds, contracts, or other instruments which may be lawfully executed
on behalf of the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution thereof
shall be delegated by the Board of Directors to some other officer or agent;
and, in general, he shall perform all duties incident to the office of President
and such other duties as may be, prescribed by the Board of Directors from time
to time.
6. Vice Presidents. The Vice Presidents, in the order of their
appointment, unless otherwise determined by the Board of Directors, shall, in
the absence or disability of the President, perform the duties and exercise the
powers of that office. In addition, they shall perform such other duties and
have such other powers as the President or the Board of Directors shall
prescribe.
7. Secretary. The Secretary shall keep accurate records of the acts and
proceedings of all meetings of shareholders, Directors and committees. He shall
give all notices required by law and by these Bylaws. He shall have general
charge of the corporate books and records and of the corporate seal, and he
shall affix the corporate seal to any lawfully executed instrument requiring it.
He shall have general charge of the stock transfer books of the Corporation and
shall keep, at the registered or principal office of the Corporation, a record
of shareholders showing the name and address of each shareholder and the number
and class of the shares held by each. He shall sign such instruments as may
require his signature, and, in general, attest the signature or certify the
incumbency or signature of any other officer of the Corporation and shall
perform all duties incident to the office of Secretary and such other duties as
may be assigned him from time to time by the President or by the Board of
Directors.
8. Treasurer. The Treasurer shall have custody of all funds and
securities belonging to the Corporation and shall receive, deposit or disburse
the same under the direction of the Board of Directors. He shall keep full and
accurate accounts of the finances of the Corporation in books especially
provided for that purpose, which may be consolidated or combined statements of
the Corporation and one or more of its subsidiaries as appropriate, that include
a balance sheet as of the end of the fiscal year, an income statement for that
year, and a statement of cash flows for the year unless that information appears
elsewhere in the financial statements. If financial statements are prepared for
the Corporation on the basis of generally accepted accounting principles, the
annual financial statements must also be prepared on that basis. The Corporation
shall mail the annual financial statements, or a written notice of their
availability, to each shareholder within one hundred twenty (120) days of the
close of each fiscal year. The Treasurer shall, in general, perform all duties
incident to his office and such other duties as may be assigned to him from time
to time by the President or by the Board of Directors.
9. Assistant Secretaries and Treasurers. The Assistant Secretaries and
Assistant Treasurers shall, in the absence or disability of the Secretary or the
Treasurer, perform the respective duties and exercise the respective powers of
those offices, and they shall, in general,
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perform such other duties as shall be assigned to them by the Secretary or the
Treasurer, respectively, or by the President or by the Board of Directors.
10. Controller and Assistant Controllers. The Controller, if one has
been appointed, shall have charge of the accounting affairs of the Corporation
and shall have such other powers and perform such other duties as the Board of
Directors shall designate. Each Assistant Controller shall have such powers and
perform such duties as may be assigned by the Board of Directors, and the
Assistant Controllers shall exercise the powers of the Controller during that
officer's absence or inability to act.
11. Bonds. The Board of Directors, by resolution, may require any or
all officers, agents and employees of the Corporation to give bond to the
Corporation, with sufficient sureties, conditioned on the faithful performance
of the duties of their respective offices or positions, and to comply with such
other conditions as may from time to time be required by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS AND DEPOSITS
1. Contracts. The Board of Directors may authorize any officer or
officers, or agent or agents, to enter into any contract or execute and deliver
any instrument on behalf of the Corporation, and such authority may be general
or confined to specific instances.
2. Loans. No loans shall be contracted on behalf of the Corporation and
no evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Board of Directors. Such authority may be general or confined
to specific instances.
3. Checks and Drafts. All checks, drafts or other orders for the
payment of money issued in the name of the Corporation shall be signed by such
officer or officers, or agent or agents, of the Corporation and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
4. Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such
depository or depositories as the Board of Directors shall direct.
ARTICLE VII
CERTIFICATES FOR SHARES AND OTHER TRANSFER
1. Certificates for Shares. If shares of the Corporation are
represented by certificates, in such form as required by law and as determined
by the Board of Directors, such certificates shall be issued to every
shareholder for the fully paid shares owned by him. These certificates shall be
signed by the President or any Vice President or a person who has been
designated as the chief executive officer of the Corporation and by the
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer and may be
sealed with the seal of the Corporation or a facsimile thereof. The signatures
of any such officers upon a certificate may be facsimiles or may be engraved or
printed. In case any officer who has signed or whose facsimile or other
signature has been placed upon such certificate shall have ceased to be such
officer before such
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certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of its issue. The certificates shall be
consecutively numbered or otherwise identified; and the name and address of the
persons to whom they are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the Corporation.
2. Transfer of Shares. Transfer of shares shall be made on the stock
transfer books of the Corporation only upon surrender of the certificates for
the shares sought to be transferred by the record holder thereof or by his duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued.
3. Transfer Agent and Registrar. The Board of Directors may appoint one
or more transfer agents and one or more registrars of transfer and may require
all stock certificates to be signed or countersigned by the transfer agent and
registered by the registrar of transfers.
4. Restrictions on Transfer. If the Corporation has elected Subchapter
S status under Section 1362 of the Internal Revenue Code of 1986, as amended, no
shareholder or involuntary transferee shall dispose of or transfer any shares of
the Corporation which he now owns or may hereafter acquire if such disposition
or transfer would result in termination of such Subchapter S status, unless such
disposition or transfer is consented to by all the shareholders of the
Corporation. Any such disposition or transfer that does not comply with the
terms of this paragraph shall be void and have no legal force or effect and
shall not be recognized on the share transfer books of the Corporation as
effective.
5. Record Date.
(a) For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof
or entitled to receive payment of any dividend or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case not to be more than seventy
(70) days before the meeting or action requiring a determination of
shareholders.
(b) If no record date is fixed by the Board of Directors for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders or of shareholders entitled to receive payment of a dividend,
the date on which notice of the meeting is mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
(c) When a determination of shareholders entitled to vote at
any meeting of shareholders has been made as provided in this paragraph, such
determination shall apply to any adjournment thereof unless the Board of
Directors fixes a new record date, which it shall do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting.
6. Lost Certificates. The Board of Directors may authorize the issuance
of a new share certificate in place of a certificate claimed to have been lost
or destroyed, upon receipt of an affidavit of such fact from the person claiming
the loss or destruction. When authorizing such
<PAGE>
issuance of a new certificate, the Board of Directors may require the claimant
to give the Corporation a bond in such sum as it may direct to indemnify the
Corporation against loss from any claim with respect to the certificate claimed
to have been lost or destroyed; or the Board of Directors may, by resolution
reciting that the circumstances justify such action, authorize the issuance of
the new certificate without requiring such a bond.
7. Holder of Record. Except as otherwise required by law, the
Corporation may treat the person in whose name the shares stand of record on its
books as the absolute owner of the shares and the person exclusively entitled to
receive notification and distributions, to vote and to otherwise exercise the
rights, powers and privileges of ownership of such shares.
8. Shares held by Nominees.
(a) The Corporation shall recognize the beneficial owner of
shares registered in the name of a nominee as the owner and shareholder of such
shares for certain purposes if the nominee in whose name such shares are
registered files with the Secretary of the Corporation a written certificate in
a form prescribed by the Corporation, signed by the nominee and indicating the
following: (1) the name, address and taxpayer identification number of the
nominee; (2) the name, address and taxpayer identification number of the
beneficial owner; (3) the number and class or series of shares registered in the
name of the nominee as to which the beneficial owner shall be recognized as the
shareholder; and (4) the purposes for which the beneficial owner shall be
recognized as the shareholder.
(b) The purposes for which the Corporation shall recognize a
beneficial owner as the shareholder may include the following: (1) receiving
notice of, voting at and otherwise participating in shareholders' meetings; (2)
executing consents with respect to the shares; (3) exercising dissenters' rights
under Article 13 of the North Carolina Business Corporation Act; (4) receiving
distributions and share dividends with respect to the shares; (5) exercising
inspection rights; (6) receiving reports, financial statements, proxy statements
and other communications from the Corporation; (7) making any demand upon the
Corporation required or permitted by law; and (8) exercising any other rights or
receiving any other benefits of a shareholder with respect to the shares.
(c) The certificate shall be effective ten (10) business days
after its receipt by the Corporation and until it is changed by the nominee,
unless the certificate specifies a later effective time or an earlier
termination date.
(d) If the certificate affects less than all of the shares
registered in the name of the nominee, the Corporation may require the shares
affected by the certificate to be registered separately on the books of the
Corporation and be represented by a share certificate that bears a conspicuous
legend stating that there is a nominee certificate in effect with respect to the
shares represented by that share certificate.
9. Acquisition by Corporation of its Own Shares. The Corporation may
acquire its own shares and shares so acquired shall constitute authorized but
unissued shares. Unless otherwise prohibited by the Articles of Incorporation,
the Corporation may reissue such shares. If reissue is prohibited, the Articles
of Incorporation shall be amended to reduce the number of
<PAGE>
authorized shares by the number of shares so acquired. Such required amendment
may be adopted by the Board of Directors without shareholder action.
ARTICLE VIII
INDEMNIFICATION AND REIMBURSEMENT
OF DIRECTORS AND OFFICERS
1. Indemnification for Expenses and Liabilities.
(a) Any person who at any time serves or has served: (1) as a
director, officer, employee or agent of the Corporation, (2) at the request of
the Corporation as a director, officer, partner, trustee, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust, or
other enterprise, or (3) at the request of the Corporation as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the Corporation to the fullest extent from time to time permitted
by law against Liability and Expenses in any Proceeding (including without
limitation a Proceeding brought by or on behalf of the Corporation itself)
arising out of his status as such or activities in any of the foregoing
capacities or results from him being called as a witness at a time when he has
not been made a named defendant or respondent to any Proceeding.
(b) The Board of Directors of the Corporation shall take all
such action as may be necessary and appropriate to authorize the Corporation to
pay the indemnification required by this provision, including, without
limitation, to the extent needed, making a good faith evaluation of the manner
in which the claimant for indemnity acted and of the reasonable amount of
indemnity due him.
(c) Any person who at any time serves or has served in any of
the aforesaid capacities for or on behalf of the Corporation shall be deemed to
be doing or to have done so in reliance upon, and as consideration for, the
rights provided for herein. Any repeal or modification of these indemnification
provisions shall not affect any rights or obligations existing at the time of
such repeal or modification. The rights provided for herein shall inure to the
benefit of the legal representatives of any such person and shall not be
exclusive of any other rights to which such person may be entitled apart from
this provision.
(d) The rights granted herein shall not be limited by the
provisions contained in Sections 55-8-51 through 55-8-56 of the North Carolina
Business Corporation Act or any successor to such statutes.
2. Advance Payment of Expenses. The Corporation shall (upon receipt of
an undertaking by or on behalf of the Director, officer, employee or agent
involved to repay the Expenses described herein unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation against such
Expenses) pay Expenses incurred by such Director, officer, employee or agent in
defending a Proceeding or appearing as a witness at a time when he has not been
named as a defendant or a respondent with respect thereto in advance of the
final disposition of such Proceeding.
<PAGE>
3. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of
another domestic or foreign corporation, partnership, joint venture, trust or
other enterprise or as a trustee or administrator under an employee benefit plan
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him or her against such liability.
4. Definitions. The following terms as used in this Article shall have
the following meanings. "Proceeding" means any threatened, pending or completed
action, suit, or proceeding and any appeal therein (and any inquiry or
investigation that could lead to such action, suit, or proceeding), whether
civil, criminal, administrative, investigative or arbitrative and whether formal
or informal. "Expenses" means expenses of every kind, including counsel fees.
"Liability" means the obligation to pay a judgment, settlement, penalty, fine
(including an excise tax assessed with respect to an employee benefit plan),
reasonable expenses incurred with respect to a Proceeding and all reasonable
expenses incurred in enforcing the indemnification rights provided herein.
"Director," "officer," "employee" and "agent" include the estate or personal
representative of a Director, officer, employee or agent. "Corporation" shall
include any domestic or foreign predecessor of this Corporation in a merger or
other transaction in which the predecessor's existence ceased upon consummation
of the transaction.
ARTICLE IX
GENERAL PROVISIONS
1. Distributions. The Board of Directors may from time to time declare,
and the Corporation may pay, distributions and share dividends on its
outstanding shares in the manner and upon the terms and conditions provided by
law and by its Articles of Incorporation.
2. Seal. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form of as may be approved from time to
time by the Board of Directors. Such seal may be an impression or stamp and may
be used by the officers of the Corporation by causing it, or a facsimile
thereof, to be impressed or affixed or in any other manner reproduced. In
addition to any form of seal adopted by the Board of Directors, the officers of
the Corporation may use as the corporate seal a seal in the form of a circle
containing the name of the Corporation and the state of its incorporation (or an
abbreviation thereof) on the circumference and the word "Seal" in the center.
3. Fiscal Year. The fiscal year of the Corporation shall be determined
by the Board of Directors.
4. Effective Date of Notice. Except as provided in Paragraph 5(a) of
Article II, written notice shall be effective at the earliest of the following:
(1) when received; (2) five days after its deposit in the United States mail, as
evidenced by the postmark, if mailed with postage thereon prepaid and correctly
addressed; or (3) on the date shown on the return receipt, if sent by registered
or certified mail, return receipt requested and the receipt is signed by or on
behalf of the addressee. Oral notice is effective when actually communicated to
the person entitled thereto.
<PAGE>
5. Corporate Records. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account and
minute books, may be kept on or be in the form of punch cards, magnetic tape,
photographs, microphotographs or any other information storage device; provided
that the records so kept can be converted into clearly legible form within a
reasonable time. The Corporation shall so convert any records so kept upon the
request of any person entitled to inspect the same. The Corporation shall
maintain at its principal office the following records: (1) Articles of
Incorporation or Restated Articles of Incorporation and all amendments thereto;
(2) Bylaws or Restated Bylaws and all amendments thereto; (3) resolutions by the
Board of Directors creating classes or series of shares and affixing rights,
preferences or limitations to shares; (4) minutes of all shareholder meetings or
action taken without a meeting for the past three years; (5) all written
communications to shareholders for the past three years, including financial
statements; and (6) the Corporation's most recent annual report filed with the
North Carolina Secretary of State.
6. Bylaw Amendments.
(a) Except as otherwise provided herein, these Bylaws may be
amended or repealed and new Bylaws may be adopted by the affirmative vote of a
majority of the Directors then holding office at any regular or special meeting
of the Board of Directors or by affirmative vote of shareholders entitled to
exercise a majority of voting power of the Corporation.
(b) The Board of Directors shall have no power to adopt a
Bylaw: (1) changing the statutory requirement for a quorum of Directors or
action by Directors or changing the statutory requirement for a quorum of
shareholders or action by shareholders; (2) providing for the management of the
Corporation otherwise than by the Board of Directors or the committees thereof;
(3) except as may be otherwise provided in Article III, Section 2 of these
Bylaws, increasing or decreasing the fixed number for the size of the Board of
Directors or range of Directors, or change from a fixed number to a range, or
vice versa; or (4) classifying and staggering the election of Directors.
(c) No Bylaw adopted, amended or repealed by the shareholders
may be readopted, amended or repealed by the Board of Directors, except to the
extent that the Articles of Incorporation or a Bylaw adopted by the shareholders
authorizes the Board of Directors to adopt, amend or repeal that particular
Bylaw or the Bylaws generally.
7. Amendments to Articles of Incorporation. To the extent permitted by
law, the Board of Directors may amend the Articles of Incorporation without
shareholder approval to (1) delete the initial directors' names and addresses;
(2) change the initial registered agent or office in any state in which it is
qualified to do business, provided such change is on file with the respective
Secretary of State; (3) change each issued and unissued share of an outstanding
class into a greater number of whole shares, provided that class is the
Corporation's only outstanding share class; (4) change the corporate name by
substituting "corporation," "incorporated," "company," "limited" or the
abbreviations therefor for a similar word or abbreviation or by adding, deleting
or changing a geographic designation in the name; (5) make any other change
expressly permitted by the North Carolina Business Corporation Act to be made
without shareholder action. All other amendments to the Articles of
Incorporation must be approved by the appropriate voting group or groups as
required by law.
<PAGE>
THIS IS TO CERTIFY that the above Bylaws were duly adopted by the Board
of Directors of the Corporation by action taken, without a meeting, effective as
of March 17, 1994.
/s/ Barbara D. Lane
-----------------------------
Barbara D. Lane
Assistant Secretary
Exhibit 3.01
DEBENTURE PURCHASE AGREEMENT
THIS DEBENTURE PURCHASE AGREEMENT (the "Agreement") is entered into as
of the _____ day of _______________, 1999 by and among ID Technologies
Corporation, a North Carolina corporation (the "Company"), and the persons and
entities indicated on the signature pages hereto (each individually, a
"Purchaser" and, collectively, the "Purchasers").
W I T N E S S E T H:
WHEREAS, each Purchaser shall on the date hereof purchase from the
Company the principal amount of 12% Convertible Subordinated Debentures due 2002
of the Company reflected beside the Purchaser's signature at the end of this
Agreement for a total purchase price equal to 100% of such principal amount,
which Debentures are part of a total authorized issue of $1,000,000 principal
amount ("Debentures"); and
WHEREAS, the Purchasers and the Company acknowledge that the Purchasers
will acquire the Debentures from the Company pursuant to exemptions from
registration under the Securities Act of 1933, as amended (the "Securities Act")
and other applicable state securities laws which exemptions require, among other
things, that the Purchasers' disposition of the Debentures be limited to
transactions validly registered under such acts or in accordance with exemptions
from such registration; and
WHEREAS, the Company and the Purchasers desire to set forth certain of
the terms and conditions that will apply to all holders of Debentures (a
"Debentureholder").
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
PURCHASE AND SALE OF DEBENTURES
On the date hereof, the Purchasers shall purchase from the Company and
the Company shall sell to the Purchasers the aggregate principal amount of
Debentures that is reflected beside the signature of each of the Purchasers
below for a purchase price equal to 100% of such aggregate principal amount. The
Company shall issue a certificate in the form attached hereto as Exhibit A
evidencing the Debentures so purchased.
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE PURCHASERS
SECTION 2.01. DEBENTURES REGISTERED. The Purchasers acknowledge that
the Debentures, the shares of the Company's Common Stock (the "Common Stock")
issuable upon conversion of the Debentures and the shares of Common Stock
issuable upon exercise of the Option (as defined below) (collectively the
"Securities") have not been registered with, or approved or disapproved by, the
Securities and Exchange Commission (the "Commission") or by the securities
regulatory authority of any state, and that the Company does not have any
obligation to
<PAGE>
file a registration statement or otherwise to register or qualify any offer for
sale or transfer of the Securities except as provided herein. The Purchasers
further acknowledge that neither the Commission nor any such state regulatory
authority has made any recommendation or endorsement regarding the merits of an
investment in the Securities.
SECTION 2.02. NO PUBLIC OFFERING. The Purchasers understand and
acknowledge that the Debentures are being offered only in a transaction not
involving any public offering within the meaning of the Securities Act, and that
if in the future the Purchasers decided to resell, pledge or otherwise transfer
the Debentures or the other Securities, the Debenture and such Securities may be
resold, pledged or transferred only (i) pursuant to a validly registered
transaction, or (ii) pursuant to an exemption from registration under the
Securities Act and any applicable state securities laws.
SECTION 2.03. LEGEND ON DEBENTURE. The Purchasers understand that the
Debentures will bear a legend substantially to the following effect:
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. IT MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THIS DEBENTURE UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO
EFFECTUATE SUCH TRANSACTION OR UNLESS PURSUANT TO RULE 144. CERTAIN RIGHTS OF
THE HOLDER OF THIS DEBENTURE, INCLUDING WITH RESPECT TO VOLUNTARY AND AUTOMATIC
CONVERSION, TRANSFER, EVENTS OF DEFAULT AND REMEDIES, ARE GOVERNED BY A
DEBENTURE PURCHASE AGREEMENT, DATED AS OF _____________, 1999.
SECTION 2.04. INVESTMENT INTENT. The Securities are being acquired for
investment for the accounts of the Purchasers and without the intent of
participating directly or indirectly in a distribution of such Securities, and
the Securities will not be transferred except in a transaction that is in
compliance with any and all applicable securities laws. In making these
representations, the Purchasers realize that in the view of the Commission, an
acquisition now with an intent to resell by reason of any foreseeable specific
contingency, some predetermined event or an anticipated change in market value,
or in the condition of the Purchasers, or that of the financial institutions
industry, or in connection with a contemplated liquidation or settlement of any
loan obtained by a Purchaser for the acquisition of such Securities and for
which the Securities were pledged as security, would represent an acquisition
with an intent inconsistent with the foregoing representation, and the
Commission might regard such a sale or disposition as a sale to which the
exemption is not available.
SECTION 2.05. ACCESS TO INFORMATION. Each Purchaser acknowledges that
it has been afforded the opportunity to become familiar with the business,
financial condition, management, prospects and operations of the Company, and
that documents, records and books pertaining to the Company's business have been
made available for inspection by such Purchaser and its advisors. Each Purchaser
and its advisors have had a reasonable opportunity to ask questions of and to
receive answers of the Company concerning the terms and conditions of the sale
of the
<PAGE>
Debentures and to obtain additional information, to the extent possessed or
obtainable by the Company without unreasonable effort or expense, necessary to
verify the accuracy of the information made available to such Purchaser.
SECTION 2.06. PURCHASER'S KNOWLEDGE AND EXPERIENCE. Each Purchaser has
such knowledge and experience in financial and business matters as to enable it
(i) to utilize the information made available to it in connection with the
acquisition of the Securities, (ii) to evaluate the merits and risks associated
with the acquisition of the Securities, and (iii) to make an informed decision
with respect thereto.
SECTION 2.07. ACCREDITED INVESTOR. Each Purchaser qualifies as an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D of
the Securities Act because the Purchaser is (insert the paragraph of the
applicable description(s) below in the blank on the signature page at the end of
this Agreement):
(1) a natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of purchase exceeds
$1,000,000;
(2) a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year (the year in which the purchase is made);
(3) any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of investing in the Company, whose
purchase is directed by a sophisticated person having such knowledge
and experience in financial and business matters that he is capable of
evaluating the risks and merits of investing in the Company;
(4) a director or executive officer of the Company;
(5) an organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of $5,000,000;
(6) a bank as defined in the Securities Act of 1933 (the
"Act"), or a savings and loan association or other institution as
defined in the Act whether acting in its individual or fiduciary
capacity; a broker or dealer registered under the Securities Exchange
Act of 1934; an insurance company as defined in the Act; an investment
company registered under the Investment Company act of 1940 or a
business development company as defined in the Act; a Small Business
Investment Company licensed under the Small Business Investment Act of
1958; any plan established ' and maintained by a state or its political
subdivisions for the benefit of its employees, if such plan has total
assets in excess of $5,000,000; an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act of
1974 ("ERISA"), if the investment decision is made by a plan fiduciary,
as defined in ERISA, which is either a bank, savings and loan
association, an insurance company, or registered investment adviser, or
if the employee benefit plan has total assets in excess of
<PAGE>
$5,000,000 or, if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
(7) a "private business development company" as defined in the
Investment Advisers Act of 1940; or
(8) an entity in which all of the equity owners are accredited
investors.
ARTICLE 3
PAYMENT AT MATURITY
SECTION 3.01. PAYMENT OF OUTSTANDING DEBENTURES. The Company shall pay
all outstanding Debentures pursuant to paragraph 3 of the Debentures, on the
first business day after ______________, 2002 (the "Maturity Date"). The Company
may redeem the Debentures at any time, provided that it gives at least thirty
(30) days prior written notice to the Debentureholders, during which period the
Debentureholders may elect instead to convert the outstanding principal amount
and accrued and unpaid interest into shares of Common Stock as provided in
Section 6. If a Debentureholder so elects, it must provide the Company with
written notice of such election prior to the expiration of the thirty (30) day
notice period. A Debenture is outstanding if it has been issued by the Company
and has not been cancelled or converted by the Company or presented to the
Company for cancellation or conversion.
SECTION 3.02. NOTICE OF MATURITY. At least 30 days but not more than 60
days before the Maturity Date, the Company shall mail a notice of maturity to
each Debentureholder of outstanding Debentures as shown on the transfer records
regularly maintained by the Company. The notice shall state the maturity date,
the Conversion Price then in effect, that Debentures may be converted at any
time before the close of the business on the business day immediately preceding
the Maturity Date, and that Debentureholders who want to convert Debentures must
satisfy the requirements in paragraph 5 of the Debentures.
ARTICLE 4
SUCCESSORS TO THE COMPANY
SECTION 4.01. WHEN COMPANY MAY MERGE, ETC. The Company shall not
consolidate or merge into, or transfer all or substantially all of its assets
without receiving value for such assets, to any person unless the person is a
corporation, the person assumes all the obligations of the Company under the
Debentures, and immediately after such transaction no Default exists. The
surviving, transferee or lessee corporation shall be the successor to the
Company hereunder and under the Debentures, but the predecessor Company in the
case of a transfer or lease shall not be released from the obligation to pay the
principal of and interest on the Debentures.
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.01. EVENTS OF DEFAULT. An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Debenture when the same becomes due and payable and the Default
continues for a period of 30 days;
<PAGE>
(2) the Company defaults in the payment of the principal of
any Debenture when the same becomes due and payable at maturity;
(3) the Company fails to comply with any of its other
agreements in the Debentures or the Agreement;
(4) the Company pursuant to or within the meaning of any
Bankruptcy Law (A) commences a voluntary case, (B) consents to the
entry of any order for relief against it in an involuntary case, (C)
consents to the appointment of a Custodian of it or for all or
substantially all of its property, or (D) makes a general assignment
for the benefit of its creditors; or
(5) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (A) is for relief against the
Company in an involuntary case, (B) appoints a Custodian of the Company
or for all or substantially all of its property, or (C) orders the
liquidation of the Company, and the order or decree remains unstayed
and in effect for 60 days. The term "Bankruptcy Law" means title 11,
U.S. Code or any similar Federal or State law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default. A Default under clauses (1), (2) and (3) is not
an Event of Default until any of the Debentureholders notify the Company of the
Default and the Company does not cure the Default within 60 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default".
SECTION 5.02. ACCELERATION. If an Event of Default occurs and is
continuing, the holders of at least a majority in principal amount of all the
Debentures by notice to the Company may declare the principal of and accrued
interest on all the Debentures to be due and payable. Upon such declaration the
principal and interest shall be due and payable immediately. The holders of a
majority in principal amount of all the Debentures by notice to the Company may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration.
SECTION 5.03. WAIVER OF PAST DEFAULTS. The holders of a majority in
principal amount of all the Debentures by notice to the Company may waive an
existing Default and its consequences except a Default in the payment of the
principal of or interest on any Debenture.
SECTION 5.04. CONTROL BY MAJORITY. The holders of a majority in
principal amount of all the Debentures may direct the time, method and place of
conducting any proceeding for any remedy available to any holders of Debentures.
SECTION 5.05. RIGHTS OF DEBENTUREHOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Agreement or the Debenture, the
right of any holder of a Debenture to receive payment of principal and interest
on the Debenture on or after the respective due dates expressed herein and in
the Debenture, or to bring suit for the enforcement of any such payment on or
after such respective dates, and the right of any holder of a Debenture to
convert such
<PAGE>
Debentures in accordance with Article 6 below and to bring suit for the
enforcement of the right to convert the Debenture, shall not be impaired or
affected without the consent of the Debentureholder.
ARTICLE 6
CONVERSION
SECTION 6.01. CONVERSION PRIVILEGE. A holder of a Debenture may convert
the then outstanding principal amount of the Debenture and/or the accrued and
unpaid interest on the Debenture into Common Stock at any time prior to the
close of business on the business day immediately preceding earlier of the (i)
Maturity Date or (ii) the date of payment of all principal and accrued interest
by the Company. The conversion price prior to any adjustments as may be provided
for herein is $2.00 per share (the "Conversion Price"). A Debentureholder may
convert a portion of a Debenture if the portion is $5,000 or a whole multiple of
$5,000.
SECTION 6.02. CONVERSION PROCEDURE. To convert a Debenture or the
accrued interest and unpaid interest thereon, a Debentureholder must satisfy the
requirements in paragraph 5 of the Debentures. The date on which the
Debentureholder satisfies all those requirements is the conversion date. As soon
as practical thereafter, the Company shall deliver a certificate for the number
of shares (which may be fractional shares) of Common Stock issuable upon the
conversion. The person in whose name the certificate is registered shall be
treated as a stockholder of record on and after the conversion date. No payment
or adjustment will be made for accrued interest on a converted Debenture.
SECTION 6.03. MANDATORY CONVERSION. At the option of the Company, the
Debentures may automatically be converted into shares of Common Stock at the
then-applicable Conversion Price upon the occurrence of (i) a closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock of the Corporation to the public where the price per share to the
public is not less than $2.50, subject to adjustment in the event of any stock
dividends, stock splits or the like; or (ii) a reorganization, merger or
consolidation involving the Company, unless (A) the transaction involves only
the Company and one or more of the Company's parent corporation and wholly-owned
(excluding interests held by employees, officers and directors) subsidiaries, or
(B) the shareholders who had the power to elect a majority of the board of
directors of the Company immediately prior to the transaction have the power to
elect a majority of the board of directors of the surviving entity immediately
following the transaction, or (C) the Debentureholders, if they had converted
their Debentures immediately prior to the transaction, would have received in
such transaction an amount less than $2.50 per share as adjusted for stock
splits, stock combinations, stock dividends and similar events.
SECTION 6.04. COMPANY TO PROVIDE STOCK. The Company shall reserve out
of its authorized but unissued Common Stock or its Common Stock held in treasury
enough shares of Common Stock to permit the conversion of all the Debentures and
accrued and unpaid interest thereon. All shares of Common Stock which may be
issued upon conversion of the Debentures or the accrued and unpaid interest
thereon shall be fully paid and nonassessable. The Company will endeavor to
comply with all securities laws regulating the offer and delivery of shares of
Common Stock upon conversion of Debentures or the accrued and unpaid interest
thereon.
<PAGE>
SECTION 6.05. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(1) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a
smaller number of shares;
(4) makes a distribution on its Common Stock in shares of its
capital stock other than Common Stock; or
(5) issues by reclassification of its Common Stock any
debentures of its capital stock,
then the conversion privilege and the Conversion Price in effect immediately
prior to such action shall be adjusted so that the holder of a Debenture
thereafter converted will receive the number of shares of capital stock of the
Company which he would have owned immediately following such action if he had
converted the Debenture immediately prior to such action. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification.
If after an adjustment a Debentureholder may receive shares of two or
more classes of capital stock of the Company upon conversion of the Debentures,
the Company shall determine the allocation of the adjusted Conversion Price
between the classes of capital stock. After such allocation, the conversion
privilege and the Conversion Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Article.
SECTION 6.06. WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a
transaction referred to in Section 6.05 if all Debentureholders are to
participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair and appropriate in light of the basis and notice
on which holders of Common Stock participate in the transaction.
To the extent the Debentures become convertible into cash, no
adjustment need be thereafter as to the cash. Interest will not accrue on the
cash.
SECTION 6.07. NOTICE OF ADJUSTMENT. Whenever the Conversion Price is adjusted,
the Company shall promptly mail to Debentureholders a notice of the adjustment.
However, the failure of the Company to deliver such notice shall not affect the
validity of the adjustment of the Conversion Price.
<PAGE>
ARTICLE 7
SUBORDINATION
SECTION 7.01. AGREEMENT TO SUBORDINATE. The Company agrees, and each
Debentureholder by accepting a Debenture agrees, that the indebtedness evidenced
by the Debentures is subordinated in right of payment, to the extent and in the
manner provided in this Article, to the prior payment in full of all Senior
Debt, and that the subordination is for the benefit of the holders of Senior
Debt.
SECTION 7.02. CERTAIN DEFINITIONS.
"Debt" means any indebtedness for borrowed money or any guarantee of
such indebtedness or any other obligation of the Company.
"Representative" means the indenture trustee or other trustee, agent or
representative for an issue of Senior Debt.
"Senior Debt" means Debt of the Company outstanding at any time, except
Debt that by its terms is not senior in right of payment to the Debentures.
SECTION 7.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any
distribution to creditors of the Company in liquidation or dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(1) Holders of Senior Debt shall be entitled to receive
payment in full in cash of the principal and interest (including
interest accruing after the commencement of any such proceeding) to the
date of payment on the Senior Debt before Debentureholders shall be
entitled to receive any payment of principal of or interest on
Debentures; and
(2) until the Senior Debt is paid in full in cash, any
distribution to which Debentureholders would be entitled but for this
Article shall be made to holders of Senior Debt as their interests may
appear, except that Debentureholders may receive securities that are
subordinated to Senior Debt to at least the same extent as the
Debentures.
SECTION 7.04. DEFAULT ON SENIOR DEBT. The Company may not pay principal
of or interest on the Debentures and may not acquire any Debentures for cash or
property other than capital stock of the Company if:
(1) a default on Senior Debt occurs and is continuing that
permits holders of such Senior Debt to accelerate its maturity; and
(2) the default is the subject of judicial proceedings or the
Company receives a notice of the default from a person entitled to give
it. If the Company receives any such notice, a similar notice received
within nine months thereafter relating to the same default on the same
issue of Senior Debt shall not be effective for purposes of this
Section.
The Company may resume payments on the Debentures and may acquire them
when:
<PAGE>
(a) the default is cured or waived, or
(b) 120 days pass after the notice is given if the default is
not the subject of judicial proceedings, if this Article otherwise
permits the payment or acquisition at that time.
SECTION 7.05. ACCELERATION OF DEBENTURES. If payment of the Debentures
is accelerated because of an Event of Default, the Company shall promptly notify
holders of Senior Debt of the acceleration. The Company may pay the Debentures
when 120 days pass after the acceleration occurs if this Article permits the
payment at that time.
SECTION 7.06. WHEN DISTRIBUTION MUST BE PAID OVER. If a distribution is
made to Debentureholders that because of this Article should not have been made
to them, the Debentureholders who receive the distribution shall hold it in
trust for holders of Senior Debt and pay it over to them as their interests may
appear.
SECTION 7.07. NOTICE BY COMPANY. The Company shall promptly notify the
Debentureholders of any facts known to the Company that would cause a payment of
principal of or interest on the Debentures to violate this Article.
SECTION 7.08. SUBROGATION. After all Senior Debt is paid in full and
until the Debentures are paid in full, Debentureholders shall be subrogated to
the rights of holders of Senior Debt to receive distributions applicable to
Senior Debt to the extent that distributions otherwise payable to the
Debentureholders have been applied to the payment of Senior Debt. A distribution
made under this Article to holders of Senior Debt which otherwise would have
been made to Debentureholders is not, as between the Company and
Debentureholders, a payment by the Company on Senior Debt.
SECTION 7.09. RELATIVE RIGHTS. This Article defines the relative rights
of Debentureholders and holders of Senior Debt. Nothing in this Agreement shall:
(1) impair, as between the Company and Debentureholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Debentures in accordance with their
terms;
(2) affect the relative rights of Debentureholders and
creditors of the Company other than holders of Senior Debt; or
(3) prevent any Debentureholder from exercising its available
remedies upon a Default, subject to the rights of holders of Senior
Debt to receive distributions otherwise payable to Debentureholders.
If the Company fails because of this Article to pay principal of or
interest on a Debenture on the due date, such failure is still a Default
hereunder.
SECTION 7.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY. No right of
any holder of Senior Debt to enforce the subordination of the indebtedness
evidenced by the
<PAGE>
Debentures shall be impaired by any act or failure to act by the Company or by
its failure to comply with this Agreement.
ARTICLE 8
GRANT OF OPTION
SECTION 8.01. OPTION TO PURCHASE SHARES OF COMMON STOCK. Each Purchaser
shall have the option to purchase 10,000 shares of the Common Stock for every
$50,000 in principal amount initially held by the Purchaser on the date of issue
of the Debenture at a purchase price of $2.75 per share (the "Option"). If a
Purchaser transfers all or part of its Debenture to a subsequent Debentureholder
("a Subsequent Debentureholder"), all or a portion of the Option shall
automatically be transferred to the Subsequent Debentureholder in the same
proportion as the principal amount transferred to the Subsequent Debentureholder
bears to the initial principal amount of the Debenture; provided that, in no
case shall the aggregate number of shares of Common Stock issuable upon exercise
of the Option by the Purchaser and any Subsequent Debentureholder(s) be greater
than the number of shares of Common Stock issuable upon exercise of the Option
on the original date of issuance of the Debenture. The Option may be exercisable
by the Purchaser or any Subsequent Debentureholder in whole or in part from time
to time at any time, but shall expire on the Maturity Date. The purchase price
of such option shall be adjusted as provided in Section 6.05.
SECTION 8.02. COMPANY TO RESERVE STOCK. The Company shall reserve out
of its authorized but unissued Common Stock or its Common Stock held in treasury
enough shares of Common Stock to permit the exercise of the Option. All shares
of Common Stock which may be issued upon exercise of this option shall be fully
paid and nonassessable. The Company will endeavor to comply with all securities
laws regulating the offer and delivery of shares of Common Stock upon exercise
of such option.
ARTICLE 9
REGISTRATION RIGHTS
SECTION 9.01. REGISTRATION RIGHTS. The Company hereby grants to each of
the Holders (as defined below) the registration rights set forth in this Article
9, with respect to the Registrable Securities (as defined below) owned by such
Holders. The Company and the Holders agree that the registration rights provided
herein set forth the sole and entire agreement, and supersede any prior
agreement, between the Company and the Holders with respect to registration
rights for the Company's securities.
SECTION 9.02. CERTAIN DEFINITIONS. As used in this Article 9:
(a) The terms "register," "registered" and "registration"
refer to a registration effected by filing with the Securities and
Exchange Commission (the "SEC") a registration statement (the
"Registration Statement") in compliance with the 1933 Act, and the
declaration or ordering by the SEC of the effectiveness of such
Registration Statement.
(b) The term "Registrable Securities" means (i) Common Stock
issued or issuable upon conversion of the Debentures held by Purchasers
or any transferee as
<PAGE>
permitted by Section 9.09 hereof, (ii) Common Stock issued or issuable
upon exercise of the Option as set forth in Article 8, (iii) any Common
Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange or in replacement of, such
Registrable Securities; provided, however, that shares of Common Stock
or other securities shall only be treated as Registrable Securities if
and so long as (A) they have not been sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, (B) they have not been sold in a transaction exempt from
the registration and prospectus delivery requirements of the 1933 Act
under Section 4(l) thereof so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the
consummation of such sale, and (C) the registration rights associated
with such securities have not been terminated pursuant to Section 9.16
hereof.
(c) The term "Holder" (collectively, "Holders") means each
Purchaser and any transferee, as permitted by Section 9.09 hereof,
holding Registrable Securities, securities exercisable or convertible
into Registrable Securities or securities exercisable for securities
convertible into Registrable Securities.
(d) The term "Initiating Holders" means any Holder or Holders
of a majority of the Registrable Securities then outstanding and not
registered at the time of any request for registration made pursuant to
Section 9.03 of this Agreement.
SECTION 9.03. DEMAND REGISTRATION.
(a) Demand for Registration. If the Company shall receive from
Initiating Holders a written demand that the Company effect any
registration (a "Demand Registration") of at least 50% of the
Registrable Securities (other than a registration on Form S-3 or any
related form of registration statement, such a request being provided
for under Section 9. 10 hereof) then outstanding within ten (10) days
after the Company gives notice to the Holders that the annual certified
audit of the Company's finances has been completed and presented to the
Company, the Company will:
(i) promptly (but in any event within 10 days) give
written notice of the proposed registration to all other
Holders; and
(ii) use its best efforts to effect such registration
as soon as practicable and as will permit or facilitate the
sale and distribution of all or such portion of such
Initiating Holders' Registrable Securities as are specified in
such demand, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in
such demand as are specified in a written demand received by
the Company within 15 days after such written notice is given,
provided that the Company shall not be obligated to take any
action to effect any such registration pursuant to this
Section 9.03:
(B) in any jurisdiction outside the United
States or in any particular jurisdiction in which the
Company would be required to
<PAGE>
execute a general consent to service of process in
effecting such registration, qualification or
compliance unless the Company is already subject to
service in such jurisdiction and except as may be
required by the 1933 Act;
(C) after the Company has effected one (1)
such registration, pursuant to this Section 9.03 and
the sales of the shares of Common Stock under such
registration have closed;
(D) if the Company shall furnish to such
Holders a certificate signed by the President of the
Company, stating that in the good faith judgment of
the Board of Directors of the Company it would be
seriously detrimental to the Company and its
stockholders for such Registration Statement to be
filed at the date filing would be required, in which
case the Company shall have an additional period or
periods of not more than 180 days within which to
file such Registration Statement; provided, however,
that the Company shall not use this right to delay
the filing for more than once in any 12-month period;
or
prior to the date 6 months after the effective date of the initial
public offering of the Company's securities.
(b) Underwriting. If reasonably required to maintain an orderly market
in the Common Stock, the Holders shall distribute the Registrable Securities
covered by their demand by means of an underwriting. If the Initiating Holders
intend to distribute the Registrable Securities covered by their demand by means
of an underwriting, they shall so advise the Company as part of their demand
made pursuant to this Section 9.03, including the identity of the managing
underwriter; and the Company shall include such information in the written
notice referred to in Section 9.03(a)(i). In such event, the right of any Holder
to registration pursuant to this Section 9.03 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
The Company shall, together with all holders of capital stock of the
Company proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by a majority-in-interest of the Initiating Holders and
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 9.03, if the underwriter shall advise the Company that marketing
factors (including, without limitation, an adverse effect on the per share
offering price) require a limitation of the number of shares to be underwritten,
then the Company shall so advise all Holders of Registrable Securities that have
requested to participate in such offering, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated pro rata among such Holders thereof in proportion, as nearly
as practicable, to the amounts of Registrable Securities held by such Holders at
the time of filing the Registration Statement. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.
<PAGE>
If any Holder disapproves of the terms of the underwriting, such Holder
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration.
The Company may include securities for its own account (or for the
account of other Stockholders) in such registration if the underwriter so
agrees.
SECTION 9.04. Piggyback Registration. The Holders agree from and after
the date of this Agreement, the Company may grant to any holder or prospective
holder of any securities of the Company "piggyback" registration rights with
respect to the registration rights granted herein.
SECTION 9.05. Expenses of Registration. All expenses incurred in
connection with all registrations effected pursuant to Sections 9.03 and 9.10,
including without limitation all registration, filing and qualification fees
(including state securities law fees and expenses), printing expenses, escrow
fees, fees and disbursements of counsel for the Company and expenses of any
special audits incidental to or required by such registration shall be borne by
the Company; provided however, that the Company shall not be required to pay
stock transfer taxes or underwriters' discounts or selling commissions relating
to Registrable Securities; and provided, further, that the Company shall not be
required to pay for any expenses of any registration pursuant to Section 9. 10
after the Company has effected 2 registrations pursuant to Section 9. 10, in
which event the Holders of Registrable Securities to be registered shall bear
all such expenses pro rata on the basis of Registrable Securities to be
registered. Notwithstanding anything to the contrary above, the Company shall
not be required to pay for any expenses of any registration proceeding under
Section 9.03 if the registration request is subsequently withdrawn at the
request of the Holders of the Registrable Securities to have been registered, in
which event the Holders of Registrable Securities to have been registered shall
bear all such expenses pro rata on the basis of the Registrable Securities to
have been registered.
SECTION 9.06. Obligations of the Company. Whenever required under this
Article 9 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a Registration Statement with respect
to such Registrable Securities and use its diligent efforts to cause such
Registration Statement to become effective, and keep such Registration Statement
effective for the lesser of 180 days or until the Holder or Holders have
completed the distribution relating thereto;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement;
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them;
<PAGE>
(d) use its diligent efforts to register or otherwise qualify the
securities covered by such Registration Statement under such other securities
laws of such states and other jurisdictions as shall be reasonably requested by
the Holders or the managing underwriter, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions;
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement;
(f) notify each Holder of Registrable Securities covered by such
Registration Statement of (x) any order the Securities and Exchange Commission
or any jurisdiction in which registration has been made of any order terminating
or suspending effectiveness or such registration or (y) at any time when a
prospectus relating thereto is required to be delivered under the 1933 Act, of
the happening of any event as a result of which the prospectus included in such
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing (in which case each Holder of Registrable Securities
agrees to discontinue transactions in the Company's securities until notified by
the Company that the conditions described above are no longer in effect);
(g) use its diligent efforts to list the Registrable Securities covered
by such Registration Statement with any securities exchange on which the Common
Stock of the Company is then listed;
(h) make available for inspection by each Holder including Registrable
Securities in such registration, any underwriter participating in any
distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement, provided that the Company may require reasonable confidentiality
agreements and reasonable agreements restricting trading its stock to be signed
as a condition to disclosure;
(i) cooperate with Holders including Registrable Securities in such
registration and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, such certificates to be in such denominations and registered in such
names as such Holders or the managing underwriters may request at least two
business days prior to any sale of Registrable Securities; and
(j) permit any Holder which Holder, in the sole and exclusive judgment,
exercised in good faith, of such Holder, might be deemed to be a controlling
person of the Company, to participate in good faith in the preparation of such
Registration Statement through a single legal counsel and to require insertion
f material, furnished to the Company in writing,
<PAGE>
that in the reasonable judgment of such Holder and its counsel should be
included if a failure to include would expose Holder to a material risk of
liability.
SECTION 9.07. Indemnification.
(a) The Company will, and does hereby undertake to, indemnify
and hold harmless each Holder of Registrable Securities, each of such
Holder's officers, directors, managers, partners, members and agents,
and each person controlling such Holder, with respect to any
registration, qualification or compliance effected pursuant to this
Article 9, and each underwriter, if any, and each person who controls
any underwriter, of the Registrable Securities held by or issuable to
such Holder, against all claims, losses, damages and liabilities (or
actions in respect thereto) to which they may become subject under the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), or other federal or state law arising out of or based on (i) any
untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other similar
document (including any related Registration Statement, notification,
or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made, (ii) any violation or alleged
violation by the Company of any federal, state or common law rule or
regulation applicable to the Company in connection with any such
registration, qualification or compliance, or (iii) any failure to
register or qualify Registrable Securities in any state where the
Company or its agents have affirmatively undertaken or agreed in
writing that the Company (the undertaking of any underwriter chosen by
the Company being attributed to the Company) will undertake such
registration or qualification on behalf of the Holders of such
Registrable Securities (provided that in such instance the Company
shall not be so liable if it has undertaken its best efforts to so
register or qualify such Registrable Securities) and will reimburse, as
incurred, each such Holder, each such underwriter and each such
director, manager, officer, partner, member agent and controlling
person, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability or action; provided that the Company will not be
liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue
statement or omission made in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
or underwriter and stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration,
qualification or compliance pursuant to this Article 9, does hereby
undertake to indemnify and hold harmless the Company, each of its
directors and officers, and each person controlling the Company, each
underwriter, if any, and each person who controls any underwriter, of
the Company's securities covered by such a Registration Statement, and
each other Holder, each of such other Holder's officers, directors,
managers, partners, members and agents and each person controlling such
other Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on (i) any failure
of such Holder or its agents or representatives to comply with the
prospectus delivery requirements of the 1933 Act or
<PAGE>
any other applicable securities or Blue Sky law, or (ii) any untrue
statement (or alleged untrue statement) of a material fact contained in
any such Registration Statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in
which they were made, and will reimburse, as incurred, the Company,
each such underwriter, each such other Holder, and each such director,
officer, manager, partner, member and controlling person of the
foregoing, for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) was made in such Registration Statement,
prospectus, offering circular or other document, in reliance upon and
in conformity with written information furnished to the Company by an
instrument duly executed by such Holder and stated to be specifically
for use therein.
(c) Each party entitled to indemnification under this Section
9.07 (the "Indemnified Party") shall give notice to the party required
to provide such indemnification (the "Indemnifying Party") of any claim
as to which indemnification may be sought promptly after such
Indemnified Party has actual knowledge thereof, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be subject to approval by the Indemnified Party
(whose approval shall not be unreasonably withheld) and the Indemnified
Party may participate in such defense at the Indemnifying Party's
expense if representation of such Indemnified Party would be
inappropriate due to actual or potential differing interests between
such Indemnified Party and any other party represented by such counsel
in such proceeding; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Article 9, except
to the extent that such failure to give notice shall materially
adversely affect the Indemnifying Party in the defense of any such
claim or any such litigation. An Indemnifying Party, in the defense of
any such claim or litigation, may, without the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement that includes as an unconditional term thereof the giving by
the claimant or plaintiff therein, to such Indemnified Party, of a
release from all liability with respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any
Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant
to this Section 9.07 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 this Section 9.07 provides for
indemnification in such case, or (ii) contribution under the 1933 Act
may be required on the part of any such Holder or any such controlling
person in circumstances for which indemnification is provided under
this Section 9.07; then, and in each such case, the Company and such
Holder will contribute to the aggregate claims, losses, damages or
<PAGE>
liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of
the securities offered by such Holder pursuant to the Registration
Statement bears to the public offering price of all securities offered
by such Registration Statement, and the Company will be responsible for
the remaining portion (without prejudice as to the Company's right to
contributions from any other responsible parties); provided, however,
that, in any case, (A) no such Holder will be required to contribute
any amount in excess of the public offering price of all securities
offered by it pursuant to such Registration Statement, after deduction
of underwriting discounts and commissions (unless such Holder's
liability hereunder is based upon such Holder's willful misconduct as
determined by the nonappealable final decision of a court); and (B) no
person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) will be entitled to
contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(e) The indemnities provided in this Section 9.07 shall
survive the transfer of any Registrable Securities by such Holder.
SECTION 9.08. Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may reasonably request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Article 9.
SECTION 9.09. Transfer of Rights. The rights contained in this Article
9 may be assigned or otherwise conveyed to transferees or assignees of
Registrable Securities, who shall be considered a "Holder" for purposes hereof,
provided that such transfer is effected in compliance with Section 10.08 hereof.
SECTION 9.10. Form S-3. The Company shall use its diligent efforts to
qualify for registration on Form S-3. After the Company has qualified for the
use of Form S-3, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 thereafter under this Section 9. 10. The
Company shall give notice to all Holders of Registrable Securities of the
receipt of a request for registration pursuant to this Section 9.10 and shall
provide a reasonable opportunity for other Holders to participate in the
registration. Subject to the foregoing, the Company will use its best efforts to
effect as soon as practicable the registration of all shares of Registrable
Securities on Form S-3 to the extent requested by the Holder or Holders thereof
for purposes of disposition; provided, however, that the Company shall not be
obligated to effect any such registration (A) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $500,000 or (B) at any
time when the Company has effected 2 registrations pursuant to this Section 9.
10 during the preceding 12-month period. Notwithstanding the foregoing, nothing
herein shall restrict, prohibit or limit in any way a Holder's ability to
exercise its registration rights under Section 9.03 hereof. The Company shall
have no obligation to take any action to effect any registration pursuant to
this Section 9.10 for any of the reasons set forth in Section 9.03(a)(ii)(A) or
(C) (which shall be deemed to apply to the obligations under this Section 9. 10
with equal force). In addition, any
<PAGE>
registration pursuant to this Section 9. 10 shall, be subject to the provisions
of Section 9.03(b), which shall be deemed to apply to the obligations under this
Section 9.10 with equal force, except that any reference therein to Section 9.03
or a subsection thereof shall, for these purposes only, be deemed to be a
reference to this Section 9. 10.
SECTION 9.11. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Article 9.
SECTION 9.12. Rule 144 Reporting. With a view to making available to
the Holders the benefits of certain rules and regulations of the SEC that may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its diligent efforts to:
(a) make and keep current public information available, within
the meaning of SEC Rule 144 or any similar or analogous rule
promulgated under the 1933 Act, at all times after it has become
subject to the reporting requirements of the 1934 Act;
(b) file with the SEC, in a timely manner, all reports and
other documents required of the Company under the 1933 Act and 1934 Act
(after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of
said Rule 144 (at any time commencing 90 days after the effective date
of the first registration filed by the Company for an offering of its
securities to the general public), the 1933 Act and the 1934 Act (at
any time after it has become subject to such reporting requirements); a
copy of the most recent annual or quarterly report of the Company; and
such other reports and documents as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
SECTION 9.13. "Market Stand-Off" Agreement. Each Holder that is a "One
Percent Stockholder," as defined below, hereby agrees that during a period, not
to exceed 180 days, following the effective date of the initial, effective
registration statement of the Company filed under the 1933 Act, it shall not, to
the extent requested by the Company and any underwriter, sell, pledge, transfer,
make any short sale of, loan, grant any option for the purchase of, or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any Common Stock held by it at any time during such period except Common Stock
included in such registration; provided, however, that all other "One Percent
Stockholders" with registration rights (whether or not pursuant to this
Agreement) and all officers and directors of the Company enter into similar
agreements. If requested by any underwriter, all One Percent Shareholders shall
execute and deliver to such underwriters an agreement in form reasonably
acceptable to such underwriter evidencing the obligation described in this
Section 9.13.
For purposes of this Section 9.13, the term "One Percent Stockholder"
shall mean a stockholder of the Company who holds at least 1% of the outstanding
Common Stock of the Company (assuming conversion or exercise of all outstanding
securities convertible into or
<PAGE>
exercisable for Common Stock of the Company). The securities of all partners,
retired partner, members and stockholders, subsidiaries of a Holder, and any
family member of any of them and any trusts for any of their benefit shall be
aggregated to determine whether someone is a One Percent Stockholder.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
SECTION 9.14. Termination of Rights. The rights of any particular
Holder under this Article 9 hereof shall terminate as to any Holder upon the
earlier of (a) four years after the effective date of the initial public
offering of the Company's securities or (b) the time when such Holder is able to
dispose of all of its Registrable Securities in any 90-day period pursuant to
SEC Rule 144 (or any similar or analogous rule promulgated under the 1933 Act),
provided that the ability of a Holder to sell Registrable Securities pursuant to
SEC Rule 144(k) (or any successor thereto) shall be disregarded for purposes of
determining whether a Holder's rights under this Article 9 shall terminate.
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the sale and delivery of the Debentures pursuant
hereto.
SECTION 10.02. SURVIVAL OF AGREEMENT. NOTICES. Any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or upon deposit with the United States
Post Office, by registered or certified mail, postage prepaid, or sent by
confirmed telecopy or electronic mail, addressed:
(1) if to ID Technologies Corporation, to:
2506 West Nash St. Suite C
Wilson, NC 27896
Attn: President
Telephone: (252) 206-1089
Facsimile: (252) 206-4990
<PAGE>
With a copy to:
Kilpatrick Stockton LLP
P.O. Box 300004
Raleigh, North Carolina 27622
Attn: James F. Verdonik, Esq.
Telephone: (919) 420-1700
Facsimile: (919) 420-1800
or to such other address as the Company shall have furnished to the
Purchasers in writing,
(2) if to the Purchasers, at the addresses of such Purchasers
specified on the signature pages, or at such other addresses
as the Purchasers shall have furnished to the Company in
writing.
SECTION 10.03. NO RECOURSE AGAINST OTHERS. All liability described in
this Agreement and in the Debentures of any director, officer, employee or
stockholder, as such, of the Company is waived and released.
SECTION 10.04. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 10.05. GOVERNING LAW. This Agreement and the Debentures shall
be governed by and construed under the laws of the State of North Carolina as
applied to agreements among North Carolina residents, made and to be performed
entirely within the State of North Carolina.
SECTION 10.06. TREASURY SECURITIES. In determining whether the holders
of the required principal amount of Debentures have concurred in any direction,
waiver or consent, Debentures owned by the Company shall be disregarded.
SECTION 10.07. ENTIRE AGREEMENT. This Agreement and the Debenture
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral and written, between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified or amended except in writing.
SECTION 10.08. TRANSFEREES. No Debentureholder shall transfer the
Securities by any method to persons or entities in direct competition with the
business of the Company, as determined in good faith by the Board of Directors
of the Company. A Debentureholder must give the Company thirty (30) days written
notice prior to transferring the Securities to any person or entity.
SECTION 10.09. LIST OF HOLDERS. The Company shall maintain a list of
the names and addresses of the Debentureholders but shall have no obligation to
keep such list current; provided, however, that if a Debentureholder provides
the Company with updated information it shall use its best efforts to revise
such list accordingly. The Company shall provide a Debentureholder with a copy
of such list upon written request by such Debentureholder.
<PAGE>
SECTION 10.10. AMENDMENTS AND WAIVERS. Except as otherwise expressly
provided herein, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) with the written consent of the Company and the
holders holding at least a majority of the outstanding principal amount of the
Debentures, voting together as a single group. Any amendment or waiver effected
in accordance with this Section 10.09 shall be binding upon the
Debentureholders. Upon the effectuation of each such amendment or waiver, the
Company shall promptly give written notice thereof to the Debentureholders who
have not previously consented thereto in writing.
IN WITNESS WHEREOF the parties to this Agreement have caused the same
to be executed under seal as of the date set forth below.
ID TECHNOLOGIES CORPORATION
_____________________, 1999
By: __________________________
Title: _______________________
Principal Amount of
Debentures Purchased: PURCHASERS:
______________________________
Address for Notices:
Subclause(s) of Section 2.07
under which Purchaser qualifies as
an "accredited investor"
______________________________
Exhibit 3.02
Debenture No.: $____________________________
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. IT MAY NOT BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THIS DEBENTURE UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO
EFFECTUATE SUCH TRANSACTION OR UNLESS PURSUANT TO RULE 144. CERTAIN RIGHTS OF
THE HOLDER OF THIS DEBENTURE, INCLUDING WITH RESPECT TO VOLUNTARY AND AUTOMATIC
CONVERSION, TRANSFER, EVENTS OF DEFAULT AND REMEDIES, ARE GOVERNED BY A
DEBENTURE PURCHASE AGREEMENT, DATED AS OF __________________, 1999.
12% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2002
1. Principal. ID Technologies Corporation ("Company"), a North Carolina
corporation, promises to pay to ________________ ("Debentureholder"), or
registered and permitted assigns, the principal sum of ____________________
Dollars ($______________) on _________________,2002.
2. Interest. The Company promises to pay interest on the principal
amount of this Debenture at the rate per annum shown above compounded monthly.
The Company will pay interest annually on ______________ of each year, unless
the Debentureholder provides written notice 10 days prior to the payment date of
the interest to the Company that the Debentureholder elects that the interest
continue to accrue and that the Company pay such interest at a later date, which
shall in no case be later than the Maturity Date. Such accrued interest shall be
compounded. Interest on the Debentures will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date of
initial issue. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
3. Method of Payment. Except as provided in paragraph 2, the Company
will pay interest on this Debenture (except defaulted interest) to the person
who is the registered holder of the Debenture at the close of business on the
first day of the month of the next interest payment date. Debentureholder must
surrender this Debenture to the Company to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts. The
Company may pay principal and interest by check payable in such money. It may
mail an interest check to a holder's registered address.
4. Debenture Purchase Agreement. The Company issues this Debenture
pursuant to the Debenture Purchase Agreement between the Company and each holder
of a Debenture, including the holder of this Debenture (the "Agreement"). The
terms of this Debenture include those stated in the Agreement. All capitalized
terms not otherwise defined herein shall have the definition ascribed to them in
the Agreement. This Debenture is part of an authorized total issue of up to
$1,000,000 principal amount.
<PAGE>
5. Conversion. Debentureholder may convert this Debenture and/or the
accrued and unpaid interest on this Debenture into Common Stock of the Company
as provided in Section 6 of the Agreement.
To convert a Debenture or the accrued and unpaid interest thereon a
holder must (1) complete and sign the conversion notice at the end of this
Debenture, (2) surrender this Debenture to the Company, (3) furnish appropriate
endorsements and transfer documents if required by the Company, and (4) pay any
transfer or similar tax if required.
6. Subordination. The Debentures are subordinated to Senior Debt. To
the extent provided in the Agreement, Senior Debt must be paid. The Company
agrees, and each Debentureholder by accepting a Debenture agrees, to such
subordination and authorizes the Company to give it effect. The Company is not
limited from incurring any Debt, whether Senior or otherwise.
7. Denominations, Transfers. The Debentures are in registered form
without coupons in whole multiples of $5,000. The Company may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law as a condition to the transfer of
the Debentures.
8. Defaults and Remedies. If an Event of Default occurs and is
continuing, the holders of the Debentures may exercise their remedies as set
forth in Section 5 of the Agreement. Debentureholders may not enforce the
Agreement or the Debentures except as provided in the Agreement.
9. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company, shall not have any liability for any
obligations of the Company under the Debentures or the Agreement or any claim
based on, in respect of or by reason of such obligations or their creation. Each
Debentureholder by accepting a Debenture waives and releases all such liability.
The waiver and release are part of the consideration for the issue of the
Debentures.
ID TECHNOLOGIES CORPORATION
By: __________________________________
Title: _______________________________
<PAGE>
ASSIGNMENT FORM
To assign this Debenture, fill in the form below.
I or we assign this Debenture to:
___________________________________________________
___________________________________________________
(Insert Assignee's Social Security or Tax I.D. no.)
___________________________________________________
___________________________________________________
___________________________________________________
(Insert Assignee's Name, Address and Zip Code)
and irrevocably appoint:
___________________________________________________
agent to transfer this Debenture on the books of the Company.
The agent may substitute another to act for him.
Exhibit 3.03
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of this
31st day of December, 1997 by and between CARDGUARD INTERNATIONAL, INC., a North
Carolina corporation maintaining its principal office in Wilson County, North
Carolina (the "Company"), and HUTCHISON & MASON PLLC, a North Carolina
professional limited liability company (the "Investor").
WHEREAS, the Company has executed a Warrant of even date herewith in
favor of the Investor which may be executed to purchase shares of the Common
Stock of the Company; and
WHEREAS, the Company and the Investor have agreed to provide the
Investor with certain rights relating to the registration and sale of the
capital stock of the Company, together with rights to certain reports of the
Company; and
NOW, THEREFORE, in consideration of the investments being made by the
Investors and of the covenants and promises contained herein, the parties agree
as follows:
1. Definitions. For purposes of this Article 1, the following terms
shall have the following respective meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute enacted hereafter, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Act.
(c) The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act and the declaration or ordering of
effectiveness of such registration statement by the Commission.
(d) "Registrable Securities" shall mean (i) securities
received by the Investor upon the conversion of Convertible Debenture
(the "Securities"), and (ii) securities issued as a dividend or other
distribution with respect to, or in exchange or in replacement of, any
such Securities (securities shall be deemed to be owned for this
purpose if an agreement for their purchase has been executed).
2. Piggyback Registration. Subject to Section 8 of this Agreement, if
at any time the Company proposes to register any of its securities under the
Act, either for its own account or for the account of others, in connection with
the public offering of such securities solely for cash, on a registration form
that would also allow the registration of Registrable Securities, the Company
shall, each such time, promptly give the Investor written notice of such
proposal. This provision shall not apply to a registration solely of securities
issued or issuable in connection with any stock option plan or other employee
benefit plan or in connection with a merger or acquisition. Upon receipt by the
Company of the written request of the Investor given within ten (10) days
<PAGE>
after mailing of any such notice by the Company, the Company shall use its best
efforts to cause to be included in such registration under the Act all the
Registrable Securities that the Investor has requested be registered.
3. Obligations of the Company. Whenever required under this Agreement
to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration
statement covering such Registrable Securities and use its best efforts
to cause such registration statement to be declared effective by the
Commission as expeditiously as possible and to keep such registration
effective until the earlier of (i) the date when all Registrable
Securities covered by the registration statement have been sold or (ii)
180 days from the effective date of the registration statement.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be
necessary to keep such registration statement effective during the
period referred to in Section 3(a) and to comply with the provisions of
the Act with respect to the disposition of all securities covered by
such registration statement, and cause the prospectus to be
supplemented by any required prospectus supplement, and as so
supplemented to be filed with the Commission pursuant to Rule 424 under
the Act.
(c) Furnish to the selling Investor such numbers of copies of
such registration statement, each amendment thereto, the prospectus
included in such registration statement (including each preliminary
prospectus), and each supplement thereto as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned
by it.
(d) Use its best efforts to register and qualify the
Registrable Securities under the securities laws of such jurisdictions
in which the Company shall register securities to be sold by the
Company pursuant to the same registration under the Act.
(e) Promptly notify the selling Investor of such Registrable
Securities at any time when a prospectus relating thereto is required
to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement
contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading and, at the
request of the Investor, the Company will prepare promptly a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not
contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading.
(f) Provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registration statement.
(g) Enter into underwriting agreements and related agreements
in customary form for a primary offering.
<PAGE>
(h) Make available for inspection by the selling Investor of
Registrable Securities, any underwriter participating in any
disposition pursuant to such registration statement and any attorney,
accountant or other agent retained by any such selling Investor or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the officers,
directors, employees and independent accountants of the Company to
supply all information reasonably requested by the selling Investor,
underwriter, attorney, accountant or agent in connection with such
registration statement.
(i) Promptly notify the selling Investor of Registrable
Securities and the underwriters, if any, of the following events and
(if requested by any such person) confirm such notification in writing:
(1) the filing of the prospectus or any prospectus supplement and the
registration statement and any amendment or post-effective amendment
thereto and, with respect to the registration statement or any
post-effective amendment thereto, the declaration of the effectiveness
of such documents, (2) any requests by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (3) the issuance of any stop order suspending
the effectiveness of the registration statement, and (4) the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction.
(j) Whenever any provision of this Agreement requires the
Company to furnish any information to the Investor or the agents or
representatives of the Investor, the Company may require any such
person or entity to execute and deliver a reasonable confidentiality
agreement, agreement to refrain from trading or any other agreement
necessary or prudent to protect the Company or its officers, directors
and employees against insider trading liabilities and may restrict
access to confidential trade secret information.
4. Furnish Information. In the event of any registration by the Company
(whether or not the Registrable Securities of the Investor are included
therein), the Investor shall furnish to the Company such information regarding
them, the Registrable Securities and other securities of the Company held by it,
and the intended method of disposition of such Registrable Securities as the
Company shall reasonably request and as shall be required in connection with the
action to be taken by the Company. It shall be a condition precedent to the
obligation of the Company to cause any registration pursuant to this Agreement
to have become effective for the Investor to have exercised its rights of
conversion with respect to any Registrable Securities proposed to be registered.
5. Suspension of Disposition of Registrable Securities. The Investor of
Registrable Securities agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 3(e) or (i) (2), (3) or (4) hereof, the
Investor will forthwith discontinue disposition of Registrable Securities until
such Investor's receipt of copies of a supplemented or amended prospectus
contemplated by Section 3(e) hereof, or until it is advised in writing by the
Company that the use of the prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the prospectus, or in the case of Section 3(i) (2), (3) or
<PAGE>
(4), until the Company notifies the Investor in writing that sales of
Registrable Securities may continue. If so directed by the Company, the Investor
will deliver to the Company (at the expense of the Company) all copies, other
than permanent file copies then in the Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
6. Expenses of Registration. The Investor shall bear the fees and
disbursements of its own counsel and shall bear any additional registration and
qualification fees and expenses (including underwriters' discounts and
commissions), and any additional costs and disbursements of counsel for the
Company that result solely from the inclusion of Registrable Securities held by
the Investor in such registration.
7. Underwriting Requirements; Priorities.
(a) The Company will have the right to select the investment
banker(s) and manager(s) to administer any offering to which this
Agreement is applicable. If a registration is an underwritten primary
registration on behalf of the Company (without regard to registration
rights arising hereunder or under any other agreement), and the
managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number which can be sold at the desired price
in such offering, the Company will include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the
Registrable Securities requested to be included in such registration,
and (iii) third, other securities requested to be included in such
registration, pro rata among the holders thereof on the basis of the
number of shares requested to be registered. If a registration is an
underwritten secondary registration on behalf of holders of securities
of the Company, or a combined primary and secondary offering, and the
managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such
registration exceeds the number which can be sold at the desired price
in such offering, the Company will include in such registration (i)
first, securities the Company proposes to sell, (ii) second, the
securities requested to be included therein by holders with contractual
registration rights other than the Investor, (iii) third, the
securities requested to be included therein by Investor of Registrable
Securities, and (iv) fourth, other securities requested to be included
in such registration, including securities to be sold by holders
without contractual registration rights.
(b) No person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's
securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements
and (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under
the terms of such underwriting arrangements.
8. Limitation of the Company's Obligations.
(a) The Company may, in its sole discretion, (i) not comply
with this Agreement in the case of its initial public offering
registered under the Act, and (ii)
<PAGE>
terminate this Agreement after sale or other transfer, whether by
registration, under Rule 144 or otherwise, by the Investor of at least
Fifty (50%) Percent of the aggregate number of Registrable Securities
held by Investor at the time of the Company's initial public offering.
(b) The Company shall not be obligated under this Agreement to
register or include in any registration Registrable Securities that the
Investor has requested to be registered if the Company shall furnish
such Investor with a written opinion of counsel reasonably satisfactory
to such Investor, that all Registrable Securities that the Investor
holds may be publicly offered, sold and distributed without
registration under the Act pursuant to Rule 144 promulgated by the
Commission under the Act without restriction as to the amount of
securities that can be sold.
9. Lockup Agreement. For so long as the Investor has the right to have
Registrable Securities included in any registration pursuant to this Agreement,
the Investor agrees in connection with any registration of the Company's
securities upon the request of the underwriters managing any underwritten
offering of the Company's securities, not to sell, make any short sale of,
pledge, grant any option for the purchase of or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, during the seven days prior to and during the 180-day period beginning on
the effective date of such registration as the Company or the underwriters may
specify. This provision shall apply whether or not any Registrable Securities of
the Investor are included in the offering.
10. Transfer of Registration Rights. Provided that the Company is given
written notice by the Investor at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being assigned, the registration rights
under this Agreement may be transferred in whole or in part at any time to any
transferee of Registrable Securities.
11. Indemnification and Contribution. In the event any Registrable
Securities are included in a registration statement under this Agreement:
(a) To the full extent permitted by law, the Company will, and
hereby does, indemnify and hold harmless the Investor whose Registrable
Securities are included in a registration, each director, officer,
partner, employee, or agent for the Investor, any underwriter (as
defined in the Act) for such Investor, and each person, if any, who
controls the Investor or underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities, joint or several,
to which they may become subject under the Act and applicable state
securities laws insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based on any untrue
or alleged untrue statement of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein in light of
the circumstances under which they were made or necessary to make the
statements therein not misleading or arise out of any violation by the
Company of any rule or regulation promulgated under
<PAGE>
the Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration; and
will reimburse each such person or entity for any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability, or action if
such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld) nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary
prospectus, final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by or on behalf
of the Investor, underwriter or controlling person.
(b) To the full extent permitted by law, the Investor whose
Registrable Securities are included in a registration under this
Agreement, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls
the Company within the meaning of the Act, and any underwriter for the
Company (within the meaning of the Act), and each person, if any, who
controls any underwriter within the meaning of the Act against any
losses, claims, damages or liabilities, joint or several, to which the
Company or any such director, officer, controlling person or
underwriter may become subject, under the Act and applicable state
securities laws, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or final prospectus, or amendments or supplements thereto,
in reliance upon and in conformity with written information furnished
by the Investor expressly for use in connection with such registration;
and the Investor will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling
person or underwriter in connection with investigating or defending any
such loss, claim, damage, liability of action; provided, however, that
the indemnity shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Investor (which consent shall not be
unreasonably withheld).
In no event shall the liability by reason of this contractual
indemnity of the selling Investor of Registrable Securities hereunder
be greater than the dollar amount of the proceeds received by such
Investor upon the sale of the Registrable Securities giving rise to
such indemnification obligation. If the Investor required to indemnify
the Company as
<PAGE>
provided above, the Investor shall cease to have the right to
participate in any other registration pursuant to this Agreement.
12. Remedies. In addition to being entitled to exercise all rights
provided in this Article as well as all rights granted by law, including
recovery of damages, the Company and the Investor will be entitled to specific
performance of its rights under this Agreement. The Company and the Investor
agree that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees not to raise the defense in any action for specific performance
that a remedy at law would be adequate.
13. Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may be given, by
written consent of the Company and the Investor.
14. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
15. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
16. Notices. All notices required or permitted to be sent shall be sent
to the addresses of the parties set forth on their respective signature pages,
or to such other address as any party shall provide to the other parties in a
notice sent in accordance with this Agreement. Any notice sent by registered or
certified mail, return receipt requested, or by Federal Express, shall be deemed
to have been received by the party to whom it was sent one day following the
date it was sent. Any notice sent by any other means shall be deemed to have
been received when it is actually received at the address provided above.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina.
18. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
19. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter. Nothing
in this Agreement shall preclude the
<PAGE>
Company from entering into any other agreement having the same or different
terms with the Investor or any third party with respect to registration rights
or related matters.
20. Parties Benefited. Nothing in this Agreement, express or implied,
is intended to confer upon any third party any rights, remedies, obligations or
liabilities.
IN WITNESS WHEREOF, the undersigned, through its duly authorized
representative, has executed this Registration Rights Agreement under seal as of
the date provided below:
CARDGUARD INTERNATIONAL, INC.
By: /s/ William F. Lane
---------------------------------
William F. Lane
President
HUTCHISON & MASON PLLC
By: /s/ Merrill M. Mason
---------------------------------
Merrill M. Mason
Vice President
Exhibit 3.04
STATE OF NORTH CAROLINA
STOCK PURCHASE AGREEMENT
COUNTY OF WILSON
THIS STOCK PURCHASE AGREEMENT, made and entered into as of this 1st day
of August, 1997 by and among William F. Lane, as agent for the Sellers
(hereinafter called "Sellers"), and Li-Pei Wu (hereinafter called "Buyer").
W I T N E S S E T H
WHEREAS, the Sellers are the owners and holders of 50,000 shares of the
issued and outstanding common stock (the "Stock") of CardGuard International,
Inc., a North Carolina corporation (the "Company"); and
WHEREAS, Buyer desires to acquire from Sellers and Sellers desire to
sell the Stock, as hereinafter provided;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties agree to bind themselves
as follows:
1. SALE OF STOCK. Sellers agree to sell, assign and transfer the Stock
to Buyer and Buyer agrees to purchase from Sellers all of the Sellers' right,
title, and Interest in and to the Stock.
2. PURCHASE PRICE. The purchase price to be paid to each of Sellers for
his portion of the Stock shall be $3.00 per share for an aggregate purchase
price for the Stock of One Hundred Fifty Thousand Dollars ($150,000.00), and
shall be paid at closing in cash.
3. SELLERS' REPRESENTATION AND WARRANTIES. Sellers, severally, make the
following representations and warranties, which shall survive closing, to Buyer,
which shall be true and correct as of the date hereof and as of the closing:
A. Each of the Sellers is the sole record and beneficial owner
of the Stock owned by him with full authority and capacity to sell, transfer and
deliver such Stock in accordance with the terms of this Agreement and has good
and marketable title to such Stock, free and clear of all liens, pledges, claims
and encumbrances of any kind whatsoever. Each of Sellers has full power and
authority to convey all of his right, title and interest in and to the Stock
owned by him. The Stock owned by him is subject to no calls, puts or other
options.
B. Upon transfer of the Stock to Buyer, Buyer will receive
good and marketable title thereto, free and clear of all liens, pledges, claims
and encumbrances of any kind whatsoever.
C. The sale of the Stock by Sellers and the warranties,
representations, covenants and other terms contained herein are not in violation
of any provision of any loan or other agreement entered into by any of Sellers
in his individual capacity.
<PAGE>
D. Sellers have made no knowing misrepresentations of fact
concerning the affairs of the Company or failed to state any fact material to
the affairs of the Company.
E. There are no actions, suits or proceedings pending, or
threatened against or affecting any of Sellers or the Company or the Stock.
F. The Company is a corporation duly organized and existing in
good standing under the laws of the State of North Carolina.
4. CLOSING. The closing shall occur on August 1st, 1997, and at closing
Sellers shall deliver to Buyer:
A. The certificates evidencing the Stock, duly endorsed in
blank.
B. Such other documents as Buyer may reasonably request.
5. PAYMENT FOR STOCK. At the closing, Buyer shall deliver to Sellers
cash in payment of the purchase price for the Stock.
6. SURVIVAL OF REPRESENTATIONS. The representations of the parties
shall survive closing and shall be regarded as continuing representations and
warranties.
7. EXPENSES. Each party hereto will pay the expenses incurred by him
under or in connection with this Agreement, including attorneys' and
accountants' fees and expenses of his representation.
8. SPECIAL PROVISIONS. Sellers hereby grant to Buyer the option to
purchase up to 50,000 shares of Common Stock of the Company at a purchase price
of $5.00 per share. Such option shall expire on August 1. 2002. Sellers shall
deposit in escrow with Hutchison & Mason PLLC, Raleigh, North Carolina
certificates representing such option shares, (along with blank stock powers
executed by Sellers) until the option is exercised in full or the option period
has expired.
9. MISCELLANEOUS.
A. This Agreement represents the entire agreement of the
parties and all other prior written or oral agreements or representations
concerning the subject matter hereof are hereby cancelled and terminated.
B. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, representatives,
administrators, successors, and assigns.
C. This Agreement is executed pursuant to and shall be
governed by the laws of the State of North Carolina.
D. Each of the parties hereto shall execute such documents and
take such action as may be reasonably requested by the other party to carry out
the provisions and purposes of this Agreement.
<PAGE>
E. This Agreement my be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument, and this Agreement shall be of no force
or effect until it has been executed by all parties hereto.
F. Any modifications to this Agreement must be in writing and
signed by all parties to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
SELLERS:
/s/ William F. Lane (SEAL)
-----------------------------------
William F. Lane, agent for Sellers
BUYER:
/s/ Li-Pei Wu (SEAL)
-----------------------------------
Name: Li-Pei Wu
Title:
<PAGE>
ADDENDUM TO STOCK PURCHASE AGREEMENT
THIS ADDENDUM TO STOCK PURCHASE AGREEMENT is attached to and made a
part of that certain Stock Purchase Agreement (the "Stock Purchase Agreement' )
dated as of August 1, 1997 between William F. Lane, as agent for the Sellers
("Sellers"), and Li-Pei Wu ("Buyer"). For purposes of the provisions hereinbelow
captioned "Right of First Refusal" and "Registration Rights," CardGuard
International, Inc., a North Carolina company (the "Company"), for valuable
consideration the receipt and sufficiency of which are hereby acknowledged,
shall be deemed a party to the Stock Purchase Agreement and this Addendum and
such provisions shall be binding upon and enforceable against the Company.
The following provisions are hereby added to and included as part of
the Stock Purchase Agreement:
RIGHT OF FIRST REFUSAL. If at any time or from time to time the Company
shall be desire to issue or to Sell shares of its common or preferred stock, the
Company shall provide Buyer with written notice (the "Notice") of the Company's
intention to do so. For ten (10) business days after the receipt of the Notice
by Buyer, with respect to 86.3% of the aggregate number of shares of common
stock the Company desires to issue or sell at such time, Buyer shall have the
first right, but not the obligation, to purchase or subscribe to purchase up to
the number of shares represented by an aggregate purchase price of
$1,000,000.00. The per share purchase price to be paid by Buyer shall be equal
to the lowest purchase price paid by any other purchaser of the shares proposed
to be issued or sold by the Company. This right should not apply to (a) any
shares of Common Stock issuable upon conversion of shares of preferred stock of
the Company; (b) securities of the Company issued pursuant to options, warrants
or rights issued in favor of employees, directors, officers or consultants of
the Company; (c) securities issued pursuant to the acquisition by the Company of
any product, technology, know-how or another corporation by merger, purchase of
all or substantially all of the assets, or any other reorganization whereby the
Company owns over 50% of the voting power of such corporation; or (d) securities
issued in connection with any stock split, stock dividend or recapitalization by
the Company.
REGISTRATION RIGHTS. If at any time or from time to time the Company
shall determine to register any of its common stock, either for its own account
or for the account of a security holder or holders, other than a registration
relating solely to an employee benefit plan (Form S-8 or any successor form) or
the merger with another entity (Form S-4 or any successor form), the Company
shall:
(i) promptly give Buyer written notice of its determination; and
(ii) include in such registration and any related qualification under
blue sky laws or other compliance, and in any underwriting in connection with
the registrations, all the shares of common stock which Buyer has specified in a
written request, including shares of common stock subject to the option granted
pursuant to Section 8(A) of the Stock Purchase Agreement, shall be made within
ten (10) business days after Buyer's receipt of such written notice from the
Company.
<PAGE>
If the underwriters' representative advises the Company that marketing
factors require limitation on the number of shares to be underwritten, the
securities requested to be included in the registration by Buyer and by other
shareholders with piggyback registration rights shall be excluded on a pro rata
basis to the extent so required by such limitation. Securities requested by the
Company to be included in the registration shall be excluded last.
All expenses (which term does not include underwriting discounts or
commissions or fees and disbursements of counsel for Buyer) incurred in
connection with any registration, qualification or other compliance, including
without limitation, all registration, filing, qualification fees, printing
expenses, fees and disbursements of counsel for the Company, and accounting fees
incidental to or required by such registration, shall be borne by the Company.
NOTIFICATION UPON CONSOLIDATION OR MERGER AGREEMENT. In the event that
Company shall enter into an agreement to consolidate with, or merge into or
acquire any other corporation or entity or any other agreement having a similar
effect thereto, the Company shall promptly upon execution of any such agreement,
and in no event less than ten (10) business days prior to the date for which
shares of the Company's stock must be tendered in connection with any such
consolidation, merger, acquisition or other such transaction, notify Buyer in
writing or such contemplated consolidation, merger, acquisition or other
transaction so as to allow Buyer significant time to exercise the option granted
pursuant to Section 8(A) of the Stock Purchase Agreement. Should the Company
fail to provide Buyer with such ten (10) business days prior written notice for
whatever reason, the Company shall pay to Buyer the difference between the
option exercise price set forth in Section 8(A) of the Stock Purchase Agreement,
determined as if Buyer had exercised his option as to all such option shares,
and the then fair market value of the consideration to be paid for such number
of shares of Company common stock in connection with any such consolidation,
merger, acquisition or other transaction.
DESIGNATION OF ESCROW HOLDER. Notwithstanding the designation in
Section 8(A) of the Stock Purchase Agreement of Hutchison & Mason PLLC, Raleigh,
North Carolina, as escrow holder of the certificates representing option shares
as described in such section, Law Offices of Maan-Huei Hung, Los Angeles,
California, shall be designated escrow holder, or such other person as Buyer
shall designate as escrow holder in the future, to hold such certificates (along
with blank stock powers executed by Sellers) until the option is exercised in
full or the option period has expired.
STOCK SPLIT AND COMBINATIONS. If the Company shall at any time prior to
Buyer's exercise of the hereinbelow described option subdivide or combine its
outstanding shares of common stock subject to the option granted to Buyer
pursuant to Section 8(A) of the Stock Purchase Agreement, the option right
granted Buyer therein shall, after that subdivision or combination, evidence the
right to purchase the number of shares of common stock issued as a result to
purchase the number of shares of common stock issued as a result of that
purchasable under Buyer's option immediately before that subdivision or
combination. If the Company shall at any time subdivide or combine the
outstanding shares of common stock, the option purchase price shall be
proportionately increased or decreased, as appropriate.
<PAGE>
ASSIGNMENT. Buyer may freely and at any time assign, convey, give or
otherwise transfer the option rights to purchase shares of common stock of the
Company granted to Buyer pursuant to Section 8(A) of the Stock Purchase
Agreement to any person, partnership, association, trust, corporation or entity
of any sort.
IN WITNESS WHEREOF, the undersigned have executed this Addendum to
Stock Purchase Agreement as of August 1, 1997.
SELLERS:
/s/ William F. Lane
-----------------------------------
William F. Lane, agent for Sellers
BUYER:
/s/ Li-Pei Wu
-----------------------------------
Li-Pei Wu
COMPANY:
CardGuard International, Inc.
By: /s/ William F. Lane
-----------------------------------
William F. Lane, President
Exhibit 3.05
NEITHER THIS CONVERTIBLE DEBENTURE NOR THE SECURITIES INTO WHICH IT MAY BE
CONVERTED HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE AND NEITHER THIS CONVERTIBLE
DEBENTURE NOR SUCH SECURITIES MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS UNLESS
MAKER RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT THAT SUCH
REGISTRATION IS NOT REQUIRED.
CONVERTIBLE DEBENTURE
$300,000.00 Raleigh, North Carolina September 24, 1999
FOR VALUE RECEIVED, the undersigned, ID Technologies Corporation, a
North Carolina corporation ("Maker"), promises to pay to Centennial Venture
Partners, LLC, a North Carolina limited liability company ("Payee"; Payee and
any subsequent holder[s] hereof are individually and collectively referred to as
the "Holder"), or order, the sum of Three Hundred Thousand Dollars
($300,000.00), or so much thereof as may from time to time hereafter be
outstanding hereunder, whichever is less, together with interest thereon, all as
hereinafter provided.
1. Interest and Principal Payments.
a. This convertible debenture (the "DEBENTURE") is payable on demand by
Holder made not earlier than the first to occur of: (i) an Exercise Event (as
defined below); or (ii) September 24, 2000; PROVIDED, HOWEVER, that demand for
payment may be made by Holder at any time upon the occurrence of an Event of
Default hereunder in accordance with Section 8 hereof.
b. The outstanding principal amount of this Debenture and all accrued
but unpaid interest thereon shall be paid, at the option of Holder, (i) by
delivery of shares of the Stock, subject to the conditions of Section 3 hereof;
or (ii) in immediately available funds.
c. From the date hereof to and including the date this Debenture is
paid or otherwise discharged, the unpaid principal amount of this Debenture
shall bear simple interest at a rate of eight percent (8%) per annum, computed
on the basis of a year of three hundred sixty (360) days.
d. All payments of principal and interest shall be made in lawful money
of the United States of America (except as provided in Sections 1.b. and 3) and
shall be made to Holder at Holder's address set forth in Section 10 or at such
other place as Holder may designate to Maker in writing.
2. Prepayments. This Debenture may be prepaid at the option of Maker,
as a whole at any time, or in part from time to time (in multiples of $10,000),
without premium or penalty,
<PAGE>
in each case at the principal amount so to be prepaid, together with interest
accrued thereon to the date fixed for such prepayment. Maker shall give notice
of its intent to prepay this Debenture by giving written notice thereof to
Holder, which notice shall be given not less than thirty (30) nor more than
sixty (60) days prior to the date fixed for such prepayment in such notice and
shall specify the amount so to be prepaid and the date fixed for such
prepayment. Upon the giving of notice of any prepayment, Maker will prepay on
the date therein fixed for prepayment the principal amount of this Debenture so
to be prepaid as specified in such notice, together with interest accrued
thereon to such date fixed for prepayment. Upon any partial prepayment of this
Debenture, this Debenture shall, at the option of Holder thereof, be either (i)
surrendered to Maker in exchange for a new Debenture in a principal amount equal
to the principal amount remaining unpaid on the Debenture surrendered, and
otherwise having the same terms and provisions as the Debenture surrendered (and
for purposes of the foregoing provisions of this Section to be deemed to be the
same Debenture and not a novation of the indebtedness represented thereby), or
(ii) made available to Maker at the principal office of Holder of such Debenture
for notation thereon of the portion of the principal so prepaid, except that, so
long as Payee shall hold this Debenture, Maker agrees that Payee may make
notation of any portion of the principal on this Debenture or on its records.
3. Conversion of Debenture into Shares. Notwithstanding the other terms
and conditions of this Debenture, the Holder shall have the option of converting
this Debenture to shares of Series A Preferred stock of Maker ("STOCK") upon
demand by Holder made at any time, including, without limitation, upon the
receipt of notice from Maker of its intent to prepay this Debenture or upon an
Exercise Event (as defined below). Further, notwithstanding the other terms and
conditions of this Debenture, this Debenture shall automatically be converted
into shares of Stock upon a Qualified Public Offering (as defined below). The
number of shares of Stock into which this Debenture may be converted shall be
equal to the quotient of (x) the outstanding principal amount of this Debenture
on the date fixed for conversion (the "CONVERSION DATE"), and all accrued but
unpaid interest thereon; and (y) $2.00 (the "CONVERSION PRICE").
4. Exercise Events.
a. Definition. As used herein, "EXERCISE EVENT" means the making or
receiving by Maker of any offer, proposal or commitment, or entering into any
letter of intent, contract or agreement, relating to any of the following
transactions, or any earlier announcement by Maker or any other party to any
such transaction (or any public announcement), or any earlier filing with or
notice to the Securities and Exchange Commission ("SEC") or any other
governmental agency or authority, in any such case relating to any of the
following transactions: (i) any merger or other corporate reorganization which
results in the failure of the holders of the capital stock of Maker to hold
greater than 50% of the votes attributable to the shares of voting stock of the
surviving company; (ii) any transaction resulting in a change in the ownership
of greater than 50% of the Common stock of Maker (on an as-converted,
as-exercised, fully-diluted basis, which for purposes of this Debenture shall
not include common stock purchase warrants held by Payee dated as of the date
hereof for the purchase of up to Five Hundred Thousand Dollars ($500,000) of
Common stock of Maker, to the extent not exercised); or (iii) any transaction
resulting in the sale of all or substantially all of the assets of Maker.
<PAGE>
b. Notice. Maker shall notify Holder in writing immediately upon the
occurrence of an Exercise Event and in any event within sixty (60) days prior to
the closing of the underlying transaction relating to such Exercise Event, and
Maker, within such time, shall notify the other parties to such transaction of
this Debenture held by Holder. Upon conversion of this Debenture by Holder,
Holder shall be entitled to participate in any such transaction as a shareholder
of Maker.
5. Qualified Public Offering.
a. Definition. As used herein, "QUALIFIED PUBLIC OFFERING" means an
underwritten public offering of securities of Maker registered under the
Securities Act of 1933 (the "1933 ACT") (other than a registration relating
solely to employee benefit plans or to a transaction under Rule 145 under the
1933 Act or any successor rule thereto) in which (before deduction of
underwriter commissions and selling expenses) the public offering price is equal
to or exceeds Five Dollars ($5.00) per share of Common Stock (subject to
adjustment for stock splits, reverse stock splits and other similar corporate
reorganizations) and the gross proceeds to Maker equal or exceed Fifteen Million
Dollars ($15,000,000.00).
b. Notice. Maker shall notify Holder in writing immediately upon Maker
making any filing with or notice to the SEC or other governmental agency or
authority, or entering into any underwriting or other agreement, with respect to
a Qualified Public Offering.
6. Conversion Procedures; Reservation of Shares; Taxes.
a. Upon the conversion of this Debenture to shares of Stock, Maker
shall, as soon as practicable, take all such steps as may be necessary to issue
Stock in exchange for this Debenture, and thereafter deliver to Holder a
certificate or certificates for the number of full shares of Stock to which such
Holder shall be entitled against receipt of this Debenture, duly endorsed for
cancellation.
b. Maker covenants that it will, at the Conversion Date, make available
out of its authorized Stock, solely for the purpose of issue upon conversion of
this Debenture, such number of shares of Stock as shall then be issuable upon
conversion of this Debenture.
c. Maker covenants that all shares of Stock issued hereunder shall, at
the time of delivery, be duly and validly issued, fully paid, nonassessable and
free from all taxes, liens and charges with respect to the issue thereof (other
than those which Maker shall promptly pay or discharge and those, if any,
created by Holder).
7. Adjustment of Conversion Price:
a. The Conversion Price shall be subject to adjustment from
time to time as follows:
<PAGE>
i. In case Maker shall (a) pay a dividend on the
Stock in capital stock of Maker (whether Stock, other
Preferred stock of Company, Common stock of Company or
otherwise)(all such capital stock, collectively, "CAPITAL
STOCK"), (b) subdivide its outstanding shares of Capital
Stock, or (c) combine its outstanding shares of Capital Stock
into a smaller number of shares, then, in such an event, the
Conversion Price in effect immediately prior thereto shall be
adjusted proportionately so that the adjusted Conversion Price
will bear the same relation to the Conversion Price in effect
immediately prior to any such event as the total number of
shares of Capital Stock outstanding immediately prior to any
such event shall bear to the total number of shares of Capital
Stock outstanding immediately after such event. An adjustment
made pursuant to this subdivision i. (a) shall become
effective retroactively immediately after the record date in
the case of a dividend and (b) shall become effective
immediately after the effective date in the case of a
subdivision or combination. The Conversion Price, as so
adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein.
ii. In case Maker shall issue additional shares of
Capital Stock at a Net Consideration Per Share (as defined in
subdivision iv. below) which is less than the Conversion Price
at the time of such issuance, the Conversion Price shall be
adjusted so that the same shall equal the Net Consideration
Per Share. Such adjustment shall be made whenever such Capital
Stock is issued and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such Capital Stock.
iii. In case Maker shall issue rights or options for
the purchase of Capital Stock or any stock or securities
convertible into or exchangeable for Capital Stock (such
rights, options, convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES"),
whether or not such Convertible Securities are immediately
exercisable, entitling the holders thereof to subscribe for or
purchase shares of Capital Stock at a Net Consideration Per
Share (as defined in subdivision iv. below) which is less than
the Conversion Price at the time of such issuance, the
Conversion Price shall be adjusted so that the same shall
equal the Net Consideration Per Share. Such adjustment shall
be made whenever such Convertible Securities are issued and
shall become effective retroactively immediately after the
record date for the determination of stockholders entitled to
receive such Convertible Securities. In the event Maker shall
subsequently cancel or terminate such Convertible Securities,
the Conversion Price shall be readjusted to be the same as if
Maker had not issued such Convertible Securities.
iv. "NET CONSIDERATION PER SHARE" shall mean the
amount equal to the total amount of consideration received by
Maker for the issuance of such Capital Stock or Convertible
Securities, plus the minimum amount of consideration, if any,
payable to Maker upon exercise or conversion of any such
Convertible Securities, divided by the aggregate number of
shares of Capital
<PAGE>
Stock issued and the number of shares of Capital Stock that
would be issued if all such Convertible Securities were
exercised, exchanged or converted.
v. No adjustment of the Conversion Price shall be
made if the amount of such adjustment shall be less than $0.01
per share, but in such case any adjustment that would
otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next
subsequent adjustment, which, together with any adjustment so
carried forward, shall amount to not less than $0.01 per
share. In case Maker shall at any time issue Capital Stock by
way of dividend on any stock of Maker or subdivide or combine
the outstanding shares of the Capital Stock, said amount of
$0.01 per share (as theretofore increased or decreased, if the
same amount shall have been adjusted in accordance with the
provisions of this subparagraph) shall forthwith be
proportionately increased in the case of a combination or
decreased in the case of such a subdivision or stock dividend
so as appropriately to reflect the same.
b. In case of any capital reorganization of Maker, or of any
reclassification of the Capital Stock, this Debenture shall be
convertible after such capital reorganization or reclassification upon
the terms and conditions specified in this Debenture, for the number of
shares of stock or other securities which the Capital Stock issuable
(at the time of such capital reorganization or reclassification) upon
conversion of this Debenture would have been entitled to receive upon
such capital reorganization or reclassification if such conversion had
taken place immediately prior to such action. The subdivision or
combination of shares of Capital Stock at any time outstanding into a
greater or lesser number of shares of Capital Stock shall not be deemed
to be a reclassification of the Capital Stock of Maker for the purposes
of this subsection.
c. Whenever the Conversion Price is adjusted as herein
provided, Maker shall compute the adjusted Conversion Price in
accordance with subsection a. above and shall prepare a certificate
signed by its President and its chief financial officer setting forth
the adjusted Conversion Price and showing in reasonable detail the
method of such adjustment and the fact requiring the adjustment and
upon which such calculation is based, and such certificate shall
forthwith be forwarded to the Holder.
d. The form of this Debenture need not be changed because of
any change in the Conversion Price pursuant to this Section.
e. Notwithstanding any provision hereof, if an adjustment of
the Conversion Price is made pursuant to this Section 7 (or any
subsection hereof) and the event causing such adjustment also causes an
adjustment to the conversion price of Series A Preferred stock of
Corporation under the Articles of Incorporation of Corporation, or to
the purchase price, conversion price, number of warrant shares or
similar adjustments under any debentures, warrants or any other
instruments to which Corporation is a party, no additional adjustment
under this Section 7 shall be made solely as a result of such
<PAGE>
adjustment(s) under the Articles of Incorporation, debentures, warrants
or such other instruments.
8. Events of Default. The occurrence or existence of any one of the
following events or conditions shall constitute an "EVENT OF DEFAULT":
a. Maker shall fail to pay the principal of, or interest on,
this Debenture when the same becomes due and payable in accordance with
the terms hereof and after demand for payment has been made therefor
and such amount remains unpaid for ten (10) days after such date;
b. Maker fails to honor Holder's conversion rights under
Section 3 hereof or fails to observe or perform any other covenant or
agreement on the part of Maker contained in this Debenture for a period
of thirty (30) days after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
Maker by Holder of this Debenture;
c. Maker makes a general assignment for the benefit of its
creditors or applies to any tribunal for the appointment of a trustee
or receiver of a substantial part of the assets of Maker, or commences
any proceedings relating to Maker under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debts, dissolution or other
liquidation law of any jurisdiction; or any such application is filed,
or any such proceedings are commenced against Maker and Maker indicates
its consent to such proceedings, or an order or decree is entered by a
court of competent jurisdiction appointing such trustee or receiver, or
adjudicating Maker bankrupt or insolvent, or approving the petition in
any such proceedings, and such order or decree remains unstayed and in
effect for ninety (90) days; or
d. Any representation or warranty by Maker in any Other
Agreement (as defined below) proves to be false, misleading or
incomplete in any material respect as of the date which it is made, or
any breach by Maker of any other covenant, term or condition of any
Other Agreement which breach is not cured within thirty (30) days after
the date of written notice thereof to Maker. As used herein, "OTHER
AGREEMENTS" means the Debenture Purchase Agreement by and among Maker,
Payee and certain other parties dated as of the date hereof, the
Investor Rights Agreement by and among Maker, Payee and certain other
parties dated as of the date hereof, the Shareholders Agreement by and
among Maker, Payee and certain other parties dated as of the date
hereof, the Articles of Incorporation of Maker, and the Common Stock
Purchase Warrants issued by Maker in favor of Payee as of the date
hereof for the purchase of an aggregate of up to Eight Hundred Thousand
(800,000) shares of Common stock of Maker and Five Hundred Thousand
Dollars ($500,000) of Common stock of Maker, as each such Other
Agreement is amended or modified from time to time.
<PAGE>
9. Remedies.
a. If an Event of Default occurs and is continuing, Holder of this
Debenture may, by notice in writing to Maker, declare the entire unpaid
principal of the Debenture to be due and payable immediately, and upon any such
declaration the principal and unpaid interest of the Debenture shall become and
be immediately due and payable, and Holder of this Debenture may thereupon
proceed to protect and enforce its rights either by suit in equity or by action
of law or by other appropriate proceedings, whether for specific performance (to
the extent permitted by law) of any covenant or agreement contained herein or in
aid of the exercise of any power granted herein, or proceed to enforce the
payment of this Debenture or to enforce any other legal or equitable right of
such Holder.
b. In the event this Debenture is placed in the hands of an attorney
for collection or for enforcement, or in the event that Holder incurs any costs
incident to the collection of any indebtedness evidenced hereby, Maker agrees to
pay all reasonable attorneys' fees, all court and other costs and the reasonable
costs of any other collection efforts. Forbearance to exercise the remedies set
forth herein with respect to any failure or breach of Maker shall not constitute
a waiver by any Holder of any of such remedies.
10. Notices; Miscellaneous.
a. All notices, requests, consents and other communications required or
permitted under this Debenture shall be in writing and shall be deemed to have
been delivered five (5) days after on the date mailed, postage prepaid, by
certified mail, return receipt requested, or on the date personally delivered:
i. If to Payee, to:
Centennial Venture Partners, LLC
Attn: Glenn J. Kline
2 Davis Drive
Research Triangle Park, NC 27709
Telephone: (919) 485-8844
Facsimile: (919) 485-8843
ii. If to Maker, to:
ID Technologies Corporation
Attn: J. Phillips L. Johnston
NCSU Centennial Campus
920 Main Campus Drive
Suite 400
Raleigh, North Carolina 27606
Telephone: (919) 424-3722
Facsimile: (919) 424-3723
<PAGE>
iii. If to any other holder other than Payee, to such address
as may have been designated by notice given Maker by such Holder.
Maker, Payee or any other Holder hereof may designate a different address by
notice given in accordance with the foregoing.
b. Maker and all sureties, endorsers and guarantors of this Debenture,
jointly and severally, waive demand, presentment for payment, notice of
nonpayment, protest, notice of protest, notice of intent to accelerate, all
other notices (other than notices required by Sections 8.a. or 8.b.), filing of
suit and diligence in collecting this Debenture or enforcing any security given
therefor, and agree to any substitution, exchange, or release of any security,
with or without consideration, now or hereafter given for this Debenture or the
release of any party primarily or secondarily liable hereon; and such
substitution, exchange or release shall not in any way affect the obligations of
any such Maker, surety, endorser or guarantor. Maker and all sureties, endorsers
or guarantors of this Debenture further agree that it will not be necessary for
any Holder hereof, in order to enforce payment of this Debenture, first to
institute or exhaust its remedies against Maker or any other party liable
therefor or to enforce its rights against any security for this Debenture.
c. From time to time, without affecting the obligations of Maker or its
legal representatives, successors or assigns to pay the outstanding principal
balance of this Debenture and observe the covenants of Maker contained herein
and in the documents and instruments related hereto, without giving notice to or
obtaining the consent of Maker, or its legal representatives, successors or
assigns, and without liability on the part of Holder, Holder may, at the option
of Holder, extend the time for payment of said outstanding principal balance or
any part thereof, reduce the payments thereon, release anyone liable on any of
said outstanding principal balance, accept a renewal of this Debenture, modify
the terms of payment of said outstanding principal balance in any manner more
favorable to Maker or join in any extension or subordination agreement, and
agree in writing with Maker to modify the rate of interest or period of
amortization of this Debenture or change the amount of the payments hereunder.
No one or more of such actions shall constitute a novation or otherwise affect
or impair the indebtedness evidenced hereby. This Debenture may not be amended
except by written agreement signed by Maker and Holder.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
This Debenture and the rights and obligations of the parties hereunder
shall be governed by, and construed and interpreted in accordance with, the laws
of the State of North Carolina (without regard to principles of conflicts of
laws) and applicable Federal law.
ATTEST: ID TECHNOLOGIES CORPORATION
/s/ Barbara D. Lane By: /s/ J. Phillips L. Johnston
- ------------------------- -----------------------------------
Asst. Secretary J. Phillips L. Johnston, President
[Corporate Seal]
Exhibit 3.06
THIS WARRANT WAS ORIGINALLY ISSUED ON SEPTEMBER 24, 1999 AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER, THE PROVISIONS OF THIS WARRANT OR ANY APPLICABLE STATE
LAWS.
Dated: September 24, 1999 450,000 Shares
Certificate No. WC-1
ID TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT for value received, subject to the terms and
conditions hereinafter set forth, Centennial Venture Partners, LLC, a North
Carolina limited liability company (the "HOLDER"), is entitled to purchase up to
Four Hundred Fifty Thousand (450,000) shares of Common stock (the "COMMON
STOCK") of ID Technologies Corporation, a North Carolina corporation (the
"COMPANY"), at the purchase price and on such other terms as provided herein,
upon presentation of this Warrant and payment of such purchase price for the
shares of Common Stock purchased at the principal office of the Company or at
such other place as shall have been designated by the Company. The number of
shares of Common Stock which are purchasable hereunder, as adjusted pursuant to
the provisions below, is hereinafter referred to as the "WARRANT SHARES."
This Warrant is made and given in connection with the closing of the
sale and issuance by the Company of Convertible Debentures in the aggregate
original principal amount of Three Hundred Thousand Dollars ($300,000.00) on the
date hereof (each of such Convertible Debentures, a "DEBENTURE" and,
collectively, the "DEBENTURES", and each holder of such Debentures, a "DEBENTURE
HOLDER").
This Warrant is subject to the following provisions:
1. Exercise of Warrant.
a. This Warrant may be exercised, in whole or in part, in such
amounts and at such times and purchase prices as set forth below, upon
demand by holders of Debentures representing greater than fifty percent
(50%) of the aggregate outstanding principal balance of all Debentures:
<PAGE>
Warrant Shares
Purchase price subject to exercise
per Warrant Share during and before
Year during applicable Year applicable Year
---- ---------------------- ---------------
1 $0.30 1,000
2 0.75 2,500
3 1.25 5,000
4 1.75 10,000
5 2.25 25,000
6 3.00 50,000
7 3.50 75,000
8 4.00 150,000
9 4.50 300,000
10 5.00 450,000
As used in the chart above (the "EXERCISE CHART"), a "YEAR"
means the period from the date of the first conversion of Debentures
into Series A Preferred stock of the Company pursuant to the terms of
the Debentures until the first anniversary thereof, and each successive
year thereafter ending on each successive anniversary of the date of
the first conversion of Debentures. Any Warrant Shares not purchased
during any Year may be purchased during any subsequent Year provided
that the amount purchased during any Year (together with the amounts
purchased in all previous Years) does not exceed the maximum number set
forth on the Exercise Chart for such Year. Notwithstanding the
foregoing, this Warrant may be exercised in full (with no limitation on
the amount of Warrant Shares which may be purchased) at the purchase
price then in effect as set forth on the Exercise Chart at the option
of the Holder upon receipt of notice from the Company of any prepayment
of the Debentures or upon an Exercise Event (as defined below), or
automatically at the purchase price then in effect as set forth on the
Exercise Chart upon a Qualified Public Offering (as defined below). The
exercise of this Warrant in each of the foregoing cases may be made by
the delivery to the Company of written notice of such exercise and the
tender to the Company of the applicable purchase price provided on the
Exercise Chart for the Warrant Shares purchasable pursuant to such
exercise of this Warrant (the "PURCHASE PRICE"). This Warrant shall
expire with respect to any Warrant Shares which have not been purchased
prior to end of the day on September 24, 2009. In case of the exercise
to purchase less than all Warrant Shares purchasable hereunder, the
Company shall cancel this Warrant and shall execute and deliver a new
Warrant of like tenor for the balance of the shares which may be
purchased hereunder. As used herein, "EXERCISE EVENT" means making or
receiving by Company of any offer, proposal or commitment, or entering
into any letter of intent, contract or agreement, relating to any of
the following transactions, or any earlier announcement by the Company
or any other party to any such transaction (or any public
announcement), or
<PAGE>
any earlier filing with or notice to the Securities and Exchange
Commission ("SEC") or any other governmental agency or authority, in
any such case relating to any of the following transactions: (i) any
merger or other corporate reorganization which results in the failure
of the holders of the capital stock of the Company to hold greater than
50% of the votes attributable to the shares of voting stock of the
surviving company; (ii) any transaction resulting in a change in the
ownership of greater than 50% of the Common Stock (determined on an
as-exercised, as-converted, fully-diluted basis, excluding warrants of
the Debenture Holders to purchase up to an aggregate of $500,000 of
Common Stock upon the occurrence of an Exercise Event, to the extent
not exercised); (iii) any transaction resulting in the sale of all or
substantially all of the assets of the Company; or (iv) a Qualified
Public Offering. The Company shall notify the Holder in writing
immediately upon the occurrence of an Exercise Event and in any event
within sixty (60) days prior to the closing thereof, and the Company,
within such time, shall notify the other parties to such transaction of
the warrants held by the Holder. Upon exercise of this Warrant by the
Holder, such Holder shall be entitled to participate in any such
transaction as a shareholder. As used herein, "QUALIFIED PUBLIC
OFFERING" means an underwritten public offering registered under the
Securities Act of 1933 (the "1933 ACT") (other than a registration
relating solely to employee benefit plans or to a transaction under
Rule 145 under the 1933 Act or any successor rule thereto) in which
(before deduction of underwriter commissions and selling expenses) the
public offering price is equal to or exceeds Five Dollars ($5.00) per
share of Common Stock (subject to adjustment for stock splits, reverse
stock splits and other similar corporate reorganizations) and the gross
proceeds to Company equal or exceed Fifteen Million Dollars
($15,000,000.00).
b. In lieu of exercising this Warrant in accordance with
Section 1.a. hereof, the Holder may elect to receive, at any time
following the occurrence of an Exercise Event, without the payment of
such Holder of any additional consideration, shares equal to the value
of this Warrant or any portion hereof exercised, as determined below,
by the surrender of this Warrant to the Company (with the notice of
exercise form attached hereto as Exhibit A duly executed), at the
principal office of the Company. Thereupon, the Company shall within
thirty (30) days after request by Holder issue to such Holder such
number of fully paid and nonassessable Warrant Shares as is computed
using the following formula:
X = Y(A-B)
--------
A
Where X = the number of shares to be issued to such
Holder pursuant to Section 1.a.
Y = the number of shares covered by
this Warrant in respect of which the
election is made pursuant to Section
1.b.
<PAGE>
A = the Market Price of one share of
Common Stock at the time the
election is made pursuant to Section
1.b.
B = the Purchase Price in effect under
this Warrant at the time the
election is made pursuant to Section
1.b.
For purposes hereof, the term "MARKET PRICE" shall mean the
average of the daily closing prices per shares of the Common Stock for
the ten (10) consecutive trading days immediately preceding the day as
of which Market Price is being determined. The closing price for each
day shall be the last sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the New York Stock Exchange, or,
if shares of the Common Stock are not listed or admitted to trading on
the New York Stock Exchange, on the principal national securities
exchange on which the shares are listed or admitted to trading, or if
the shares are not so listed or admitted to trading, the average of the
closing bid and asked prices as quoted on NASDAQ. If shares of the
Common Stock are not listed or admitted to trading on any exchange or
quoted on NASDAQ, the Market Price shall be deemed to be the higher of
(A) the book value of a share of the Common Stock as determined by any
firm of independent public accountants of recognized standing, selected
by the board of directors of the Company, as at the last day of any
month ending within sixty (60) days preceding the date as of which the
determination is to be made or (B) the fair value thereof determined in
good faith by an independent brokerage firm or Standard & Poor's
Corporation as of a date which is within fifteen (15) days of the date
as of which the determination is to be made (the fees and expenses of
any brokerage firm or other firm engaged pursuant to this Section 1.b.
to be paid by the Company). The Board of Directors of the Company shall
promptly respond in writing to any inquiry by the Holder as to the
Market Price of one share of Common Stock made pursuant to the
immediately preceding sentence. Notwithstanding the provisions of
Section 1.b. and unless as otherwise agreed in writing, the Holder
shall not have any registration rights with respect to this Warrant or
the Warrant Shares.
2. Compliance with Securities Laws: The Holder of this Warrant, by its
acceptance of this instrument, represents and acknowledges that this Warrant is
acquired for the Holder's own account for investment purposes and that this
Warrant and the Warrant Shares issuable upon exercise hereof, respectively, have
not been registered under the Securities Act of 1933, as amended. Accordingly,
any transfer of this Warrant and such Warrant Shares shall be subject to legal
restrictions. The Holder agrees that it will not offer for sale or sell, assign
or otherwise dispose of (except exercise) this Warrant or any Warrant Shares
issued to it pursuant to exercise hereof, except in accordance with applicable
securities laws.
3. Shares of Common Stock in Reserve: The Company agrees at all times
to reserve a sufficient number of authorized but unissued shares of Common Stock
for the purposes of this Warrant, and to take such action as may be necessary to
ensure that all Warrant Shares issued
<PAGE>
upon exercise of this Warrant will be duly and validly authorized and issued and
fully paid and nonassessable.
4. No Voting or Dividend Rights: This Warrant shall not entitle the
Holder hereof to any voting rights or other rights as a shareholder of the
Company, and no dividend or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the Warrant Shares which may
be purchased hereunder until and unless, and except to the extent that, this
Warrant shall be exercised.
5. Adjustment of Purchase Price and Number of Shares:
a. The Purchase Price hereof shall be subject to adjustment
from time to time as follows:
i. In case the Company shall (a) pay a dividend on
its Common Stock in Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its
outstanding shares of Common Stock into a smaller number of
shares, then, in such an event, the Purchase Price in effect
immediately prior thereto shall be adjusted proportionately so
that the adjusted Purchase Price will bear the same relation
to the Purchase Price in effect immediately prior to any such
event as the total number of shares of Common Stock
outstanding immediately prior to any such event shall bear to
the total number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to
this subdivision i. (a) shall become effective retroactively
immediately after the record date in the case of a dividend,
(b) shall become effective immediately after the effective
date in the case of a subdivision or combination, and (c)
shall be effective for each of the Purchase Prices set forth
on the Exercise Chart. The Purchase Price, as so adjusted,
shall be readjusted in the same manner upon the happening of
any successive event or events described herein.
ii. In case the Company shall issue additional shares
of Common Stock at a Net Consideration Per Share (as defined
in subdivision iv. below) which is less than the Purchase
Price at the time of such issuance, the Purchase Price for the
remaining time during which this Warrant is in effect
(including all Purchase Prices set forth on the Exercise
Chart) shall be adjusted so that the same shall equal the Net
Consideration Per Share. Such adjustment shall be made
whenever such Common Stock is issued and shall become
effective retroactively immediately after the record date for
the determination of stockholders entitled to receive such
Common Stock. Notwithstanding the foregoing, in the event that
the Purchase Price is adjusted pursuant to this subdivision,
the Purchase Price shall be readjusted to be consistent with
the chart above in the event that the Company subsequently
issues shares of Common Stock at a Net Consideration Per Share
which is greater than the Purchase Price which would otherwise
then have been in effect according to the Exercise Chart and
such issuance results in gross proceeds
<PAGE>
to the Company of at least Five Hundred Thousand Dollars
($500,000.00) in cash at the closing thereof.
iii. In case the Company shall issue rights or
options for the purchase of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock
(such rights, options, convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES"),
whether or not such Convertible Securities are immediately
exercisable, entitling the holders thereof to subscribe for or
purchase shares of Common Stock at a Net Consideration Per
Share (as defined in subdivision iv. below) which is less than
the Purchase Price at the time of such issuance, the Purchase
Price for the remaining time during which this Warrant is in
effect (including all Purchase Prices set forth on the
Exercise Chart) shall be adjusted so that the same shall equal
the Net Consideration Per Share. Such adjustment shall be made
whenever such Convertible Securities are issued and shall
become effective retroactively immediately after the record
date for the determination of stockholders entitled to receive
such Convertible Securities. In the event the Company shall
subsequently cancel or terminate such Convertible Securities,
the Purchase Price shall be readjusted to be the same as if
the Company had not issued such Convertible Securities.
Notwithstanding the foregoing, in the event that the Purchase
Price is adjusted pursuant to this subdivision, the Purchase
Price shall be readjusted to be consistent with the Purchase
Prices set forth on the Exercise Chart in the event that the
Company subsequently issues shares of Convertible Securities
entitling the holders thereof to subscribe for or purchase
shares of Common Stock at a Net Consideration Per Share which
is greater than the Purchase Price which would otherwise then
have been in effect according to the Exercise Chart above and
such issuance results in gross proceeds to the Company of at
least Five Hundred Thousand Dollars ($500,000.00) in cash at
the closing thereof.
iv. "NET CONSIDERATION PER SHARE" shall mean the
amount equal to the total amount of consideration received by
the Company for the issuance of such Common Stock or
Convertible Securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion of any such Convertible Securities, divided by the
aggregate number of shares of Common Stock issued and the
number of shares of Common Stock that would be issued if all
such Convertible Securities were exercised, exchanged or
converted.
v. No adjustment of the Purchase Price shall be made
if the amount of such adjustment shall be less than $0.01 per
share, but in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried
forward, shall amount to not less than $0.01 per share. In
case the Company shall at any time issue Common Stock by way
of dividend on any stock of the Company or subdivide or
<PAGE>
combine the outstanding shares of the Common Stock, said
amount of $0.01 per share (as theretofore increased or
decreased, if the same amount shall have been adjusted in
accordance with the provisions of this subparagraph) shall
forthwith be proportionately increased in the case of a
combination or decreased in the case of such a subdivision or
stock dividend so as appropriately to reflect the same.
b. Upon each adjustment of the Purchase Price pursuant to
subdivisions i., ii., or iii. of Subsection 5.a., the number of shares
of Common Stock purchasable upon exercise of this Warrant shall be
adjusted to the number of shares of Common Stock, calculated to the
nearest one hundredth of a share, obtained by multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment
upon the exercise of this Warrant by the Purchase Price in effect prior
to such adjustment and dividing the product so obtained by the new
Purchase Price.
c. In case of any capital reorganization of the Company, or of
any reclassification of the Common Stock, this Warrant shall be
exercisable after such capital reorganization or reclassification upon
the terms and conditions specified in this Warrant, for the number of
shares of stock or other securities which the Common Stock issuable (at
the time of such capital reorganization or reclassification) upon
exercise of this Warrant would have been entitled to receive upon such
capital reorganization or reclassification if such exercise had taken
place immediately prior to such action. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or
lesser number of shares of Common Stock shall not be deemed to be a
reclassification of the Common Stock of the Company for the purposes of
this Subsection 5.c.
d. Whenever the Purchase Price is adjusted as herein provided,
the Company shall compute the adjusted Purchase Price in accordance
with Subsection 5.a. and shall prepare a certificate signed by its
President and its chief financial officer setting forth the adjusted
Purchase Price and showing in reasonable detail the method of such
adjustment and the fact requiring the adjustment and upon which such
calculation is based, and such certificate shall forthwith be forwarded
to the Holder.
e. The form of this Warrant need not be changed because of any
change in the Purchase Price pursuant to this Section 5 and any Warrant
issued after such change may state the same Purchase Price and the same
number of shares of Common Stock as are stated in this Warrant as
initially issued. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of
this Warrant that it may deem appropriate and that does not affect the
substance thereof. Any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
f. Notwithstanding any provision hereof, if an adjustment of
the Purchase Price is made pursuant to this Section (or any subsection
hereof) and the event causing
<PAGE>
such adjustment also causes an adjustment to the conversion price of
Series A Preferred stock of Corporation under the Articles of
Incorporation of Corporation, or to the purchase price, conversion
price, number of warrant shares or similar adjustments under any
debentures, warrants or any other instruments to which Corporation is a
party, no additional adjustment under this Section shall be made solely
as a result of such adjustment(s) under the Articles of Incorporation,
debentures, warrants or such other instruments.
7. Notices to Warrant Holder in Certain Events: Without limiting the
other provisions of this Warrant, in case -
a. Dividends or Distributions: the Company shall declare a
dividend (or any other distribution) payable upon its Common Stock
otherwise than in cash or in its Common Stock;
b. Issuance of Stock: the Company shall authorize the issuance
of any additional shares of Common Stock or Convertible Securities
(including any public offering or private placement);
c. Reorganization Transactions: the Board of Directors or
shareholders of the Company shall vote upon any capital reorganization
of the Company, reclassification of the capital stock of the Company,
consolidation or merger of the Company with or into another
corporation, or conveyance of all or substantially all of the assets of
the Company to another corporation; or
d. Dissolution or Liquidation: the commencement of voluntary
or involuntary dissolution, liquidation or winding up of the Company;
-- then, and in any such case, the Company shall cause to be delivered
to the Holder at least sixty (60) days prior to the date hereinafter specified,
a notice stating (as applicable): (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or rights, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined, or (ii)
the date on which additional shares of Common Stock or Convertible Securities
are to be issued, and the adjustments in Purchase Price and Warrant Shares to be
made hereunder; or (iii) the date on which such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up is to take place, and the date, if any, to be fixed as of which
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
8. Replacement Warrant for Lost Certificate: Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the
<PAGE>
Company, and reimbursement to the Company of all reasonable expenses incidental
thereto (and upon surrender and cancellation of this Warrant if mutilated), the
Company will execute and deliver a new Warrant of like tenor, in lieu of this
Warrant.
9. Assignability; Binding Effect; Amendments; Waivers: This Warrant
shall be binding upon and inure to the benefit of any and all successors and
assigns of the Holder and the Company; PROVIDED, HOWEVER, that no Assignment may
be made by the Holder hereof except for an Assignment to an Approved Party (as
defined below). Each Person to whom all or any part of the Warrant is assigned
shall execute and deliver to the Company a counterpart of the Investor Rights
Agreement as a condition to receipt of a Warrant in the assignee's name. Any
Assignment made without first complying with the provisions of this Section 9
shall be void and of no legal effect. This Warrant may be amended or modified,
or any of its provisions waived, only with the prior written consent of
Debenture Holders holding Debentures representing greater than fifty percent
(50%) of the aggregate outstanding principal balance of all Debentures.
10. As used herein:
a. "AFFILIATES" means with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common
control with such Person. For the purposes of this definition,
"CONTROL" (including with correlative meanings, the terms "CONTROLLING"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as applied to any
Person, means the possession, directly, indirectly or beneficially, of
either: (i) 50% equity ownership; or (ii) the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
b. "APPROVED PARTY" means: (i) Affiliates; (ii) parents
(including step-parents and adoptive parents) and children (including
step-children, adopted children and children of the half-blood); (iii)
partners or retired partners of a partnership, or members or retired
members in a limited liability company; or (iv) Persons to whom an
Assignment is made with the prior written approval of the Company. The
Company's approval shall not be unreasonably withheld, provided that it
may refuse such approval if the proposed assignee is reasonably
believed by the Company to be a competitor of the Company.
c. "ASSIGNMENT" means any sale, assignment, gift, pledge,
encumbrance or other transfer or disposition of this Warrant;
d. "PERSON" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant under seal
effective as of the date first above written.
COMPANY:
ID TECHNOLOGIES CORPORATION
ATTEST:
By: /s/ J. Phillips L. Johnston
-----------------------------------------
J. Phillips L. Johnston, President
/s/ Barbara D. Lane
- -----------------------
(Assistant) Secretary
(Affix Corporate Seal)
Exhibit 3.07
THIS WARRANT WAS ORIGINALLY ISSUED ON SEPTEMBER 24, 1999 AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER, THE PROVISIONS OF THIS WARRANT OR ANY APPLICABLE STATE
LAWS.
Dated: September 24, 1999 150,000 Shares
Certificate No. WC-2
ID TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT for value received, subject to the terms and
conditions hereinafter set forth, Centennial Venture Partners, LLC, a North
Carolina limited liability company, or assigns (the "HOLDER"), is entitled to
purchase up to One Hundred Fifty Thousand (150,000) shares of Common Stock (the
"COMMON STOCK") of ID Technologies Corporation, a North Carolina corporation
(the "COMPANY"), at a purchase price of $0.01 per share (as such purchase price
may be adjusted from time to time as herein provided) (the "PURCHASE PRICE")
upon presentation of this Warrant and payment of the Purchase Price for the
shares of Common Stock purchased at the principal office of the Company or at
such other place as shall have been designated by the Company. The number of
shares of Common Stock which are purchasable hereunder, as adjusted pursuant to
the provisions below, is hereinafter referred to as the "WARRANT SHARES."
This Warrant is made and given in connection with the closing of the
sale and issuance by the Company of Convertible Debentures in the aggregate
original principal amount of Three Hundred Thousand Dollars ($300,000.00) on the
date hereof (each of such Convertible Debentures, a "DEBENTURE" and,
collectively, the "DEBENTURES", and each holder of such Debentures, a "DEBENTURE
HOLDER").
This Warrant is subject to the following provisions:
1. Exercise of Warrant.
a. This Warrant may be exercised, in whole or in part, at any
time upon demand by holders of Debentures representing greater than
fifty percent (50%) of the aggregate outstanding principal balance of
all Debentures, or at the option of the Holder upon an Exercise Event
(as defined below), or automatically upon a Qualified Public Offering
(as defined below), and in any case prior to September 24, 2009, by the
delivery to the Company of written notice of such exercise and the
tender to the Company of the Purchase Price for the Warrant Shares
purchasable pursuant to such exercise of this Warrant. This Warrant
shall expire with respect to any Warrant Shares which have not been
purchased prior to end of the day on September 24, 2009. In case of the
exercise to purchase less than all Warrant Shares purchasable
hereunder, the Company shall cancel
<PAGE>
this Warrant and shall execute and deliver a new Warrant of like tenor
for the balance of the shares which may be purchased hereunder. As used
herein, "EXERCISE EVENT" means the making or receiving by Company of
any offer, proposal or commitment, or entering into any letter of
intent, contract or agreement, relating to any of the following
transactions, or any earlier announcement by the Company or any other
party to any such transaction (or any public announcement), or any
earlier filing with or notice to the Securities and Exchange Commission
("SEC") or any other governmental agency or authority, in any such case
relating to any of the following transactions: (i) any merger or other
corporate reorganization which results in the failure of the holders of
the capital stock of the Company to hold greater than 50% of the votes
attributable to the shares of voting stock of the surviving company;
(ii) any transaction resulting in a change in the ownership of greater
than 50% of the Common Stock (determined on an as-exercised,
as-converted, fully-diluted basis, excluding warrants of the Debenture
Holders to purchase up to an aggregate of $500,000 of Common Stock upon
the occurrence of an Exercise Event as defined therein, to the extent
not exercised); (iii) any transaction resulting in the sale of all or
substantially all of the assets of the Company; or (iv) a Qualified
Public Offering. The Company shall notify the Holder in writing
immediately upon the occurrence of an Exercise Event and in any event
within sixty (60) days prior to the closing thereof, and the Company,
within such time, shall notify the other parties to such transaction of
the warrants held by the Holder. Upon exercise of this Warrant by the
Holder, such Holder shall be entitled to participate in any such
transaction as a shareholder. As used herein, "QUALIFIED PUBLIC
OFFERING" means an underwritten public offering registered under the
Securities Act of 1933 (the "1933 ACT") (other than a registration
relating solely to employee benefit plans or to a transaction under
Rule 145 under the 1933 Act or any successor rule thereto) in which
(before deduction of underwriter commissions and selling expenses) the
public offering price is equal to or exceeds Five Dollars ($5.00) per
share of Common Stock (subject to adjustment for stock splits, reverse
stock splits and other similar corporate reorganizations) and the gross
proceeds to Company equal or exceed Fifteen Million Dollars
($15,000,000.00).
b. In lieu of exercising this Warrant in accordance with
Section 1.a. hereof, the Holder may elect to receive, at any time
following the occurrence of an Exercise Event, without the payment of
such Holder of any additional consideration, shares equal to the value
of this Warrant or any portion hereof exercised, as determined below,
by the surrender of this Warrant to the Company (with the notice of
exercise form attached hereto as Exhibit A duly executed), at the
principal office of the Company. Thereupon, the Company shall within
thirty (30) days after request by Holder issue to such Holder such
number of fully paid and nonassessable Warrant Shares as is computed
using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares to be issued to
such Holder pursuant to Section 1.a.
<PAGE>
Y = the number of shares covered by
this Warrant in respect of which the
election is made pursuant to Section 1.b.
A = the Market Price of one share of
Common Stock at the time the election
is made pursuant to Section 1.b.
B = the Purchase Price in effect under
this Warrant at the time the election
is made pursuant to Section 1.b.
For purposes hereof, the term "MARKET PRICE" shall mean the
average of the daily closing prices per shares of the Common Stock for
the ten (10) consecutive trading days immediately preceding the day as
of which Market Price is being determined. The closing price for each
day shall be the last sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the New York Stock Exchange, or,
if shares of the Common Stock are not listed or admitted to trading on
the New York Stock Exchange, on the principal national securities
exchange on which the shares are listed or admitted to trading, or if
the shares are not so listed or admitted to trading, the average of the
closing bid and asked prices as quoted on NASDAQ. If shares of the
Common Stock are not listed or admitted to trading on any exchange or
quoted on NASDAQ, the Market Price shall be deemed to be the higher of
(A) the book value of a share of the Common Stock as determined by any
firm of independent public accountants of recognized standing, selected
by the board of directors of the Company, as at the last day of any
month ending within sixty (60) days preceding the date as of which the
determination is to be made or (B) the fair value thereof determined in
good faith by an independent brokerage firm or Standard & Poor's
Corporation as of a date which is within fifteen (15) days of the date
as of which the determination is to be made (the fees and expenses of
any brokerage firm or other firm engaged pursuant to this Section 1.b.
to be paid by the Company). The Board of Directors of the Company shall
promptly respond in writing to any inquiry by the Holder as to the
Market Price of one share of Common Stock made pursuant to the
immediately preceding sentence. Notwithstanding the provisions of
Section 1.b. and unless as otherwise agreed in writing, the Holder
shall not have any registration rights with respect to the Warrant or
the Warrant Shares.
2. Compliance with Securities Laws: The Holder of this Warrant, by its
acceptance of this instrument, represents and acknowledges that this Warrant is
acquired for the Holder's own account for investment purposes and that this
Warrant and the Warrant Shares issuable upon exercise hereof, respectively, have
not been registered under the Securities Act of 1933, as amended. Accordingly,
any transfer of this Warrant and such Warrant Shares shall be subject to legal
restrictions. The Holder agrees that it will not offer for sale or sell, assign
or otherwise dispose of (except exercise) this Warrant or any Warrant Shares
issued to it pursuant to exercise hereof, except in accordance with applicable
securities laws.
3. Shares of Common Stock in Reserve: The Company agrees at all times
to reserve a sufficient number of authorized but unissued shares of Common Stock
for the purposes of this Warrant, and to take such action as may be necessary to
ensure that all Warrant Shares issued
<PAGE>
upon exercise of this Warrant will be duly and validly authorized and issued and
fully paid and nonassessable.
4. No Voting or Dividend Rights: This Warrant shall not entitle the
Holder hereof to any voting rights or other rights as a shareholder of the
Company, and no dividend or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the Warrant Shares which may
be purchased hereunder until and unless, and except to the extent that, this
Warrant shall be exercised.
5. Adjustment of Purchase Price and Number of Shares:
a. The Purchase Price hereof shall be subject to adjustment
from time to time as follows:
i. In case the Company shall (a) pay a dividend on
its Common Stock in Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its
outstanding shares of Common Stock into a smaller number of
shares, then, in such an event, the Purchase Price in effect
immediately prior thereto shall be adjusted proportionately so
that the adjusted Purchase Price will bear the same relation
to the Purchase Price in effect immediately prior to any such
event as the total number of shares of Common Stock
outstanding immediately prior to any such event shall bear to
the total number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to
this subdivision i. (a) shall become effective retroactively
immediately after the record date in the case of a dividend
and (b) shall become effective immediately after the effective
date in the case of a subdivision or combination. The Purchase
Price, as so adjusted, shall be readjusted in the same manner
upon the happening of any successive event or events described
herein.
ii. In case the Company shall issue additional shares
of Common Stock at a Net Consideration Per Share (as defined
in subdivision iv. below) which is less than the Purchase
Price at the time of such issuance, the Purchase Price shall
be adjusted so that the same shall equal the Net Consideration
Per Share. Such adjustment shall be made whenever such Common
Stock is issued and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such Common Stock.
iii. In case the Company shall issue rights or
options for the purchase of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock
(such rights, options, convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES"),
whether or not such Convertible Securities are immediately
exercisable, entitling the holders thereof to subscribe for or
purchase shares of Common Stock at a Net Consideration Per
Share (as defined in subdivision iv. below) which is less than
the Purchase Price at the time of such issuance, the Purchase
Price shall be adjusted so that the same shall equal the Net
Consideration Per Share. Such adjustment shall be made
<PAGE>
whenever such Convertible Securities are issued and shall
become effective retroactively immediately after the record
date for the determination of stockholders entitled to receive
such Convertible Securities. In the event the Company shall
subsequently cancel or terminate such Convertible Securities,
the Purchase Price shall be readjusted to be the same as if
the Company had not issued such Convertible Securities.
iv. "NET CONSIDERATION PER SHARE" shall mean the
amount equal to the total amount of consideration received by
the Company for the issuance of such Common Stock or
Convertible Securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion of any such Convertible Securities, divided by the
aggregate number of shares of Common Stock issued and the
number of shares of Common Stock that would be issued if all
such Convertible Securities were exercised, exchanged or
converted.
v. No adjustment of the Purchase Price shall be made
if the amount of such adjustment shall be less than $0.01 per
share, but in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried
forward, shall amount to not less than $0.01 per share. In
case the Company shall at any time issue Common Stock by way
of dividend on any stock of the Company or subdivide or
combine the outstanding shares of the Common Stock, said
amount of $0.01 per share (as theretofore increased or
decreased, if the same amount shall have been adjusted in
accordance with the provisions of this subparagraph) shall
forthwith be proportionately increased in the case of a
combination or decreased in the case of such a subdivision or
stock dividend so as appropriately to reflect the same.
b. Upon each adjustment of the Purchase Price pursuant to
subdivisions i., ii., or iii. of Subsection 5.a., the number of shares
of Common Stock purchasable upon exercise of this Warrant shall be
adjusted to the number of shares of Common Stock, calculated to the
nearest one hundredth of a share, obtained by multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment
upon the exercise of this Warrant by the Purchase Price in effect prior
to such adjustment and dividing the product so obtained by the new
Purchase Price.
c. In case of any capital reorganization of the Company, or of
any reclassification of the Common Stock, this Warrant shall be
exercisable after such capital reorganization or reclassification upon
the terms and conditions specified in this Warrant, for the number of
shares of stock or other securities which the Common Stock issuable (at
the time of such capital reorganization or reclassification) upon
exercise of this Warrant would have been entitled to receive upon such
capital reorganization or reclassification if such exercise had taken
place immediately prior to such action. The subdivision or combination
of shares of Common Stock at any time outstanding into a greater or
lesser number of shares of Common Stock shall not be deemed to be a
<PAGE>
reclassification of the Common Stock of the Company for the purposes of
this Subsection 5.c.
d. Whenever the Purchase Price is adjusted as herein provided,
the Company shall compute the adjusted Purchase Price in accordance
with Subsection 5.a. and shall prepare a certificate signed by its
President and its chief financial officer setting forth the adjusted
Purchase Price and showing in reasonable detail the method of such
adjustment and the fact requiring the adjustment and upon which such
calculation is based, and such certificate shall forthwith be forwarded
to the Holder.
e. The form of this Warrant need not be changed because of any
change in the Purchase Price pursuant to this Section 5 and any Warrant
issued after such change may state the same Purchase Price and the same
number of shares of Common Stock as are stated in this Warrant as
initially issued. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of
this Warrant that it may deem appropriate and that does not affect the
substance thereof. Any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
f. Notwithstanding any provision hereof, if an adjustment of
the Purchase Price is made pursuant to this Section (or any subsection
hereof) and the event causing such adjustment also causes an adjustment
to the conversion price of Series A Preferred stock of Corporation
under the Articles of Incorporation of Corporation, or to the purchase
price, conversion price, number of warrant shares or similar
adjustments under any debentures, warrants or any other instruments to
which Corporation is a party, no additional adjustment under this
Section shall be made solely as a result of such adjustment(s) under
the Articles of Incorporation, debentures, warrants or such other
instruments.
6. Notices to Warrant Holder in Certain Events: Without limiting the
other provisions of this Warrant, in case -
a. Dividends or Distributions: the Company shall declare a
dividend (or any other distribution) payable upon its Common Stock
otherwise than in cash or in its Common Stock;
b. Issuance of Stock: the Company shall authorize the issuance
of any additional shares of Common Stock or Convertible Securities
(including any public offering or private placement);
c. Reorganization Transactions: the Board of Directors or
shareholders of the Company shall vote upon any capital reorganization
of the Company, reclassification of the capital stock of the Company,
consolidation or merger of the Company with or into another
corporation, or conveyance of all or substantially all of the assets of
the Company to another corporation; or
<PAGE>
d. Dissolution or Liquidation: the commencement of voluntary
or involuntary dissolution, liquidation or winding up of the Company;
-- then, and in any such case, the Company shall cause to be delivered
to the Holder at least sixty (60) days prior to the date hereinafter specified,
a notice stating (as applicable): (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or rights, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined, or (ii)
the date on which additional shares of Common Stock or Convertible Securities
are to be issued, and the adjustments in Purchase Price and Warrant Shares to be
made hereunder; or (iii) the date on which such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up is to take place, and the date, if any, to be fixed as of which
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
7. Replacement Warrant for Lost Certificate: Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and reimbursement to the Company of all reasonable expenses incidental thereto
(and upon surrender and cancellation of this Warrant if mutilated), the Company
will execute and deliver a new Warrant of like tenor, in lieu of this Warrant.
8. Assignability; Binding Effect; Amendments; Waivers: This Warrant
shall be binding upon and inure to the benefit of any and all successors and
assigns of the Holder and the Company; PROVIDED, HOWEVER, that no Assignment may
be made by the Holder hereof except for an Assignment to an Approved Party (as
defined below). Each Person to whom all or any part of the Warrant is assigned
shall execute and deliver to the Company a counterpart of the Investor Rights
Agreement as a condition to receipt of a Warrant in the assignee's name. Any
Assignment made without first complying with the provisions of this Section 8
shall be void and of no legal effect. This Warrant may be amended or modified,
or any of its provisions waived, only with the prior written consent of
Debenture Holders holding Debentures representing greater than fifty percent
(50%) of the aggregate outstanding principal balance of all Debentures.
9. As used herein:
e. "AFFILIATES" means with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common
control with such Person. For the purposes of this definition,
"CONTROL" (including with correlative meanings, the terms "CONTROLLING"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as applied to any
Person, means the possession, directly, indirectly or beneficially, of
either: (i) 50% equity ownership; or (ii) the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
<PAGE>
f. "APPROVED PARTY" means: (i) Affiliates; (ii) parents
(including step-parents and adoptive parents) and children (including
step-children, adopted children and children of the half-blood); (iii)
partners or retired partners of a partnership, or members or retired
members in a limited liability company; or (iv) Persons to whom an
Assignment is made with the prior written approval of the Company. The
Company's approval shall not be unreasonably withheld, provided that it
may refuse such approval if the proposed assignee is reasonably
believed by the Company to be a competitor of the Company.
g. "ASSIGNMENT" means any sale, assignment, gift, pledge,
encumbrance or other transfer or disposition of this Warrant;
h. "PERSON" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant under seal
effective as of the date first above written.
COMPANY:
ID TECHNOLOGIES CORPORATION
ATTEST:
By: /s/ J. Phillips L. Johnston
----------------------------------------
J. Phillips L. Johnston, President
/s/ Barbara D. Lane
- -------------------------
(Assistant) Secretary
(Affix Corporate Seal)
Exhibit 3.08
THIS WARRANT WAS ORIGINALLY ISSUED ON SEPTEMBER 24, 1999 AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER, THE PROVISIONS OF THIS WARRANT OR ANY APPLICABLE STATE
LAWS.
Dated: September 24, 1999 200,000 Shares
Certificate No. WC-3
ID TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT for value received, subject to the terms and
conditions hereinafter set forth, Centennial Venture Partners, LLC, a North
Carolina limited liability company, or assigns (the "HOLDER"), is entitled to
purchase up to Two Hundred Thousand (200,000) shares of Common Stock (the
"COMMON STOCK") of ID Technologies Corporation, a North Carolina corporation
(the "COMPANY"), at a purchase price of $0.50 per share (as such purchase price
may be adjusted from time to time as herein provided) (the "PURCHASE PRICE")
upon presentation of this Warrant and payment of the Purchase Price for the
shares of Common Stock purchased at the principal office of the Company or at
such other place as shall have been designated by the Company. The number of
shares of Common Stock which are purchasable hereunder, as adjusted pursuant to
the provisions below, is hereinafter referred to as the "WARRANT SHARES."
This Warrant is made and given in connection with the closing of the
sale and issuance by the Company of Convertible Debentures in the aggregate
original principal amount of Three Hundred Thousand Dollars ($300,000.00) on the
date hereof (each of such Convertible Debentures, a "DEBENTURE" and,
collectively, the "DEBENTURES", and each holder of such Debentures, a "DEBENTURE
HOLDER").
This Warrant is subject to the following provisions:
1. Exercise of Warrant.
a. This Warrant may be exercised, in whole or in part, at any
time upon demand by holders of Debentures representing greater than
fifty percent (50%) of the aggregate outstanding principal balance of
all Debentures, or at the option of the Holder upon an Exercise Event
(as defined below), or automatically upon a Qualified Public Offering
(as defined below), and in any case prior to September 24, 2009, by the
delivery to the Company of written notice of such exercise and the
tender to the Company of the Purchase Price for the Warrant Shares
purchasable pursuant to such exercise of this Warrant. This Warrant
shall expire with respect to any Warrant Shares which have not been
purchased prior to end of the day on September 24, 2009. In case of the
exercise to purchase less than all Warrant Shares purchasable
hereunder, the Company shall cancel
<PAGE>
this Warrant and shall execute and deliver a new Warrant of like tenor
for the balance of the shares which may be purchased hereunder. As used
herein, "EXERCISE EVENT" means the making or receiving by the Company
of any offer, proposal or commitment, or entering into any letter of
intent, contract or agreement, relating to any of the following
transactions, or any earlier announcement by the Company or any other
party to any such transaction (or any public announcement), or any
earlier filing with or notice to the Securities and Exchange Commission
("SEC") or any other governmental agency or authority, in any such case
relating to any of the following transactions: (i) any merger or other
corporate reorganization which results in the failure of the holders of
the capital stock of the Company to hold greater than 50% of the votes
attributable to the shares of voting stock of the surviving company;
(ii) any transaction resulting in a change in the ownership of greater
than 50% of the Common Stock (determined on an as-exercised,
as-converted, fully-diluted basis, excluding warrants of the Debenture
Holders to purchase up to an aggregate of $500,000 of Common Stock upon
the occurrence of an Exercise Event as defined therein, to the extent
not exercised); (iii) any transaction resulting in the sale of all or
substantially all of the assets of the Company; or (iv) a Qualified
Public Offering. The Company shall notify the Holder in writing
immediately upon the occurrence of an Exercise Event and in any event
within sixty (60) days prior to the closing thereof, and the Company,
within such time, shall notify the other parties to such transaction of
the warrants held by the Holder. Upon exercise of this Warrant by the
Holder, such Holder shall be entitled to participate in any such
transaction as a shareholder. As used herein, "QUALIFIED PUBLIC
OFFERING" means an underwritten public offering registered under the
Securities Act of 1933 (the "1933 ACT") (other than a registration
relating solely to employee benefit plans or to a transaction under
Rule 145 under the 1933 Act or any successor rule thereto) in which
(before deduction of underwriter commissions and selling expenses) the
public offering price is equal to or exceeds Five Dollars ($5.00) per
share of Common Stock (subject to adjustment for stock splits, reverse
stock splits and other similar corporate reorganizations) and the gross
proceeds to Company equal or exceed Fifteen Million Dollars
($15,000,000.00).
b. In lieu of exercising this Warrant in accordance with
Section 1.a. hereof, the Holder may elect to receive, at any time
following the occurrence of an Exercise Event, without the payment of
such Holder of any additional consideration, shares equal to the value
of this Warrant or any portion hereof exercised, as determined below,
by the surrender of this Warrant to the Company (with the notice of
exercise form attached hereto as Exhibit A duly executed), at the
principal office of the Company. Thereupon, the Company shall within
thirty (30) days after notice by Holder issue to such Holder such
number of fully paid and nonassessable Warrant Shares as is computed
using the following formula:
X = Y(A-B)
------
A
Where X = the number of shares to be issued to such
Holder pursuant to Section 1.a.
<PAGE>
Y = the number of shares covered by
this Warrant in respect of which the
election is made pursuant to Section
1.b.
A = the Market Price of one share of
Common Stock at the time the
election is made pursuant to Section
1.b.
B = the Purchase Price in effect under
this Warrant at the time the
election is made pursuant to Section
1.b.
For purposes hereof, the term "MARKET PRICE" shall mean the
average of the daily closing prices per shares of the Common Stock for
the ten (10) consecutive trading days immediately preceding the day as
of which Market Price is being determined. The closing price for each
day shall be the last sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the New York Stock Exchange, or,
if shares of the Common Stock are not listed or admitted to trading on
the New York Stock Exchange, on the principal national securities
exchange on which the shares are listed or admitted to trading, or if
the shares are not so listed or admitted to trading, the average of the
closing bid and asked prices as quoted on NASDAQ. If shares of the
Common Stock are not listed or admitted to trading on any exchange or
quoted on NASDAQ, the Market Price shall be deemed to be the higher of
(A) the book value of a share of the Common Stock as determined by any
firm of independent public accountants of recognized standing, selected
by the board of directors of the Company, as at the last day of any
month ending within sixty (60) days preceding the date as of which the
determination is to be made or (B) the fair value thereof determined in
good faith by an independent brokerage firm or Standard & Poor's
Corporation as of a date which is within fifteen (15) days of the date
as of which the determination is to be made (the fees and expenses of
any brokerage firm or other firm engaged pursuant to this Section 1.b.
to be paid by the Company). The Board of Directors of the Company shall
promptly respond in writing to any inquiry by the Holder as to the
Market Price of one share of Common Stock made pursuant to the
immediately preceding sentence. Notwithstanding the provisions of
Section 1.b. and unless as otherwise agreed in writing, the Holder
shall not have any registration rights with respect to the Warrant or
the Warrant Shares.
2. Compliance with Securities Laws: The Holder of this Warrant, by its
acceptance of this instrument, represents and acknowledges that this Warrant is
acquired for the Holder's own account for investment purposes and that this
Warrant and the Warrant Shares issuable upon exercise hereof, respectively, have
not been registered under the Securities Act of 1933, as amended. Accordingly,
any transfer of this Warrant and such Warrant Shares shall be subject to legal
restrictions. The Holder agrees that it will not offer for sale or sell, assign
or otherwise dispose of (except exercise) this Warrant or any Warrant Shares
issued to it pursuant to exercise hereof, except in accordance with applicable
securities laws.
<PAGE>
3. Shares of Common Stock in Reserve: The Company agrees at all times
to reserve a sufficient number of authorized but unissued shares of Common Stock
for the purposes of this Warrant, and to take such action as may be necessary to
ensure that all Warrant Shares issued upon exercise of this Warrant will be duly
and validly authorized and issued and fully paid and nonassessable.
4. No Voting or Dividend Rights: This Warrant shall not entitle the
Holder hereof to any voting rights or other rights as a shareholder of the
Company, and no dividend or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the Warrant Shares which may
be purchased hereunder until and unless, and except to the extent that, this
Warrant shall be exercised.
5. Adjustment of Purchase Price and Number of Shares:
a. The Purchase Price hereof shall be subject to adjustment
from time to time as follows:
i. In case the Company shall (a) pay a dividend on
its Common Stock in Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its
outstanding shares of Common Stock into a smaller number of
shares, then, in such an event, the Purchase Price in effect
immediately prior thereto shall be adjusted proportionately so
that the adjusted Purchase Price will bear the same relation
to the Purchase Price in effect immediately prior to any such
event as the total number of shares of Common Stock
outstanding immediately prior to any such event shall bear to
the total number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to
this subdivision i. (a) shall become effective retroactively
immediately after the record date in the case of a dividend
and (b) shall become effective immediately after the effective
date in the case of a subdivision or combination. The Purchase
Price, as so adjusted, shall be readjusted in the same manner
upon the happening of any successive event or events described
herein.
ii. In case the Company shall issue additional shares
of Common Stock at a Net Consideration Per Share (as defined
in subdivision iv. below) which is less than the Purchase
Price at the time of such issuance, the Purchase Price shall
be adjusted so that the same shall equal the Net Consideration
Per Share. Such adjustment shall be made whenever such Common
Stock is issued and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such Common Stock.
iii. In case the Company shall issue rights or
options for the purchase of Common Stock or any stock or
securities convertible into or exchangeable for Common Stock
(such rights, options, convertible or exchangeable stock or
securities being herein called "CONVERTIBLE SECURITIES"),
whether or not such Convertible Securities are immediately
exercisable, entitling the holders thereof to
<PAGE>
subscribe for or purchase shares of Common Stock at a Net
Consideration Per Share (as defined in subdivision iv. below)
which is less than the Purchase Price at the time of such
issuance, the Purchase Price shall be adjusted so that the
same shall equal the Net Consideration Per Share. Such
adjustment shall be made whenever such Convertible Securities
are issued and shall become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such Convertible Securities.
In the event the Company shall subsequently cancel or
terminate such Convertible Securities, the Purchase Price
shall be readjusted to be the same as if the Company had not
issued such Convertible Securities.
iv. "NET CONSIDERATION PER SHARE" shall mean the
amount equal to the total amount of consideration received by
the Company for the issuance of such Common Stock or
Convertible Securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise or
conversion of any such Convertible Securities, divided by the
aggregate number of shares of Common Stock issued and the
number of shares of Common Stock that would be issued if all
such Convertible Securities were exercised, exchanged or
converted.
v. No adjustment of the Purchase Price shall be made
if the amount of such adjustment shall be less than $0.01 per
share, but in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried
forward, shall amount to not less than $0.01 per share. In
case the Company shall at any time issue Common Stock by way
of dividend on any stock of the Company or subdivide or
combine the outstanding shares of the Common Stock, said
amount of $0.01 per share (as theretofore increased or
decreased, if the same amount shall have been adjusted in
accordance with the provisions of this subparagraph) shall
forthwith be proportionately increased in the case of a
combination or decreased in the case of such a subdivision or
stock dividend so as appropriately to reflect the same.
b. Upon each adjustment of the Purchase Price pursuant to
subdivisions i., ii., or iii. of Subsection 5.a., the number of shares
of Common Stock purchasable upon exercise of this Warrant shall be
adjusted to the number of shares of Common Stock, calculated to the
nearest one hundredth of a share, obtained by multiplying the number of
shares of Common Stock purchasable immediately prior to such adjustment
upon the exercise of this Warrant by the Purchase Price in effect prior
to such adjustment and dividing the product so obtained by the new
Purchase Price.
c. In case of any capital reorganization of the Company, or of
any reclassification of the Common Stock, this Warrant shall be
exercisable after such capital reorganization or reclassification upon
the terms and conditions specified in this Warrant, for the number of
shares of stock or other securities which the Common Stock issuable (at
the time of such capital reorganization or reclassification) upon
exercise of this
<PAGE>
Warrant would have been entitled to receive upon such capital
reorganization or reclassification if such exercise had taken place
immediately prior to such action. The subdivision or combination of
shares of Common Stock at any time outstanding into a greater or lesser
number of shares of Common Stock shall not be deemed to be a
reclassification of the Common Stock of the Company for the purposes of
this Subsection 5.c.
d. Whenever the Purchase Price is adjusted as herein provided,
the Company shall compute the adjusted Purchase Price in accordance
with Subsection 5.a. and shall prepare a certificate signed by its
President and its chief financial officer setting forth the adjusted
Purchase Price and showing in reasonable detail the method of such
adjustment and the fact requiring the adjustment and upon which such
calculation is based, and such certificate shall forthwith be forwarded
to the Holder.
e. The form of this Warrant need not be changed because of any
change in the Purchase Price pursuant to this Section 5 and any Warrant
issued after such change may state the same Purchase Price and the same
number of shares of Common Stock as are stated in this Warrant as
initially issued. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of
this Warrant that it may deem appropriate and that does not affect the
substance thereof. Any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
f. Notwithstanding any provision hereof, if an adjustment of
the Purchase Price is made pursuant to this Section (or any subsection
hereof) and the event causing such adjustment also causes an adjustment
to the conversion price of Series A Preferred stock of Corporation
under the Articles of Incorporation of Corporation, or to the purchase
price, conversion price, number of warrant shares or similar
adjustments under any debentures, warrants or any other instruments to
which Corporation is a party, no additional adjustment under this
Section shall be made solely as a result of such adjustment(s) under
the Articles of Incorporation, debentures, warrants or such other
instruments.
6. Notices to Warrant Holder in Certain Events: Without limiting the
other provisions of this Warrant, in case -
a. Dividends or Distributions: the Company shall declare a
dividend (or any other distribution) payable upon its Common Stock
otherwise than in cash or in its Common Stock;
b. Issuance of Stock: the Company shall authorize the issuance
of any additional shares of Common Stock or Convertible Securities
(including any public offering or private placement);
<PAGE>
c. Reorganization Transactions: the Board of Directors or
shareholders of the Company shall vote upon any capital reorganization
of the Company, reclassification of the capital stock of the Company,
consolidation or merger of the Company with or into another
corporation, or conveyance of all or substantially all of the assets of
the Company to another corporation; or
d. Dissolution or Liquidation: the commencement of voluntary
or involuntary dissolution, liquidation or winding up of the Company;
-- then, and in any such case, the Company shall cause to be delivered
to the Holder at least sixty (60) days prior to the date hereinafter specified,
a notice stating (as applicable): (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or rights, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined, or (ii)
the date on which additional shares of Common Stock or Convertible Securities
are to be issued, and the adjustments in Purchase Price and Warrant Shares to be
made hereunder; or (iii) the date on which such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up is to take place, and the date, if any, to be fixed as of which
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
7. Replacement Warrant for Lost Certificate: Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and reimbursement to the Company of all reasonable expenses incidental thereto
(and upon surrender and cancellation of this Warrant if mutilated), the Company
will execute and deliver a new Warrant of like tenor, in lieu of this Warrant.
8. Assignability; Binding Effect; Amendments; Waivers: This Warrant
shall be binding upon and inure to the benefit of any and all successors and
assigns of the Holder and the Company; PROVIDED, HOWEVER, that no Assignment may
be made by the Holder hereof except for an Assignment to an Approved Party (as
defined below). Each Person to whom all or any part of the Warrant is assigned
shall execute and deliver to the Company a counterpart of the Investor Rights
Agreement as a condition to receipt of a Warrant in the assignee's name. Any
Assignment made without first complying with the provisions of this Section 8
shall be void and of no legal effect. This Warrant may be amended or modified,
or any of its provisions waived, only with the prior written consent of
Debenture Holders holding Debentures representing greater than fifty percent
(50%) of the aggregate outstanding principal balance of all Debentures.
<PAGE>
9. As used herein:
e. "AFFILIATES" means with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common
control with such Person. For the purposes of this definition,
"CONTROL" (including with correlative meanings, the terms "CONTROLLING"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as applied to any
Person, means the possession, directly, indirectly or beneficially, of
either: (i) 50% equity ownership; or (ii) the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
f. "APPROVED PARTY" means: (i) Affiliates; (ii) parents
(including step-parents and adoptive parents) and children (including
step-children, adopted children and children of the half-blood); (iii)
partners or retired partners of a partnership, or members or retired
members in a limited liability company; or (iv) Persons to whom an
Assignment is made with the prior written approval of the Company. The
Company's approval shall not be unreasonably withheld, provided that it
may refuse such approval if the proposed assignee is reasonably
believed by the Company to be a competitor of the Company.
g. "ASSIGNMENT" means any sale, assignment, gift, pledge,
encumbrance or other transfer or disposition of this Warrant;
h. "PERSON" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant under seal
effective as of the date first above written.
COMPANY:
ID TECHNOLOGIES CORPORATION
ATTEST:
By: /s/ J. Phillips L. Johnston
----------------------------------
J. Phillips L. Johnston, President
/s/ Barbara D. Lane
- -----------------------
(Assistant) Secretary
(Affix Corporate Seal)
Exhibit 3.09
THIS WARRANT WAS ORIGINALLY ISSUED ON SEPTEMBER 24, 1999 AND HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER, THE PROVISIONS OF THIS WARRANT OR ANY APPLICABLE STATE
LAWS.
Dated: September 24, 1999
Certificate No. WC-4
ID TECHNOLOGIES CORPORATION
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT for value received, subject to the terms and
conditions hereinafter set forth, Centennial Venture Partners, LLC, a North
Carolina limited liability company, or assigns (the "HOLDER"), is entitled to
purchase shares of Common stock (the "COMMON STOCK") of ID Technologies
Corporation, a North Carolina corporation (the "COMPANY"), up to an amount of
Five Hundred Thousand and 00/100 Dollars ($500,000.00) upon presentation of this
Warrant and payment of the Purchase Price (as defined below) for the shares of
Common Stock purchased at the principal office of the Company or at such other
place as shall have been designated by the Company. The purchase price per share
(as such purchase price may be adjusted from time to time as herein provided)
(the "PURCHASE PRICE") shall be either (a) the fair market value of each such
share as of the date of the then most recent financing by institutional
investors, if such financing occurred within the twelve (12) month period
immediately preceding the date of the exercise of this Warrant, or (b) if no
such financing has occurred within such twelve (12) month period, the Purchase
Price shall be the fair market value of each such share as determined by a
third-party valuation expert to be appointed by the Board of Directors of the
Company and approved as provided in that certain Debenture Purchase Agreement
dated September 24, 1999 between the Company and certain purchasers named
therein (such third-party valuation expert shall determine the fair market value
of such shares without considering the Exercise Event, as defined below). The
number of shares of Common Stock which are purchasable hereunder, as adjusted
pursuant to the provisions below, is hereinafter referred to as the "WARRANT
SHARES."
This Warrant is made and given in connection with the closing of the
sale and issuance by the Company of Convertible Debentures in the aggregate
original principal amount of Three Hundred Thousand Dollars ($300,000.00) on the
date hereof (each of such Convertible Debentures, a "DEBENTURE" and,
collectively, the "DEBENTURES", and each holder of such Debentures, a "DEBENTURE
HOLDER").
This Warrant is subject to the following provisions:
1. Exercise of Warrant.
<PAGE>
a. This Warrant may be exercised, in whole or in part, at any
time following the occurrence of an Exercise Event (as defined below)
and prior to closing (to the extent it occurs) of the underlying
transaction relating to such Exercise (the "EXPIRATION TIME"), by the
delivery to the Company of written notice of such exercise and the
tender to the Company of the Purchase Price for the Warrant Shares
purchasable pursuant to such exercise of this Warrant. This Warrant
shall expire with respect to any Warrant Shares which have not been
purchased prior to the Expiration Time. In case of the exercise to
purchase less than all Warrant Shares purchasable hereunder, the
Company shall cancel this Warrant and shall execute and deliver a new
Warrant of like tenor for the balance of the shares which may be
purchased hereunder. As used herein, "EXERCISE EVENT" means the making
or receiving by the Company of any offer, proposal or commitment, or
entering into any letter of intent, contract or agreement, relating to
any of the following transactions, or any earlier announcement by the
Company or any other party to any such transaction (or any public
announcement), or any earlier filing with or notice to the Securities
and Exchange Commission ("SEC") or any other governmental agency or
authority, in any such case relating to any of the following
transactions: (i) any merger or other corporate reorganization which
results in the failure of the holders of the capital stock of the
Company to hold greater than 50% of the votes attributable to the
shares of voting stock of the surviving company; (ii) any transaction
resulting in a change in the ownership of greater than 50% of the
Common Stock (determined on an as-converted, as-exercised,
fully-diluted basis, which for purposes of this Warrant shall not
include the Warrant Shares hereunder to the extent this Warrant is not
exercised); (iii) any transaction resulting in the sale of all or
substantially all of the assets of the Company; or (iv) a Qualified
Public Offering (as defined below). As used herein, "QUALIFIED PUBLIC
OFFERING" means an underwritten public offering of securities of Maker
registered under the Securities Act of 1933 (the "1933 ACT") (other
than a registration relating solely to employee benefit plans or to a
transaction under Rule 145 under the 1933 Act or any successor rule
thereto) in which (before deduction of underwriter commissions and
selling expenses) the public offering price is equal to or exceeds Five
Dollars ($5.00) per share of Common Stock (subject to adjustment for
stock splits, reverse stock splits and other similar corporate
reorganizations) and the gross proceeds to Maker equal or exceed
Fifteen Million Dollars ($15,000,000.00). The Company shall notify the
Holder in writing immediately upon the occurrence of an Exercise Event
and in any event within sixty (60) days prior to the closing the
underlying transaction relating to such Exercise Event, and the
Company, within such time, shall notify the other parties to such
transaction of the warrants held by the Holder. Upon exercise of the
warrants by the Holder, such Holder shall be entitled to participate in
any such transaction as a shareholder.
b. In lieu of exercising this Warrant in accordance with
Section 1.a. hereof, the Holder may elect to receive, at any time
following the occurrence of an Exercise Event and prior to the
Expiration Time, without the payment of such Holder of any additional
consideration, shares equal to the value of this Warrant or any portion
hereof exercised, as determined below, by the surrender of this Warrant
to the Company (with the notice of exercise form attached hereto as
Exhibit A duly executed), at the principal office of the Company.
Thereupon, the Company shall within thirty (30) days after
<PAGE>
request by Holder issue to such Holder such number of fully paid and
nonassessable Warrant Shares as is computed using the following
formula:
X = Y(A-B)
------
A
Where X = the number of shares to be issued to such
Holder pursuant to Section 1.a.
Y = the number of shares covered by
this Warrant in respect of which the
election is made pursuant to Section
1.b.
A = the Market Price of one share of
Common Stock at the time the
election is made pursuant to Section
1.b.
B = the Purchase Price in effect under
this Warrant at the time the
election is made pursuant to Section
1.b.
For purposes hereof, the term "MARKET PRICE" shall mean the
average of the daily closing prices per shares of the Common Stock for
the ten (10) consecutive trading days immediately preceding the day as
of which Market Price is being determined. The closing price for each
day shall be the last sale price regular way or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices regular way, in either case on the New York Stock Exchange, or,
if shares of the Common Stock are not listed or admitted to trading on
the New York Stock Exchange, on the principal national securities
exchange on which the shares are listed or admitted to trading, or if
the shares are not so listed or admitted to trading, the average of the
closing bid and asked prices as quoted on NASDAQ. If shares of the
Common Stock are not listed or admitted to trading on any exchange or
quoted on NASDAQ, the Market Price shall be deemed to be the fair
market value of each such share as of the date of the then most recent
financing by institutional investors, if such financing occurred within
the twelve (12) month period immediately preceding the date of the
exercise of this Warrant. If shares of the Common Stock are not listed
or admitted to trading on any exchange or quoted on NASDAQ and there
has been no financing by institutional investors within the twelve (12)
month period immediately preceding the date of the exercise of this
Warrant, the Market Price shall be deemed to be the higher of (A) the
book value of a share of the Common Stock as determined by any firm of
independent public accountants of recognized standing, selected by the
board of directors of the Company, as at the last day of any month
ending within sixty (60) days preceding the date as of which the
determination is to be made, (B) the fair value thereof determined in
good faith by an independent brokerage firm or Standard & Poor's
Corporation as of a date which is within fifteen (15) days of the date
as of which the determination is to be made (the fees and expenses of
any brokerage firm or other firm engaged pursuant to this Section 1.b.
to be paid by the Company), or (C) the value attributable to a share of
Common Stock in connection with the transaction relating to the
applicable Exercise Event. The Board of Directors of the Company shall
promptly respond in writing to any inquiry by the Holder as to the
Market Price of one share of
<PAGE>
Common Stock made pursuant to this Section 1.b. Notwithstanding the
provisions of Section 1.b. and unless as otherwise agreed in writing,
the Holder shall not have any registration rights with respect to the
Warrant or the Warrant Shares.
c. Additionally, in lieu of exercising this Warrant in
accordance with Section 1.a. hereof, the Holder may elect to receive,
at any time following the occurrence of an Exercise Event and prior to
the Expiration Time, an amount equal to the amount that the Holder
would have realized if it had (a) exercised this Warrant to purchase
all or any portion of the shares of Common Stock purchasable under this
Warrant (the exact amount of shares to be stated by Holder in its
notice to the Company) for an amount per share of Common Stock equal to
the Purchase Price of each such share and (b) sold such shares of
Common Stock at the Market Price (to be determined as provided in
Section 1.b. above) of each such share as of the date immediately
following the date of closing of the particular transaction related to
the Exercise Event, by surrender of this Warrant to the Company (with
the notice of exercise form attached hereto as Exhibit A duly executed)
at the principal office of the Company. Thereupon, within thirty (30)
days from the date of surrender of this Warrant by Holder pursuant to
this Section 1.c., the Company shall pay to such Holder the amount the
Holder would have realized if it had taken the actions set forth in
items (a) and (b) of this Section 1.c. In case of an election by Holder
pursuant to this Section 1.c. with respect to less than all Warrant
Shares purchasable hereunder, the Company shall cancel this Warrant and
shall execute and deliver a new Warrant of like tenor for the balance
of the shares which may be purchased hereunder.
2. Compliance with Securities Laws: The Holder of this Warrant, by its
acceptance of this instrument, represents and acknowledges that this Warrant is
acquired for the Holder's own account for investment purposes and that this
Warrant and the Warrant Shares issuable upon exercise hereof, respectively, have
not been registered under the Securities Act of 1933, as amended. Accordingly,
any transfer of this Warrant and such Warrant Shares shall be subject to legal
restrictions. The Holder agrees that it will not offer for sale or sell, assign
or otherwise dispose of (except exercise) this Warrant or any Warrant Shares
issued to it pursuant to exercise hereof, except in accordance with applicable
securities laws.
3. Shares of Common Stock in Reserve: The Company agrees at all times
to reserve a sufficient number of authorized but unissued shares of Common Stock
for the purposes of this Warrant, and to take such action as may be necessary to
ensure that all Warrant Shares issued upon exercise of this Warrant will be duly
and validly authorized and issued and fully paid and nonassessable.
4. No Voting or Dividend Rights: This Warrant shall not entitle the
Holder hereof to any voting rights or other rights as a shareholder of the
Company, and no dividend or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the Warrant Shares which may
be purchased hereunder until and unless, and except to the extent that, this
Warrant shall be exercised.
5. Adjustment of Purchase Price and Number of Shares:
<PAGE>
a. The Purchase Price hereof shall be subject to adjustment
from time to time as follows:
i. In case the Company shall (a) pay a dividend on
its Common Stock in Common Stock, (b) subdivide its
outstanding shares of Common Stock, or (c) combine its
outstanding shares of Common Stock into a smaller number of
shares, then, in such an event, the Purchase Price in effect
immediately prior thereto shall be adjusted proportionately so
that the adjusted Purchase Price will bear the same relation
to the Purchase Price in effect immediately prior to any such
event as the total number of shares of Common Stock
outstanding immediately prior to any such event shall bear to
the total number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to
this subdivision i. (a) shall become effective retroactively
immediately after the record date in the case of a dividend
and (b) shall become effective immediately after the effective
date in the case of a subdivision or combination. The Purchase
Price, as so adjusted, shall be readjusted in the same manner
upon the happening of any successive event or events described
herein.
ii. No adjustment of the Purchase Price shall be made
if the amount of such adjustment shall be less than $0.01 per
share, but in such case any adjustment that would otherwise be
required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried
forward, shall amount to not less than $0.01 per share. In
case the Company shall at any time issue Common Stock by way
of dividend on any stock of the Company or subdivide or
combine the outstanding shares of the Common Stock, said
amount of $0.01 per share (as theretofore increased or
decreased, if the same amount shall have been adjusted in
accordance with the provisions of this subparagraph) shall
forthwith be proportionately increased in the case of a
combination or decreased in the case of such a subdivision or
stock dividend so as appropriately to reflect the same.
b. Upon each adjustment of the Purchase Price pursuant to
subdivision i. of Subsection 5.a., the number of shares of Common Stock
purchasable upon exercise of this Warrant shall be adjusted to the
number of shares of Common Stock, calculated to the nearest one
hundredth of a share, obtained by multiplying the number of shares of
Common Stock purchasable immediately prior to such adjustment upon the
exercise of this Warrant by the Purchase Price in effect prior to such
adjustment and dividing the product so obtained by the new Purchase
Price.
c. In case of any capital reorganization of the Company, or of
any reclassification of the Common Stock, this Warrant shall be
exercisable after such capital reorganization or reclassification upon
the terms and conditions specified in this Warrant, for the number of
shares of stock or other securities which the Common Stock issuable (at
the time of such capital reorganization or reclassification) upon
exercise of this Warrant would have been entitled to receive upon such
capital reorganization or reclassification if such exercise had taken
place immediately prior to such action. The
<PAGE>
subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares of Common Stock
shall not be deemed to be a reclassification of the Common Stock of the
Company for the purposes of this Subsection 5.c.
d. Whenever the Purchase Price is adjusted as herein provided,
the Company shall compute the adjusted Purchase Price in accordance
with Subsection 5.a. and shall prepare a certificate signed by its
President and its chief financial officer setting forth the adjusted
Purchase Price and showing in reasonable detail the method of such
adjustment and the fact requiring the adjustment and upon which such
calculation is based, and such certificate shall forthwith be forwarded
to the Holder.
e. The form of this Warrant need not be changed because of any
change in the Purchase Price pursuant to this Section 5 and any Warrant
issued after such change may state the same Purchase Price and the same
number of shares of Common Stock as are stated in this Warrant as
initially issued. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of
this Warrant that it may deem appropriate and that does not affect the
substance thereof. Any Warrant thereafter issued or countersigned,
whether in exchange or substitution for an outstanding Warrant or
otherwise, may be in the form as so changed.
6. Notices to Warrant Holder in Certain Events: Without limiting the
other provisions of this Warrant, in case -
a. Dividends or Distributions: the Company shall declare a
dividend (or any other distribution) payable upon its Common Stock
otherwise than in cash or in its Common Stock;
b. Issuance of Stock: the Company shall authorize the issuance
of any additional shares of Common Stock or Convertible Securities
(including any public offering or private placement);
c. Reorganization Transactions: the Board of Directors or
shareholders of the Company shall vote upon any capital reorganization
of the Company, reclassification of the capital stock of the Company,
consolidation or merger of the Company with or into another
corporation, or conveyance of all or substantially all of the assets of
the Company to another corporation; or
d. Dissolution or Liquidation: the commencement of voluntary
or involuntary dissolution, liquidation or winding up of the Company;
-- then, and in any such case, the Company shall cause to be delivered
to the Holder at least sixty (60) days prior to the date hereinafter specified,
a notice stating (as applicable): (i) the date on which a record is to be taken
for the purpose of such dividend, distribution or rights, or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined, or (ii)
the date on which
<PAGE>
additional shares of Common Stock or Convertible Securities are to be issued,
and the adjustments in Purchase Price and Warrant Shares to be made hereunder;
or (iii) the date on which such reclassification, reorganization, consolidation,
merger, conveyance, dissolution, liquidation or winding up is to take place, and
the date, if any, to be fixed as of which holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
7. Replacement Warrant for Lost Certificate: Upon notice from the
Holder to the Company of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to the Company, and reimbursement to the Company of all
reasonable expenses incidental thereto (and upon surrender and cancellation of
this Warrant if mutilated), the Company will execute and deliver a new Warrant
of like tenor, in lieu of this Warrant.
8. Assignability; Binding Effect; Amendments; Waivers: This Warrant
shall be binding upon and inure to the benefit of any and all successors and
assigns of the Holder and the Company; PROVIDED, HOWEVER, that no Assignment may
be made by the Holder hereof except for an Assignment to an Approved Party (as
defined below). Each Person to whom all or any part of the Warrant is assigned
shall execute and deliver to the Company a counterpart of the Investor Rights
Agreement as a condition to receipt of a Warrant in the assignee's name. Any
Assignment made without first complying with the provisions of this Section 8
shall be void and of no legal effect. This Warrant may be amended or modified,
or any of its provisions waived, only with the prior written consent of
Debenture Holders holding Debentures representing greater than fifty percent
(50%) of the aggregate outstanding principal balance of all Debentures.
9. As used herein:
a. "AFFILIATES" means with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common
control with such Person. For the purposes of this definition,
"CONTROL" (including with correlative meanings, the terms "CONTROLLING"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as applied to any
Person, means the possession, directly, indirectly or beneficially, of
either: (i) 50% equity ownership; or (ii) the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
b. "APPROVED PARTY" means: (i) Affiliates; (ii) parents
(including step-parents and adoptive parents) and children (including
step-children, adopted children and children of the half-blood); (iii)
partners or retired partners of a partnership, or members or retired
members in a limited liability company; or (iv) Persons to whom an
Assignment is made with the prior written approval of the Company. The
Company's approval shall not be unreasonably withheld, provided that it
may refuse such approval if the proposed assignee is reasonably
believed by the Company to be a competitor of the Company.
<PAGE>
c. "ASSIGNMENT" means any sale, assignment, gift, pledge,
encumbrance or other transfer or disposition of this Warrant;
d. "PERSON" means an individual, a partnership, a corporation,
a limited liability company, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision
thereof.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant under seal
effective as of the date first above written.
COMPANY:
ID TECHNOLOGIES CORPORATION
ATTEST:
By: /s/ J. Phillips L. Johnston
----------------------------------
J. Phillips L. Johnston, President
/s/ Barbara D. Lane
- -----------------------
(Assistant) Secretary
(Affix Corporate Seal)
Exhibit 3.10
INVESTOR RIGHTS AGREEMENT
BY AND AMONG
ID TECHNOLOGIES CORPORATION
AND
CERTAIN HOLDERS OF ITS CAPITAL STOCK
DATED AS OF SEPTEMBER 24, 1999
=================================================================
<PAGE>
ID TECHNOLOGIES CORPORATION
----------------------------------
INVESTOR RIGHTS AGREEMENT
--------------------------------------------
SEPTEMBER 24, 1999
--------------------------------------------
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C> <C>
SECTION 1. REGISTRATION RIGHTS 1
1.1 Definitions 2
1.2 Demand Registration 3
1.3 Form S-3 5
1.4 Company Registration 5
1.5 Inclusion of Stock Held by Officers and Directors 7
1.6 Obligations of Company 7
1.7 Information by Holder 9
1.8 Expenses of Registration 9
1.9 Indemnification 10
1.10 Limitations on Subsequent Registration Rights 12
1.11 Rule 144 Reporting 12
1.12 Delay of Registration; Conversion of Series A Stock To Facilitate Registration 13
1.13 "Market Stand-Off"Agreement 13
1.14 Foreign Registrations 14
1.15 Transfer of Registration Rights 14
1.16 Amendment of Registration Rights 14
1.17 Termination of Registration Rights 14
SECTION 2. BOARD OF DIRECTORS 15
2.1 Constituency of Board of Directors; Quorum 15
2.2 Audit and Compensation Committees 16
2.3 Other Committees 16
2.4 Vacancies 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
2.5 Meetings 16
2.6 Board Expenses 16
2.7 Articles of Incorporation and By-Laws 16
2.8 No Conflicting Agreements 16
2.9 Nature and Term of Agreement 16
SECTION 3. COMPANY COVENANTS 16
3.1 Basic Financial Information and Reporting Requirements 16
3.2 Additional Affirmative Covenants 19
3.3 Negative Covenants 23
3.4 Fees and Expenses 24
3.5 Expiration of Covenants 24
SECTION 4. MISCELLANEOUS 24
4.2 Jurisdiction and Venue 24
4.3 Successors and Assigns 25
4.4 Entire Agreement 25
4.5 Severability 25
4.6 Specific Performance 25
4.7 Amendment and Waiver 26
4.8 Delays or Omissions 26
4.9 Notices 26
4.10 Titles and Subtitles 27
4.11 Counterparts 27
</TABLE>
SCHEDULES AND EXHIBITS
Schedule 1 - Schedule of Series A Holders
Schedule 2 - Schedule of Common Stockholders
Exhibit A - Form of Non-Disclosure, Inventions and Non-Competition Agreements
<PAGE>
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "AGREEMENT") is made and entered
into as of September 24, 1999, by and among ID Technologies Corporation, a North
Carolina corporation (the "COMPANY"), those holders of the Series A Preferred
stock of the Company (or Convertible Debentures convertible into such Series A
Preferred stock of the Company) listed on Schedule 1 attached hereto and made a
part hereof (each, a "SERIES A HOLDER" and collectively, the "SERIES A
HOLDERS"), and those holders of the Common stock of the Company listed on
Schedule 2 attached hereto and made a part hereof (each a "COMMON STOCKHOLDER"
and collectively, the "COMMON STOCKHOLDERS").
Series A Holders, Common Stockholders and each other stockholder of
Company required to become a party hereto, are referred to sometimes herein as a
"STOCKHOLDER" and as "STOCKHOLDERS" collectively.
RECITALS
A. The Common Stockholders hold a majority of the issued and
outstanding Common stock of the Company (the "COMMON STOCK") as of the date
hereof.
B. Series A Holders have previously acquired, or are acquiring from
Company as of the date hereof, Convertible Debentures dated as of the date
hereof in the aggregate original principal amount of Three Hundred Thousand
Dollars ($300,000) (the "DEBENTURES") which are convertible into shares of
Series A Preferred stock of Company (the "SERIES A STOCK"). The Series A Stock
is convertible into shares of Common Stock. The shares of Series A Stock issued
or issuable upon conversion of the Debentures, together with any outstanding
shares of Common Stock issued pursuant to the conversion of Series A Stock and
any shares of Common Stock issued or issuable upon exercise of the Warrants (as
defined herein), are collectively referred to herein as the "INVESTOR SHARES".
D. Company, Series A Holders and Common Stockholders desire to enter
into this Agreement for the purposes, among others, of (i) providing for the
registration of shares, (ii) establishing the composition of Company's Board of
Directors (the "BOARD"), and (iii) establishing covenants concerning the
operation of Company.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties to this
Agreement hereby agree as follows:
SECTION 1.
REGISTRATION RIGHTS
Company hereby grants to each of the Holders (as hereinafter defined)
the registration rights set forth in this Section 1, with respect to the
Registrable Securities (as hereinafter defined) owned by such Holders.
<PAGE>
1.1 Definitions.
As used in this Section 1:
(a) The terms "REGISTER," "REGISTERED" and "REGISTRATION"
refer to a registration effected by filing with the Securities and
Exchange Commission (the "SEC") a registration statement (the
"REGISTRATION STATEMENT") in compliance with the Securities Act of
1933, as amended (the "1933 ACT"), and the declaration or ordering by
the SEC of the effectiveness of such Registration Statement.
(b) The term "REGISTRABLE SECURITIES" means (i) the Series A
Stock issued or issuable upon conversion of the Debentures (subject to
the provisions of Section 1.12 hereof); (ii) Common Stock of Company
issued or issuable upon conversion of the Series A Stock or upon
exercise of the Warrants; and (iii) any Common Stock issued or issuable
upon the conversion or exercise of any warrant, right or other security
that is issued as a dividend or other distribution with respect to, or
in exchange or in replacement of, the Debentures, Series A Stock and
Common Stock referred to in (i) and (ii) above; PROVIDED, HOWEVER, that
Debentures, Series A Stock, Common Stock or other securities shall be
treated as Registrable Securities only if and for so long as (A) they
have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, (B) they have
not been sold in a transaction exempt from the registration and
prospectus delivery requirements of the 1933 Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale, or (C)
the registration rights associated with such securities have not been
terminated pursuant to Section 1.17 hereof.
(c) The term "HOLDER" (collectively, "HOLDERS") means Series A
Holders and any transferee of any of the foregoing permitted by Section
1.15 hereof holding Registrable Securities, securities exercisable or
convertible into Registrable Securities or securities exercisable into
securities convertible into Registrable Securities.
(d) The term "INITIATING HOLDERS" means any Holder or Holders
holding in the aggregate (on a fully diluted basis) greater than fifty
percent (50%) of the Registrable Securities then outstanding and not
registered at the time of any request for registration made pursuant to
Section 1.2 of this Agreement.
(e) The term "WARRANTS" shall mean all of those certain Common
Stock Purchase Warrants, each dated as of the date hereof, issued by
the Company to the holders of the Debentures for the purchase of up to
an aggregate of Eight Hundred Thousand (800,000) shares of Common Stock
plus Five Hundred Thousand Dollars ($500,000) of Common Stock.
(f) The term "WARRANT SHARES" shall mean any shares of Common
Stock issued or issuable upon exercise of the Warrants.
<PAGE>
1.2 Demand Registration.
(a) Demand for Registration. If Company shall receive from
Initiating Holders a written demand (a "DEMAND REGISTRATION") that
Company effect any registration of at least twenty percent (20%) of the
Registrable Securities of such Initiating Holders (other than a
registration on Form S-3 or any related form of registration statement,
such a request being provided for under Section 1.3 hereof), Company
shall:
(i) promptly (but in any event within ten (10) days
give written notice of the proposed registration to all other
Holders; and
(ii) use its diligent best efforts to effect such
registration as soon as practicable and as will permit or
facilitate the sale and distribution of all or such portion of
such Initiating Holders' Registrable Securities as are
specified in such demand, together with all or such portion of
the Registrable Securities of any Holder or Holders joining in
such demand as are specified in a written demand received by
Company within thirty (30) days after such written notice is
given, provided that Company shall not be obligated to take
any action to effect any such registration pursuant to this
Section 1.2:
(A) prior to two (2) years from the date
hereof;
(B) if within thirty (30) days of Company's
receipt of such a written demand, Company shall
furnish to such Holders a certificate signed by the
President of Company, stating that in the good faith
judgment of the Board, Company will file a
Registration Statement for a public offering of
Company's securities within ninety (90) days,
provided that Company actively employs in good faith
all reasonable efforts to cause such Registration
Statement to become effective and that Company's
estimate of the date of filing such Registration
Statement is made in good faith. Notwithstanding the
foregoing, nothing herein shall restrict, prohibit,
or limit in any way, a Holder's ability to exercise
its registration rights under Section 1.4 hereof.
(C) if Company shall furnish to such Holders
a certificate signed by the President of Company,
stating that in the good faith judgment of the Board
it would be seriously detrimental to Company and its
stockholders for such Registration Statement to be
filed at the date filing would be required, in which
case Company shall have an additional period of not
more than ninety (90) days within which to file such
Registration Statement; PROVIDED, HOWEVER, that
Company shall not use this right more than twice in
any twelve (12)-month period;
<PAGE>
(D) during the period commencing on the date
a public offering of the Common Stock by the Company
is approved by the Securities and Exchange Commission
and ending ninety (90) days after such date;
(E) after Company has effected an aggregate
of three (3) such registrations pursuant to this
Section 1.2 and the sale of Registrable Securities
under such registrations have closed;
(F) in any registration having an aggregate
offering price (before deduction of underwriting
discounts and expenses of sale) of less than Fifteen
Million Dollars ($15,000,000); or
(G) in any particular jurisdiction in which
Company would be required to execute a general
consent to service of process in effecting such
registration, qualification or compliance unless
Company is already subject to service in such
jurisdiction and except as may be required by the
1933 Act.
(b) Underwriting.
(i) If the Initiating Holders intend to distribute
the Registrable Securities covered by their demand by means of
an underwriting, they shall so advise Company as part of their
demand made pursuant to this Section 1.2; and Company shall
include such information in the written notice referred to in
Section 1.2(a)(i). In such event, the right of any Holder to
registration pursuant to this Section 1.2 shall be conditioned
upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein.
(ii) Company shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters selected by Company and reasonably satisfactory
to a majority in interest of the Initiating Holders, and (if
required by the underwriter or underwriters to do so) all
holders of capital stock of Company proposing to distribute
their securities through such underwriting shall enter into
such underwriting agreement.
(iii) If any Holder disapproves of the terms of the
underwriting, such Holder may elect to withdraw therefrom by
written notice to Company, the underwriter and the Initiating
Holders. The Registrable Securities so withdrawn shall also be
withdrawn from registration, and Company shall not be
obligated to continue the registration statement if the
threshold set forth in Section 1.2(a) (requiring that at least
twenty percent (20%) of the Registrable Securities held by the
Initiating Holders registered) or the minimum aggregate
offering price set forth in Section 1.2(a)(ii)(F) is no longer
met after such withdrawal.
<PAGE>
(iv) Notwithstanding any other provision of this
Section 1.2, if the underwriter shall advise Company in
writing that marketing factors (including, without limitation,
an adverse effect on the per share offering price) require a
limitation of the number of shares to be underwritten, then
Company shall so advise all Holders of Registrable Securities
that have requested to participate in such offering, and the
number of shares of Registrable Securities that may be
included in the registration and underwriting shall be
allocated pro rata among such Holders thereof in proportion,
as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of
filing the Registration Statement. No Registrable Securities
excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
(v) If the underwriter has not limited the number of
Registrable Securities to be underwritten, Company may include
securities for its own account or for the account of other
stockholders in such registration if the underwriter so agrees
and if the number of Registrable Securities that would
otherwise have been included in such registration and
underwriting will not thereby be limited.
1.3 Form S-3. If Company's stock becomes publicly traded, Company
shall use its best efforts to qualify for registration on Form S-3 and to that
end Company shall register the Common Stock under the Securities Exchange Act of
1934, as amended (the "1934 ACT") within twelve (12) months following the
effective date of the first registration of any securities of Company on Form
S-1. After Company has qualified for the use of Form S-3, the Holders of
Registrable Securities shall have the right to request registrations on Form S-3
three (3) times per year under this Section 1.3. Company shall give notice to
all Holders of Registrable Securities of the receipt of a request for
registration pursuant to this Section 1.3 and shall provide a reasonable
opportunity for other Holders to participate in the registration. Subject to the
foregoing, Company will use its best efforts to effect as soon as practicable
the registration of all shares of Registrable Securities on Form S-3, as the
case may be, to the extent requested by the Holder or Holders thereof for
purposes of disposition; PROVIDED, HOWEVER, that Company shall not be obligated
to effect any such registration if the Holders, together with the holders of any
other securities of Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than Five Hundred Thousand Dollars
($500,000). Notwithstanding the foregoing, nothing herein shall restrict,
prohibit, or limit in any way a Holder's ability to exercise its registration
rights under Section 1.2 or 1.4 hereof.
1.4 Company Registration.
(a) Registration. If at any time or from time to time Company
shall determine to register any of its securities, either for its own
account or for the account of security holders, other than a
registration relating solely to employee benefit plans, a registration
on Form S-4 relating solely to an SEC Rule 145 transaction, or a
registration pursuant to Section 1.2 or 1.3 hereof, Company will:
<PAGE>
(i) promptly (but in any event within ten (10) days) give to
each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made
within thirty (30) days after receipt of such written notice
from Company, by any Holder or Holders, except as set forth in
Section 1.4(b) below.
Such Registrable Securities shall only be included to the extent that
inclusion will not diminish the number of securities included by
Company. Further, no holder of securities in Company (other than a
Holder) shall be granted any right to register such securities pursuant
to this Section 1.4 if such registration will have the effect of
reducing the number of shares includable by the Holders unless more
than fifty percent (50%) of such Holders provide their written consent
to such registration to Company.
(b) Underwriting.
(i) If the registration of which Company gives notice
is for a registered public offering involving an underwriting,
Company shall so advise the Holders as a part of the written
notice given pursuant to Section 1.4(a)(i). In such event the
right of any Holder to registration pursuant to this Section
1.4 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent
provided herein.
(ii) Company and (if required by the underwriter or
underwriters selected for such underwriting by Company) all
Holders proposing to distribute their Registrable Securities
through such underwriting, shall enter into an underwriting
agreement in customary form with the underwriter or
underwriters.
(iii) If any Holder disapproves of the terms of the
underwriting, it may elect to withdraw therefrom by written
notice to Company and the underwriter. The Registrable
Securities so withdrawn shall also be withdrawn from
registration.
(iv) Notwithstanding any other provision of this
Section 1.4, if the underwriter determines that marketing
factors require a limitation of the number of shares to be
underwritten, Company shall so advise all holders of Company's
securities that would otherwise be registered and underwritten
pursuant hereto, and the number of shares of such securities,
including Registrable Securities, that may be included in the
registration and underwriting shall be allocated in the
following manner: (i) first, the securities requested to be
included therein by Company; (ii) second, the Registrable
Securities requested to be included in such registration
pursuant to Section 1.4(a)(ii), pro rata among such Holders
thereof in proportion, as nearly as practicable, to the
respective amounts of Registrable
<PAGE>
Securities held by such Holders at the time of filing the
Registration Statement; (iii) third, other securities
requested to be included in such registration.
(c) Right to Terminate Registration. Company shall have the
right to terminate or withdraw any registration initiated by it under
this Section 1.4 prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in such
registration.
1.5 Inclusion of Stock Held by Officers and Directors. In connection
with any registration effected pursuant to Section 1.4 hereof, the officers and
directors of Company at the time of such registration (collectively, the
"MANAGERS") shall be entitled to include in such registration (on the same terms
and conditions as Holders selling their Registrable Securities in such
registration) shares of Common Stock held by the Managers; PROVIDED, HOWEVER,
that any limitation by the underwriter on the number of shares to be
underwritten in connection with such registration shall first be applied to the
shares so included by the Managers, as provided in Section 1.4(b), and PROVIDED,
FURTHER, that each Manager's right to include shares of Common Stock in a
registration pursuant to this Section 1.5 is contingent upon (i) such Manager's
execution of an indemnification and hold harmless agreement substantially in
accordance with Section 1.9(b), and (ii) such person agreeing to be bound by
Section 1.13 hereof.
1.6 Obligations of Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its diligent best
efforts to cause such Registration Statement to become effective, and
keep such Registration Statement effective for the lesser of one
hundred twenty (120) days or until the Holder or Holders have completed
the distribution relating thereto.
(b) Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection with such Registration Statement as may be necessary to keep
such Registration Statement effective and to comply with the provisions
of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register or otherwise qualify the
securities covered by such Registration Statement under such other
securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Holders or the managing underwriter,
provided that Company shall not be required in connection therewith or
as a condition thereto to qualify to do business in any such states or
jurisdictions, to subject
<PAGE>
itself to taxation in any such states or jurisdictions, to file a
general consent to service of process in any such states or
jurisdictions, or to register the Registrable Securities or seek an
exemption from registration under the securities laws of any state that
requires, as a condition to such registration or exemption, that
Company indefinitely file in such jurisdiction substantially all
reports required to be filed by Company with the SEC.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such
offering. If required to do so by the underwriter or underwriters, each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such Registration Statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the
happening of any event as a result of which the prospectus included in
such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(g) If such securities are being sold through underwriters,
furnish at the written request of any Holder including Registrable
Securities in such registration on the date that such Registrable
Securities are delivered to the underwriters for sale in connection
with such registration pursuant to this Section 1 (i) an opinion, dated
such date, of the counsel representing Company for the purposes of such
registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, and (ii) a letter dated such date, from the independent
accountants of Company, in form and substance as is customarily given
by independent accountants to underwriters in an underwritten public
offering, addressed to the underwriters.
(h) Use its best efforts to list the Registrable Securities
covered by such Registration Statement with any securities exchange on
which the Common Stock is then listed; PROVIDED, HOWEVER, that each
Holder shall reimburse Company for the pro rata portion of any listing
fees so paid by Company.
(i) Make available for inspection by each Holder including
Registrable Securities in such registration, any underwriter
participating in any distribution pursuant to such registration, and
any attorney, accountant or other agent retained by such Holder or
underwriter, all financial and other records, pertinent corporate
documents and properties of Company, as such parties may reasonably
request, and cause Company's officers, directors and employees to
supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such
Registration Statement.
<PAGE>
(j) Cooperate with Holders including Registrable Securities in
such registration and the managing underwriters, if any, to facilitate
the timely preparation and delivery of certificates representing
Registrable Securities to be sold, such certificates to be in such
denominations and registered in such names as such Holders or the
managing underwriters may request at least two (2) business days prior
to any sale of Registrable Securities.
(k) Permit any Holder which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to
be a controlling person of Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion
therein of material, furnished to Company in writing, which in the
reasonable judgment of such Holder and its counsel should be included.
1.7 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish in writing to Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as Company may reasonably request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Section 1.
1.8 Expenses of Registration.
(a) All expenses incurred in connection with all registrations
effected pursuant to Sections 1.2 and 1.4, and the first three (3)
registrations pursuant to Section 1.3, including without limitation all
registration, filing and qualification fees (including blue sky fees
and expenses), printing expenses, escrow fees, fees and disbursements
of counsel for Company (and the reasonable fees and disbursements of
one separate special counsel for all participating Holders) and
expenses of any special audits incidental to or required by such
registration shall be borne by Company; PROVIDED, HOWEVER, that Company
shall not be required to pay stock transfer taxes or underwriters'
discounts or selling commissions relating to Registrable Securities.
(b) Notwithstanding anything to the contrary above, Company
shall not be required to pay for any expenses of any registration
proceeding under Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to have been registered and such withdrawal
shall not result in a forfeiture of the Holder's right to a demand
registration pursuant to Section 1.2; PROVIDED, HOWEVER, that in the
event that Holders holding at least eighty percent (80%) of the
Registrable Securities agree to forfeit their right to a demand
registration pursuant to Section 1.2 (in which event such right shall
be forfeited by all Holders), then Company shall be required to pay the
expenses of such withdrawn registration. In the absence of such an
agreement to forfeit, the Holders of Registrable Securities to have
been registered shall bear all such expenses pro rata on the basis of
the Registrable Securities to have been registered. Notwithstanding the
preceding sentence, however, if at the time of the withdrawal, the
Holders have learned of a material adverse change in the condition,
business or prospects of Company from that known to the Holders at the
time of their
<PAGE>
request, then the Holders shall not be required to pay any of said
expenses and shall retain their rights pursuant to Section 1.2.
1.9 Indemnification.
(a) Company will, and does hereby undertake to, indemnify and
hold harmless each Holder of Registrable Securities, each of such
Holder's officers, directors, partners and agents, and each person
controlling such Holder, with respect to any registration,
qualification or compliance effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter,
of the Registrable Securities held by or issuable to such Holder,
against all claims, losses, damages and liabilities (or actions in
respect thereto) to which they may become subject under the 1933 Act,
the 1934 Act, or other federal or state law arising out of or based on
(i) any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other similar
document (including any related Registration Statement, notification,
or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made, (ii) any violation or alleged
violation by Company of any federal, state or common law rule or
regulation applicable to Company in connection with any such
registration, qualification or compliance, or (iii) any failure to
register or qualify Registrable Securities in any state where Company
or its agents have affirmatively undertaken or agreed in writing that
Company (the undertaking of any underwriter chosen by Company being
attributed to Company) will undertake such registration or
qualification on behalf of the Holders of such Registrable Securities
(provided that in such instance Company shall not be so liable if it
has undertaken its best efforts to so register or qualify such
Registrable Securities) and will reimburse, as incurred, each such
Holder, each such underwriter and each such director, officer, partner,
agent and controlling person, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided that Company
will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any
untrue statement or omission made in conformity with written
information furnished to Company by an instrument duly executed by such
Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration,
qualification or compliance pursuant to this Section 1, does hereby
undertake to indemnify and hold harmless Company, each of its
directors, officers, employees and agents, and each person controlling
Company, each underwriter, if any, and each person who controls any
underwriter, of Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
partners, directors and agents and each person controlling such other
Holder, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
Registration Statement, prospectus, offering circular
<PAGE>
or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the
circumstances in which they were made, and will reimburse, as incurred,
Company, each such underwriter, each such other Holder, and each such
director, officer, employee, agent, partner and controlling person of
the foregoing, for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) was made in such Registration Statement,
prospectus, offering circular or other document, in reliance upon and
in conformity with written information furnished to Company by an
instrument duly executed by such Holder and stated to be specifically
for use therein; PROVIDED, HOWEVER, that the liability of each Holder
hereunder shall be limited to the proportion of any such claim, loss,
damage or liability which is equal to the proportion that the public
offering price of the shares sold by such Holder under such
Registration Statement bears to the total public offering price of all
securities sold thereunder, but in any event not to exceed the net
proceeds received by such Holder from the sale of securities under such
Registration Statement. It is understood and agreed that the
indemnification obligations of each Holder pursuant to any underwriting
agreement entered into in connection with any Registration Statement
shall be limited to the obligations contained in this subsection
1.9(b).
(c) Each party entitled to indemnification under this Section
1.9 (the "INDEMNIFIED Party") shall give notice to the party required
to provide such indemnification (the "INDEMNIFYING Party") of any claim
as to which indemnification may be sought promptly after such
Indemnified Party has actual knowledge thereof, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, HOWEVER, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be subject to approval by the Indemnified Party
(whose approval shall not be unreasonably withheld) and the Indemnified
Party may participate in such defense at the Indemnifying Party's
expense if representation of such Indemnified Party would be
inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel
in such proceeding; and PROVIDED, FURTHER that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 1.9,
except to the extent that such failure to give notice shall materially
adversely affect the Indemnifying Party in the defense of any such
claim or any such litigation. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff therein, to such Indemnified Party,
of a release from all liability in respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any
Indemnified Party exercising rights under this Agreement, or any
controlling person of any such Indemnified Party, makes a claim for
indemnification pursuant to this Section 1.9 but it is judicially
determined (by
<PAGE>
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 this Section 1.9 provides for
indemnification in such case, or (ii) contribution under the 1933 Act
may be required on the part of any such Indemnified Party or any such
controlling person in circumstances for which indemnification is
provided under this Section 1.9; then, and in each such case, Company
and such Holder will contribute to the aggregate claims, losses,
damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for
the portion represented by the percentage that the public offering
price of the securities offered by such Holder pursuant to the
Registration Statement bears to the public offering price of all
securities offered by such Registration Statement, and Company and any
other contributing parties are responsible for the remaining portion;
PROVIDED, HOWEVER, that, in any case, (A) no such Holder will be
required to contribute any amount in excess of the public offering
price of all securities offered by it pursuant to such Registration
Statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act)
will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
(e) The indemnities and contribution obligations provided in
this Section 1.9 shall survive the transfer of any Registrable
Securities by such Holder.
1.10 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, Company shall not, without the prior written consent of
the Holders of greater than fifty percent (50%) of the Registrable Securities
then outstanding and not registered, enter into any agreement with any holder or
prospective holder of any securities of Company, which would allow such holder
or prospective holder to (i) require Company to effect a registration or (ii)
include any securities in any registration filed under Section 1.2, 1.3 or 1.4
hereof, unless, under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of such securities will not diminish the amount of
Registrable Securities which are included in such registration and includes the
equivalent of Section 1.13 as a term.
1.11 Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, Company
agrees to use its best efforts to:
(a) Make and keep current public information available, within
the meaning of SEC Rule 144 or any similar or analogous rule
promulgated under the 1933 Act, at all times after it has become
subject to the reporting requirements of the 1934 Act;
(b) File with the SEC, in a timely manner, all reports and
other documents required of Company under the 1933 Act and 1934 Act
(after it has become subject to such reporting requirements);
<PAGE>
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by
Company as to its compliance with the reporting requirements of said
Rule 144 (at any time commencing ninety (90) days after the effective
date of the first registration filed by Company for an offering of its
securities to the general public), the 1933 Act and the 1934 Act (at
any time after it has become subject to such reporting requirements); a
copy of the most recent annual or quarterly report of Company; and such
other reports and documents as a Holder may reasonably request in
availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
1.12 Delay of Registration; Conversion of Series A Stock To
Facilitate Registration.
(a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
(b) If any registration hereunder requires that the
Registrable Securities be in the form of Common Stock rather than
Series A Stock, Company shall coordinate with all Holders to facilitate
the conversion of Series A Stock into Common Stock and to include such
Common Stock in the Registration (provided the Holder thereof has
exercised its election to register such shares within the time periods
set forth above).
1.13 "Market Stand-Off" Agreement.
(a) Each Holder which is a "ONE PERCENT SHAREHOLDER," as
defined below, hereby agrees that during the "Lock-Up Period" (as
hereinafter defined) following the effective date of a registration
statement of Company filed under the 1933 Act, it shall not, to the
extent requested by Company and any underwriter, sell, pledge,
transfer, make any short sale of, loan, grant any option for the
purchase of, or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any Common Stock held by it at any
time during such period except Common Stock included in such
registration; PROVIDED, HOWEVER, that such agreement shall be
applicable only to the first such registration statement of Company
which covers Common Stock (or other securities) to be sold on its
behalf to the public in an underwritten offering. Market stand-off
agreements for subsequent registration statements, if any, shall be as
agreed to by Company, the underwriters and any other party thereto.
(b) For purposes of this Section 1.13, the term "ONE PERCENT
SHAREHOLDER" shall mean a stockholder of Company who holds, prior to
the effective date of the registration statement, at least one percent
of the issued and outstanding Common Stock of Company on an
as-converted, as-exercised, fully-diluted basis (as used herein,
"AS-CONVERTED, AS-EXERCISED, FULLY-DILUTED" shall not include Warrants
for the purchase of up to Five Hundred Thousand Dollars ($500,000) of
Common Stock to the extent such Warrants have not been exercised).
<PAGE>
(c) For purposes of this Section 1.13, the "LOCK-UP PERIOD"
shall be the period applicable to all other One Percent Shareholders
with registration rights (whether or not pursuant to this Agreement),
and all officers and directors of Company, who enter into similar
agreements but in any event shall be not less than ninety (90) days
from the effective date of the registration statement.
(d) In order to enforce the foregoing covenant, Company may
impose stop-transfer instructions with respect to the Registrable
Securities of each Holder (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such
period.
1.14 Foreign Registrations. In the event Company and Initiating Holders
agree that it is appropriate to cause to be registered the Registrable
Securities under the laws of a country other than the United States of America,
the parties shall cooperate with each other and shall execute and deliver such
instruments and other items as are appropriate, at the expense of Company, in
order to effectuate such registration, unless such registration would require
either Company or a Holder to execute a general consent to service of process in
effecting such registration, to the extent Company or such Holder are not
already subject to service in such jurisdiction.
1.15 Transfer of Registration Rights. The rights, contained in Sections
1.2, 1.3 and 1.4 hereof, to cause Company to register the Registrable
Securities, may be assigned, conveyed or otherwise transferred to a transferee
or assignee of Registrable Securities, who shall be considered a "HOLDER" for
purposes of this Section 1, provided that such transfer is a "Permitted
Transfer." A "PERMITTED TRANSFER" shall mean: (i) a transaction not involving a
change in beneficial ownership; (ii) transactions involving distribution without
consideration by a partnership to any of its partners, retired partners, or to
the estate of any of its partners, or by a limited liability company to any of
its members, retired members or to the estate of any of its members; (iii)
transfers by an individual to a trust for the benefit of such individual or his
family; (iv) transfers by gift, will or intestate succession to the spouse,
lineal descendants or ancestors of any Holder or spouse of a Holder; or (v)
transfers to any one transferee of at least Ten Thousand (10,000) shares of
Registrable Securities provided that the Company is given prior written notice
of such transfer.
1.16 Amendment of Registration Rights. Any provision of this Section 1
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of Company and the Holders of more than fifty percent (50%) of
the Registrable Securities then outstanding and not registered. Any amendment or
waiver effected in accordance with this Section 1.16 shall be binding upon each
Holder, each future Holder of Registrable Securities and Company.
1.17 Termination of Registration Rights. The rights of any particular
Holder to cause Company to register securities under Sections 1.2, 1.3 or 1.4
hereof shall terminate as to any Holder who holds Registrable Securities equal
to less than one percent (1%) of the issued and outstanding Common Stock of
Company (determined on an as-converted, as-exercised, fully-diluted basis) as
shown on the most recent report or statement published by Company or
<PAGE>
distributed the Holders pursuant to Section 3.1 hereof, on the date such Holder
is able to dispose of all of its Registrable Securities in any ninety (90)-day
period pursuant to SEC Rule 144 (or any similar or analogous rule promulgated
under the 1933 Act).
SECTION 2.
BOARD OF DIRECTORS
From and after the date hereof, and until the provisions of this
Section 2 cease to be effective, each Stockholder shall vote any voting security
of Company over which such Stockholder has voting control, and shall take all
other necessary or desirable actions within his or her control (whether in his
or her capacity as a Stockholder, director, member of a Board committee or
officer of Company or otherwise, and including, without limitation, attendance
at meetings in person or by proxy for purposes of obtaining a quorum and
execution of written consents in lieu of meetings), and Company shall take all
necessary and desirable actions within its control (including, without
limitation, calling special Board and Stockholder meetings), so that:
2.1 Constituency of Board of Directors; Quorum.
(a) Constituency of Board of Directors. For as long as there
remain outstanding any Debentures or any principal, accrued interest or
other amounts owed thereunder, or at least Fifty Thousand (50,000)
shares of Series A Stock or Common Stock issued upon conversion thereof
(as adjusted for any combination, consolidation, stock distribution or
stock dividend with respect to such shares), or at least Two Hundred
Sixty-Six Thousand Six Hundred Sixty-Seven (266,667) Warrant Shares (as
adjusted for any combination, consolidation, stock distribution or
stock dividend with respect to such shares), the parties shall vote
their shares of capital stock of Company for a Board of Directors
consisting of five (5) directors, comprised as follows:
(i) One (1) director designated by Centennial Venture
Partners, LLC ("CVP") so long as it remains a Series A Holder
(to be designated after the date hereof and upon Company
obtaining director and officer insurance coverage acceptable
to CVP); and
(ii) The remaining four (4) directors designated by
the holders of Common Stock, voting together as a single class
(on an as-converted, as-exercised, fully-diluted basis).
Notwithstanding anything to the contrary contained in this Agreement,
the provisions of clauses (i) and (ii) of this Section 2.1(a) that
allow a party to designate or participate in the designation of a
director may not be amended without the consent of that party, or (in
the case of the holders of Common Stock) the holders of a majority of
the outstanding shares of Common Stock (on an as-converted,
as-exercised, fully-diluted basis).
(b) Quorum. A majority of the number of directors then
constituting the Board of Directors shall constitute a quorum for the
transaction of business of the Board.
<PAGE>
2.2 Audit and Compensation Committees. The Board shall establish an
Audit Committee and a Compensation Committee following the date hereof, each
comprised of (a) one (1) director designated by CVP, and (b) two (2) directors
designated by the holders of Common Stock (on an as-converted, as-exercised,
fully-diluted basis)(one of which two (2) directors shall be a non-management
director).
2.3 Other Committees. Any other committee of the Board shall be created
only upon the approval of a majority of the members of the Board and the
composition of each such committee (if any) shall be proportionally equivalent
to that of the Board.
2.4 Vacancies. In the event that any representative designated
hereunder for any reason ceases to serve as member of the Board or any committee
thereof during such representative's term of office, the resulting vacancy on
the Board or committee shall be filled by a representative designated by the
persons referred to in clauses (i) and (ii) of Section 2.1(a).
2.5 Meetings. Each Holder shall (a) be entitled to notice of, (b) have
the right to attend, (c) receive copies of all materials distributed to
Directors in connection with, and (d) comment for the record at, any and all
Board meetings. The By-laws of Company shall allow directors to attend meetings
of the Board by telephone.
2.6 Board Expenses. Company shall pay all direct out-of-pocket expenses
reasonably incurred by directors in attending each meeting of the Board or any
committee thereof.
2.7 Articles of Incorporation and By-Laws. Each Stockholder further
covenants and agrees to cause Company's Articles of Incorporation and By-Laws to
have provisions consistent with the requirements of Section 3.2(n).
2.8 No Conflicting Agreements. Each Stockholder represents that it has
not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with or conflicts with the provisions of this Agreement,
and no Stockholder shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement.
2.9 Nature and Term of Agreement. The provisions of Section 2, which
require Stockholders to vote their shares in accordance with the terms set forth
herein, shall constitute a voting agreement under Section 55-7-31 of the North
Carolina General Statutes and shall terminate automatically and be of no further
force and effect upon the earlier of (i) ten (10) years from the date hereof
(unless extended in accordance with applicable law) or (ii) the occurrence of a
Qualified Public Offering (as defined in Section 3.5 hereof).
SECTION 3.
COMPANY COVENANTS
Company hereby covenants and agrees as follows:
3.1 Basic Financial Information and Reporting Requirements.
<PAGE>
(a) Reports and Notifications to Be Delivered by Company.
Company shall furnish to each Series A Holder the following reports and
notices so long as such Series A Holder continues to hold Debentures or
shares of Series A Stock issued upon conversion thereof, Warrants or
any Common Stock issued upon exercise thereof, or any Common Stock
issued upon conversion of Series A Stock.
(i) Annual Financial Statements. As soon as
practicable after the end of each fiscal year, and in any
event within ninety (90) days thereafter, audited consolidated
and consolidating balance sheets of Company and its
subsidiaries, if any, as at the end of such fiscal year, and
audited consolidated and consolidating statements of income,
retained earnings and cash flows of Company and its
subsidiaries, if any, for such fiscal year, prepared in
accordance with generally accepted accounting principles and
setting forth in each case in comparative form the figures for
the previous fiscal year, if any, all in reasonable detail and
accompanied by: (A) a report and opinion thereon by
independent certified public accountants of national
reputation; i.e., a "Big Five" firm or equivalent, who shall
be approved by the Board or the Board's Audit Committee; and
(B) a copy of such accountants' management letter prepared in
connection therewith, if any (as soon as such letter is
available, which may be greater than the aforesaid ninety
(90)-day period).
(ii) Monthly Reports. As soon as practicable after
the end of each calendar month, but in any event within
fifteen (15) days thereafter, "MONTHLY FINANCIAL STATEMENTS"
consisting of:
(A) the unaudited consolidated balance sheet
of Company and its subsidiaries, if any, as of the
end of such month and as of year to date;
(B) unaudited profit and loss statement,
cash flow statement and backlog statement of Company
and its subsidiaries for such month and year to date;
(C) actual results versus Company's and its
subsidiaries', if any, plan for the month and year to
date, setting forth in each case in comparative form
the figures for the corresponding month and year to
date period of the preceding fiscal year; and
(D) a brief (1 page) management summary of
operations,
all in reasonable detail and prepared in accordance with
generally accepted accounting principles and certified by the
principal financial or accounting officer of Company.
(iii) Quarterly Report. As soon as practicable after
the end of each fiscal quarter, and in any event within thirty
(30) days thereafter, a brief (1-2
<PAGE>
pages) quarterly report of the President describing important
operational activities during the prior quarter, discussing
variances from budget, stating that such officer has caused
all Major Agreements (defined below) to be reviewed and
indicating whether the Company and its subsidiaries are, or
are not, in compliance with all Major Agreements.
As used herein, "MAJOR AGREEMENTS" means: (i) this Agreement,
(ii) the rights, preferences and designations of the Series A
Stock set forth in the Company's Articles of Incorporation as
in effect on the date hereof, and as amended from time to
time, (iii) any other agreements entered into between Company
and a Series A Holder, and (iv) any other material contract or
agreement to which Company, or any of its subsidiaries, if
any, is a party or by which Company or any of its
subsidiaries, if any, or their properties or assets are bound.
(iv) Annual Operating Plan. At least sixty (60) days
prior to the beginning of each fiscal year, a comprehensive
written operating plan to include projections for the next
three (3) years in the same format as the Quarterly Financial
Statements. All such projections shall represent the good
faith estimate of management as to future operations (and
shall contain a brief certificate to such effect), but it is
acknowledged that such projections are not intended and shall
not be deemed to guaranty the future operations of Company or
its subsidiaries, if any.
(v) Notification of Defaults Under Material
Agreements. Promptly and in any event within ten (10) days
after receipt thereof, copies of any notifications received by
Company or any of its subsidiaries, if any, from its or their
lenders, landlords, or other parties, alleging default under
any Major Agreements, loans, financing transactions, leases,
or similar agreements to which Company or any of its
subsidiaries, if any, is a party.
(vi) Notification of Litigation Proceedings. Promptly
after the commencement thereof, notice (and copies of all
pleadings) of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, materially
affecting Company or any subsidiary (including, without
limitation, all material actions filed by or against Company).
(vii) Other Reports. With reasonable promptness, such
other information respecting the business, properties or the
condition of operations, financial or other, of Company or any
of its subsidiaries, if any as Series A Holders may from time
to time reasonably request.
(b) Assignability of Rights to Receive Reports and
Notifications. The rights granted pursuant to this Section 3.1 may not
be assigned or otherwise conveyed by Series A Holders or by any
subsequent transferee of any such rights without the written consent of
Company, which consent shall not be unreasonably withheld; PROVIDED,
HOWEVER, that
<PAGE>
Company may refuse such written consent if the proposed transferee is
reasonably believed by Company to be a competitor of Company or if the
proposed transferee has refused to sign a reasonable, written
confidentiality agreement with Company; and PROVIDED, FURTHER, that no
such written consent shall be required if the transfer is a Permitted
Transfer (as defined in subsections (i) through (v), inclusive, of
Section 1.15 hereof) by Series A Holders.
3.2 Additional Affirmative Covenants. Company covenants and agrees that
it will perform and observe the following covenants and provisions, and will
cause each subsidiary of Company, if and when such subsidiary exists, to perform
and observe such of the following covenants and provisions as are applicable to
such subsidiary:
(a) Preservation of Corporate Existence. Preserve and
maintain, and, unless Company deems it not to be in its best interests,
cause each subsidiary to preserve and maintain, its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each
subsidiary to qualify and remain qualified, as a foreign corporation in
each jurisdiction in which such qualification is necessary or desirable
in view of its business and operations or the ownership or lease of its
properties. Secure, preserve and maintain, and cause each subsidiary to
secure, preserve and maintain, all licenses and other rights to use
patents, processes, licenses, permits, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or
possessed by it and deemed by Company to be necessary to the conduct of
its business or the business of any subsidiary.
(b) Payment of Taxes. Pay and discharge, and cause each
subsidiary to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income,
profits or business, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and all lawful claims
which, if unpaid, might become a lien or charge upon any properties of
Company or any subsidiary, provided that neither Company nor any
subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by appropriate
proceedings if Company or any subsidiary shall have set aside on its
books sufficient reserves, if any, with respect thereto.
(c) Payment of Trade Debt. Pay, and cause each subsidiary to
pay, when due, or in conformity with customary trade terms but not
later than ninety (90) days from the due date, all lease obligations,
all trade debt, and all other indebtedness incident to the operations
of Company or its subsidiaries, except such as are being contested in
good faith and by proper proceedings if Company or subsidiary concerned
shall have set aside on its books sufficient reserves, if any, with
respect thereto.
(d) Maintenance of Properties. Maintain and preserve, and
cause each subsidiary to maintain and preserve, all of its properties
and assets, necessary for the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted.
<PAGE>
(e) Maintenance of Insurance.
(i) Maintain or cause to be maintained, and cause
each subsidiary to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts
and covering such risks as is customarily carried by companies
engaged in similar businesses and owning similar properties in
the same general areas in which Company or such subsidiary
operates, but in any event in amounts sufficient to prevent
Company or subsidiary from becoming a co-insurer and on such
terms and conditions as are reasonably acceptable to Series A
Holders.
(ii) Maintain or cause to be maintained a policy or
policies of directors' and officers' liability insurance with
responsible and reputable insurance companies or associations,
covering the directors and officers of Company and its
subsidiaries in such amounts and against such risks as is
customarily carried by companies engaged in similar businesses
to that of Company, and on such terms and conditions as are
reasonably acceptable to Series A Holders.
(f) Inspection. Permit any Holder and each transferee thereof
in a Permitted Transfer (as defined in Section 1.15 hereof), its
attorney or its other representative to visit and inspect Company's and
its subsidiaries' properties, to examine Company's and its
subsidiaries' books of account and other records, to make copies or
extracts therefrom and to discuss Company's and its subsidiaries'
affairs, finances and accounts with their officers, management
employees and independent accountants all at such reasonable times and
as often as such holder or such transferee may reasonably request;
PROVIDED, however, that Company shall not be obligated pursuant to this
Section 3.2(f) to provide trade secrets or confidential information or
to provide information to any person whom Company reasonably believes
is a competitor of Company.
(g) Compliance with Laws. Comply, and cause each subsidiary to
comply, with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance
with which could materially adversely affect its business or condition,
financial or otherwise.
(h) Regulatory Compliance. Comply, and cause each subsidiary
to comply, with all minimum funding requirements applicable to any
pension, employee benefit plans or employee contribution plans which
are subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or to the Internal Revenue Code of 1986, as amended
(the "CODE"), and comply, and cause each subsidiary to comply, in all
other material respects with the provisions of ERISA and the Code, and
the rules and regulations thereunder, which are applicable to any such
plan. Neither Company nor any subsidiary will permit any event or
condition to exist which could permit any such plan to be terminated
under circumstances which would cause the lien provided for in Section
4068 of ERISA to attach to the assets of Company or any subsidiary.
<PAGE>
(i) Maintenance of Accurate Records. 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 Company and any subsidiary, and in which, for each
fiscal year, all proper reserves for depreciation, depletion, returns
of merchandise, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
(j) Financing. Promptly, fully and in detail, inform the Board
and Series A Holders of any discussions, offers or contracts relating
to possible financing or refinancing of any nature for Company and/or
its subsidiaries, whether initiated by Company or any other person, and
obtain the prior approval of the Board prior to finalizing any of the
foregoing, except for (A) financing of up to an aggregate in any year
of Two Hundred Thousand Dollars ($200,000), accomplished in the
ordinary course of business which does not include as a feature thereof
any right to acquire any of the equity securities of Company, (B)
arrangements with trade creditors, and (C) utilization by Company or
any subsidiary of commercial lending arrangements with financial
institutions previously approved by the Board.
(k) Non-Disclosure, Invention and Non-Competition Agreements
of Officers and Key Employees. Cause the chief executive officer,
president, chief operating officer, chief financial officer, vice
president of research and development, and vice president of marketing
and sales of Company (the "KEY EMPLOYEES"), each other officer and
consultant of Company (including William Lane and J. Phillips L.
Johnston) to execute and deliver a Non-Disclosure, Invention and
Non-Competition Agreement substantially similar in form and substance
to Exhibit A attached hereto, with such other terms and conditions and
completed as approved by the Board of Directors of Company.
(l) Right to Call Board and Stockholder Meetings. Company
shall at all times cause its Bylaws to provide that, unless otherwise
required by the laws of the State of North Carolina (i) any two
directors and (ii) any holder or holders of at least twenty percent
(20%) of the outstanding Investor Shares shall have the right to call a
meeting of the Board or stockholders.
(m) Indemnification of Directors. Company shall at all times
maintain provisions in its Bylaws or Articles of Incorporation, as may
be amended or restated from time to time, indemnifying all directors
against liability, and eliminating all directors' liability for breach
of fiduciary duty, to the maximum extent permitted under the laws of
the State of North Carolina.
(n) Election of Officers; Officer Compensation. All officers
of Company must be elected and approved by the Board of Directors and
Series A Holders. Officer salaries must be approved by the Board's
Compensation Committee.
<PAGE>
(o) Investment Bankers and Financial Advisors. All investment
bankers and financial advisors engaged by Company must be approved by
the Board of Directors and Series A Holders.
(p) Capital Stock. The Board of Directors of Company shall
allocate One Million Three Hundred Eighty-Three Thousand One Hundred
Forty-Eight (1,383,148) shares of Common Stock for issuance to
Company's directors, officers, employees, advisors and consultants
pursuant to an equity compensation plan established by Company and
approved by Series A Holders (collectively, the "OPTION SHARES"). All
grants of Option Shares by Company to directors, officers, employees,
advisors and consultants of Company shall be subject to approval of the
Compensation Committee of the Board.
(q) Transactions with Officers, Directors, and Subsidiaries.
Company may, directly or indirectly, enter into or permit to exist any
transaction with any officer, director, or any affiliate of any of the
foregoing, PROVIDED, HOWEVER, that the Board shall have first
determined that the terms of such transaction are no less favorable to
Company than those which might be obtained from other persons.
(r) Vesting of Stock Held by Directors, Officers, Employees,
Advisors and Consultants. All Common Stock acquired after the date
hereof by any director, officer, employee, advisor or consultant of
Company shall be subject to vesting provisions and stock repurchase
provisions acceptable to the Series A Holders, and all Common Stock
acquired prior to the date hereof by any director, officer, employee,
advisor or consultant who is or at any time becomes a party to any
Non-Disclosure, Invention and Non-Competition Agreement or similar
agreement with Company shall be subject to stock repurchase provisions
acceptable to the Series A Holders which shall apply in the event of a
breach by any such director, officer, employee, advisor or consultant
of the terms of any such agreement.
(s) Key Man Insurance. Company shall maintain or cause to be
maintained, with financially sound and reputable insurers, life
insurance in the amount of Five Hundred Thousand Dollars ($500,000) on
the life of J. Phillips L. Johnston, for such period of time as he is
employed by Company or is an officer or director of Company. Such
policy shall be owned by Company and all benefits thereunder shall be
payable to Company.
(t) Corporate Headquarters. Company's headquarters and
principal place of business shall be located on Centennial Campus of
North Carolina State University in Raleigh, North Carolina, except to
the extent such requirement is waived by the Series A Holders.
(u) Research. Company shall use its best efforts to sponsor
research at North Carolina State University.
<PAGE>
(v) Approval of Management. CVP shall have the right to
approve any officers or other management of Company hired or appointed
after the date hereof, such approval not to be unreasonably withheld.
(w) Seniority of Debentures. The Debentures shall be senior in
priority to all other indebtedness of Company for borrowed money to
William F. Lane, Larry Amick or any directors, officers, employees,
agents or insiders of Company, other than indebtedness to William F.
Lane existing on the date hereof not in excess of $65,000, and no
payments of any kind on any such indebtedness may be made by Company at
any time during which Company is in default under the terms of the
Debentures.
(x) Disclosure. Company shall not announce, communicate or
otherwise disclose to any other person or entity (by press release,
brochure, written or oral disclosure or otherwise) any information
relating to or on behalf of any Series A Holder, including the
involvement of any Series A Holder with Company and the existence or
terms of any investment in Company by a Series A Holder, without the
prior written consent of such Series A Holder, other than in connection
with standard financial reports distributed to shareholders or as
otherwise required by law.
3.3 Negative Covenants. Company covenants and agrees that it
will comply with and observe the following negative covenants and provisions,
and will cause each subsidiary of Company, if and when such subsidiary exists,
to comply with and observe such of the following negative covenants and
provisions as are applicable to such subsidiary, unless (in each case) otherwise
consented to in writing by greater than fifty percent (50%) in interest of the
holders of shares of Series A Stock issued or issuable upon conversion of the
Debentures and Common Stock issued or issuable upon conversion of the Series A
Stock and exercise of all Warrants. Accordingly, without the requisite Investor
consent, Company and its subsidiaries shall not:
(a) Alter or change the rights, preferences or privileges of
the Series A Stock, or change the rights, preferences or privileges of
any other class or classes of the capital stock of Company, the direct
or indirect effect of which would be to alter or change the rights,
preferences or privileges of the Series A Stock;
(b) Increase or decrease the authorized number of shares of
the Series A Stock; or
(c) Create, by reclassification or otherwise, any new class or
series of shares having rights, preferences or privileges senior to or
on a parity with the Series A Stock.
(d) Redeem any shares of Common Stock (other than pursuant to
any employee agreements or in the payment of any dividends);
(e) Take any action that results in any merger, corporate
reorganization, sale, change of control, or any transaction (or series
of related transactions) in which all or substantially all of the
assets of Company are sold;
<PAGE>
(f) Amend or waive any provision of Company's Articles of
Incorporation which has the direct or indirect effect of altering,
changing or otherwise modifying the capital stock of Company;
(g) Take any action that results in the recapitalization,
reorganization, dissolution, liquidation, or change in legal structure
of Company;
(h) Take any action that adversely affects the rights of the
Series A Holders under the terms of the Debentures or the Warrants.
3.4 Fees and Expenses. Company shall reimburse Series A Holders upon
demand for all reasonable costs and expenses (including reasonable attorneys'
fees and expenses) incurred by Series A Holders, or any successor thereto, in
enforcing the obligations of Company under this Agreement or in connection with
any amendment, waiver, consent, supplement or other modification to this
Agreement or any agreement referenced herein.
3.5 Expiration of Covenants. The covenants set forth in this Section 3
shall expire and be of no further force or effect upon the closing of the sale
of shares of Common Stock by Company in an underwritten public offering
registered under the 1933 Act (other than a registration relating solely to
employee benefit plans or to a transaction under Rule 145 under the 1933 Act or
any successor rule thereto) in which (before deduction of underwriter
commissions and selling expenses) the public offering price is equal to or
exceeds Five Dollars ($5.00) per share of Common Stock (subject to adjustment
for stock splits, reverse stock splits and other similar corporate
reorganizations) and the gross proceeds to Company equal or exceed Fifteen
Million Dollars ($15,000,000) (hereinafter, a "QUALIFIED PUBLIC OFFERING"). The
covenants set forth in Section 3.3 shall expire and be of no further force or
effect at such time as there no longer remain outstanding any Debentures or any
principal, accrued interest or other amounts owed thereunder, or at least Fifty
Thousand (50,000) shares of Series A Stock or Common Stock issued upon
conversion thereof (as adjusted for any combination, consolidation, stock
distribution or stock dividend with respect to such shares), or at least Two
Hundred Sixty-Six Thousand Six Hundred Sixty-Seven (266,667) Warrant Shares (as
adjusted for any combination, consolidation, stock distribution or stock
dividend with respect to such shares).
SECTION 4.
MISCELLANEOUS
4.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of North Carolina, as applied to agreements among
North Carolina residents made and to be performed entirely within the State of
North Carolina, and without regard to the conflicts of law principles as may
otherwise be applicable.
4.2 Jurisdiction and Venue. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereunder may be
brought in the courts of Wake County in the State of North Carolina or of the
United States of America for the Eastern District of North Carolina, and hereby
expressly submits to the personal jurisdiction and venue of such courts for the
purposes
<PAGE>
thereof and expressly waives any claim of improper venue and any claim that such
courts are an inconvenient forum. Each party hereby irrevocably consents to the
service of process of any of the aforementioned courts in any such suit, action
or proceeding, by the mailing of copies thereof by registered or certified mail,
postage prepaid, to its address set forth in this Agreement, such service to
become effective ten (10) days after such mailing.
4.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto. All certificates or instruments representing shares of capital
stock of Company held by or issued to the parties hereto, whether now
outstanding or subsequently issued, shall be surrendered to Company for
endorsement or be endorsed by Company prior to their issuance with the following
legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
AN AGREEMENT AS SET FORTH IN AN INVESTOR RIGHTS AGREEMENT
AMONG THE HOLDER OF THESE SECURITIES AND CERTAIN OTHER HOLDERS
OF THE ISSUER'S STOCK, A COPY OF WHICH IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER. BY ACCEPTING
ANY INTEREST IN SUCH SECURITIES, THE PERSON ACCEPTING SUCH
INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY
ALL OF THE PROVISIONS OF SAID INVESTOR RIGHTS AGREEMENT.
INCLUDED AMONG THE PROVISIONS OF THE INVESTOR RIGHTS AGREEMENT
ARE CERTAIN VOTING AGREEMENTS.
4.4 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
4.5 Severability. Any invalidity, illegality or limitation of the
enforceability with respect to Company, Common Stockholder or a Series A Holder
of any one or more of the provisions of this Agreement, or any part thereof,
whether arising by reason of the law of any such person's domicile or otherwise,
shall in no way affect or impair the validity, legality or enforceability of
this Agreement with respect to the remaining parties to this Agreement. In case
any provision of this Agreement shall be invalid, illegal or unenforceable, it
shall to the extent practicable, be modified so as to make it valid, legal and
enforceable and to retain as nearly as practicable the intent of the parties,
and the validity, legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
4.6 Specific Performance. The parties hereto acknowledge that a breach
or violation of any of the terms, covenants or other obligations under this
Agreement will result in immediate and irreparable harm to the non-breaching
parties in an amount which will be impossible to
<PAGE>
ascertain at the time of the breach or violation and that the award of monetary
damages will not be adequate relief to the non-breaching parties. Therefore, the
failure on the part of any party to perform all of the terms, covenants and
obligations established by this Agreement shall give rise to a right to the
other parties to obtain enforcement of this Agreement in a court of equity by a
decree of specific performance or other injunctive relief. This remedy, however,
shall be cumulative and in addition to any other remedy the parties may have.
4.7 Amendment and Waiver. Except as otherwise expressly provided
herein, (a) any matter requiring the approval or consent of Series A Holders or
holders of Investor Shares shall require the approval or consent of Series A
Holders or holders of Investor Shares, as applicable, or their transferees,
holding greater than fifty percent (50%) of the Investor Shares, and (b) any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely) with the written consent of Company and Series A Holders (or their
transferees) holding greater than fifty percent (50%) of the Investor Shares;
PROVIDED, HOWEVER, that no such amendment or waiver shall increase the
obligation of a Series A Holder hereunder (as a Series A Holder) or a Common
Stockholder, or directly or indirectly reduce the equity percentage of a Series
A Holder or a Common Stockholder (on an as-converted, as-exercised,
fully-diluted basis), without the written consent of such Series A Holder or
Common Stockholder, as the case may be; and PROVIDED, FURTHER, that no such
amendment or waiver shall reduce the aforesaid percentage of Investor Shares,
the holders of which are required to consent to any waiver or supplemental
agreement, without the consent of the holders of all of such Investor Shares.
Any amendment or waiver effected in accordance with this Section 4.7 shall be
binding upon Company, Series A Holders, Common Stockholders and each of their
future transferees. Upon the effectuation of each such amendment or waiver,
Company shall promptly give written notice thereof to the holders of the
Investor Shares who have not previously consented thereto in writing.
4.8 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to Company, Series A Holders, or any of their
transferees, upon any breach, default or noncompliance of Company, Series A
Holders, Common Stockholders or any transferee under this Agreement, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach, default or noncompliance, or any acquiescence therein, or of
any similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
the part of Company or Series A Holders of any breach, default or noncompliance
under this Agreement or any waiver on Company's, Series A Holders' or Common
Stockholders' part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing and that all remedies, either under this Agreement, by law, or otherwise
afforded to Company and Series A Holders shall be cumulative and not
alternative.
4.9 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or upon confirmed delivery by facsimile or telecopy, or on the
fifth day (or the tenth day if to a party with a foreign address) following
mailing by registered or certified mail, return receipt requested, postage
prepaid, addressed:
<PAGE>
(a) if to a Series A Holder, at such Series A Holder's address
as set forth on the schedule attached hereto, or at such other address
as such Series A Holder shall have furnished to the other parties
hereto in writing, with a copy to:
Robert B. Womble, Esq.
Kennedy Covington Lobdell & Hickman, L.L.P.
Two Hannover Square
434 Salisbury Street, Suite 1900 (27601)
Post Office Box 1070 (27602)
Raleigh, North Carolina
Telephone: (919) 743-7300
Facsimile: (919) 743-7358
(b) if to Company, at the address noted below, or at such
other address as Company shall have furnished to the other parties
hereto in writing:
ID Technologies Corporation
Attn: J. Phillips L. Johnston
NCSU Centennial Campus
920 Main Campus Drive
Suite 400
Raleigh, North Carolina 27606
Telephone: (919) 424-3722
Facsimile: (919) 424-3723
with a copy to:
Poyner & Spruill, L.L.P.
Attn: James M. O'Brien III
3600 Glenwood Avenue
Post Office Box 10096
Raleigh, North Carolina 27605-0096
Telephone: (919) 783-6400
Facsimile: (919) 783-1075
(c) if to the other Stockholders, at the addresses set forth
on the schedule attached hereto , or at such other addresses as such
Stockholders shall have furnished to the other parties hereto in
writing.
4.10 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
4.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
SIGNATURE PAGE FOR
COMPANY
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
ID TECHNOLOGIES CORPORATION
ATTEST:
By: /s/ J. Phillips L. Johnston
-----------------------------------
J. Phillips L. Johnston, President
/s/ Barbara D. Lane
- ---------------------
(Assistant) Secretary
[AFFIX CORPORATE SEAL]
<PAGE>
SIGNATURE PAGE FOR
CENTENNIAL VENTURE PARTNERS, LLC
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
CENTENNIAL VENTURE PARTNERS, LLC (SEAL)
By: Centennial Venture Management, LLC,
Manager (SEAL)
By: /s/ Glenn J. Kline
----------------------------------
Glenn J. Kline, Managing Director
and Manager
<PAGE>
SIGNATURE PAGE FOR
WILLIAM F. LANE AND BARBARA D. LANE
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
By: /s/ William F. Lane (SEAL)
--------------------------
William F. Lane
By: /s/ Barbara D. Lane (SEAL)
--------------------------
Barbara D. Lane
<PAGE>
SIGNATURE PAGE FOR
KAYE B. AMICK
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
By: /s/ Kaye B. Amick (SEAL)
--------------------------
Kaye B. Amick
<PAGE>
SIGNATURE PAGE FOR
INFORMATION RESOURCE ENGINEERING, INC.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
INFORMATION RESOURCE ENGINEERING, INC. (SEAL)
By: /s/ A.A. Caputo (SEAL)
--------------------------
Name: A.A. Caputo
------------------------
Title: President
-----------------------
<PAGE>
SIGNATURE PAGE FOR
PETER COKER AND SUSAN COKER
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
By: /s/ Peter Coker (SEAL)
-----------------------
Peter Coker
By: /s/ Susan Coker (SEAL)
-----------------------
Susan Coker
<PAGE>
SIGNATURE PAGE FOR ADDITIONAL PURCHASER
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties under seal as of the date first above written.
[For entity purchasers]
------------------------------------------
Name of Purchaser
By: ____________________________________
Name:
Title:
[For individual purchasers]
------------------------------------------
Name:
Address and Facsimile Number of Purchaser:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Domicile and Principal Place of Business
of Purchaser:
------------------------------------------
Amount of Investment:
------------------------------------------
Number of Series A Shares:
-------------------------------------
<PAGE>
SCHEDULE 1
SCHEDULE OF SERIES A HOLDERS
====================================== ==================== ==================
NAME AND ADDRESS ORIGINAL PRINCIPAL PERCENTAGE OF
AMOUNT OF ORIGINAL
DEBENTURES PRINCIPAL AMOUNT
====================================== ==================== ==================
Centennial Venture Partners, LLC
2 Davis Drive $300,000 100%
Research Triangle Park, NC 27709
Telephone:
Facsimile: (919) 558-0156
Attn: Glenn J. Kline
====================================== ==================== ==================
Total $300,000 100%
====================================== ==================== ==================
<PAGE>
SCHEDULE 2
SCHEDULE OF COMMON STOCKHOLDERS
============================================= ================== ===============
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK SHARES OF
COMMON STOCK
(FULLY-DILUTED)
============================================= ================== ===============
Willian F. Lane and Barbara D. Lane
2506 West Nash Street, Suite C 2,427,404 %
Wilson, North Carolina 27896
============================================= ================== ===============
Kaye B. Amick
1809 Faison Road 1,045,956 %
Durham, North Carolina 27705
============================================= ================== ===============
Information Resource Engineering, Inc.
8029 Corporate Drive 1,120,660 %
Baltimore, Maryland 21236
============================================= ================== ===============
Peter and Susan Coker
320,000 %
1305 Slatestone Court
Raleigh, North Carolina 27615
============================================= ================== ===============
Total 4,914,020 %
============================================= ================== ===============
Exhibit 3.11
SHAREHOLDERS AGREEMENT
THIS AGREEMENT ("AGREEMENT"), made this 24th day of September, 1999, by
and among ID Technologies Corporation, a North Carolina corporation (the
"COMPANY"); those shareholders of Company listed on Schedule 1 attached hereto
(the "SHAREHOLDERS"); and those investors in Company listed on Schedule 2
attached hereto (the "INVESTORS").
W I T N E S S E T H:
WHEREAS, Shareholders are the holders of certain of the issued and
outstanding shares of Company's Common stock (the "COMMON STOCK");
WHEREAS, Investors are the holders of Convertible Debentures
convertible into shares of Company's Series A Preferred stock (collectively, the
"DEBENTURES"); and
WHEREAS, the parties desire to enter into this Agreement for the
purpose of promoting continuity in the ownership of the capital stock of
Company.
NOW, THEREFORE, in consideration of the premises, and the mutual terms
and conditions set forth herein, it is hereby agreed by and among Company,
Shareholders and Investors that all the shares of capital stock of Company
(which for purposes of this Agreement include options, warrants and other rights
to acquire capital stock) owned or held at any time by any Investor, Shareholder
or by any transferee thereof (the "SHARES") shall be subject to the following
agreements:
1. Transfer of Shares. No transfer or sale by any Shareholder of the
Shares shall be permitted (except pursuant to the provisions of this Agreement),
including without limitation, a sale or transfer of Shares to any entity not a
party to this Agreement, except pursuant to the provisions of this Agreement;
PROVIDED, HOWEVER, that all or any portion of the Shares may be transferred by a
Shareholder in a Permitted Transfer. For purposes of this Agreement, "PERMITTED
TRANSFER" shall mean: (a) a transaction not involving a change in beneficial
ownership; (b) transactions involving distribution without consideration by a
partnership to any of its partners, retired partners, or to the estate of any of
its partners, or by a limited liability company to any of its members, retired
members or to the estate of any of its members, (c) transfers by an individual
to a trust for the benefit of such individual or his family; (d) transfers by
gift, will or intestate succession to the spouse, lineal descendants or
ancestors of any Shareholder or spouse of a Shareholder; or (e) transfers
permitted pursuant to Rule 144 under the Securities Act of 1933, as amended.
Each transferee in a Permitted Transfer after the date of this Agreement shall
execute and deliver to Company a counterpart of this Agreement as a condition to
the effectiveness of such Permitted Transfer. Upon such execution and delivery,
copies of such counterparts shall be delivered by Company to Shareholders and
Investors.
2. Procedure for Disposition of Shares.
a. Restriction on Transfer. Any Shareholder who desires to
sell all or any portion of the Shares held by such person (as used in this
Section, the "SELLING SHAREHOLDER")
<PAGE>
and who has received from a non-related party a bona fide offer to purchase the
Shares, shall only transfer the Shares in accordance with the following
provisions of this Section 2.
b. Offer to Company. The Selling Shareholder shall give to
Company and all Investors a written notice (the "NOTICE") of its intention to
sell the Shares (the "OFFERED SHARES"), which Notice shall specify the
following:
i. Name, address and telephone number of the proposed
purchaser;
ii. Price and proposed terms of payment;
iii. Number of Shares to be purchased;
iv. Date of proposed sale; and
v. Any other material terms of the sale.
Company shall then have the right to purchase all the Offered Shares in
accordance with the terms set forth in the Notice; PROVIDED, HOWEVER, that
Company must notify the Selling Shareholder within five (5) days of its receipt
of such Notice of its intention to purchase all the Offered Shares.
c. Offer to Investors. In the event Company shall decide not
to purchase all the Offered Shares, it shall so notify all Investors of such
decision. The Investors shall have the right to purchase all the Offered Shares
in accordance with the terms set forth in the Notice, on a pro rata basis
determined by each such party's proportionate ownership interest of all
outstanding Shares determined on an as-converted, as-exercised, fully-diluted
basis (which for purposes of this Agreement shall include Shares issuable upon
conversion of the Debentures, and Series A Preferred stock issued or issuable
upon conversion thereof, and exercise of vested warrants held by Investors,
other than warrants of Investors issued on the date hereof to purchase up to
Five Hundred Thousand Dollars ($500,000) of Common Stock to the extent not
exercised); PROVIDED, HOWEVER, that each Investor must notify the Selling
Shareholder and all of the other Investors within twelve (12) days from the date
the Notice was delivered to Company and to Investors of its intention to
purchase its proportionate interest of the Offered Shares. In the event any
Investor elects not to acquire its proportionate interest, the remaining
Investors shall be entitled to acquire such interest on a pro rata basis as
described above; PROVIDED, HOWEVER, that the other Investors must notify the
Selling Shareholder of their intention to purchase such shares within fifteen
(15) days from the date the Notice was delivered to Company and to Investors.
Investors holding a majority of the Shares owned by Investors (determined on an
as-converted, as-exercised, fully-diluted basis) may waive for Company and
Investors the rights of first refusal contained herein if such Investors deem
the transfer of the Shares of the Selling Shareholder to the person named in the
Notice to be in the best interest of Investors and/or Company. In the event the
Investors elect to purchase the Offered Shares, the closing of such purchase(s)
shall occur not less than forty-five (45) days after the expiration of the
periods set forth above for the election by the Investors to purchase the
Offered Shares, unless otherwise agreed in writing by the Investors purchasing
the Offered Shares.
<PAGE>
d. Sale to Third Party. In the event Company and Investors do
not notify the Selling Shareholder of its or their intention to exercise the
rights set forth in subsections 2.b. and 2.c. hereof within the time period
specified therein to purchase all of the Offered Shares, the Selling Shareholder
shall have the right for ninety (90) days to consummate the transaction outlined
in the Notice subject to the provisions of subsection 2.e. hereof and the other
provisions of this Agreement (other than this Section 2) including Section 3 and
4 hereof; PROVIDED, HOWEVER, that no sale shall be made hereunder unless the
purchaser agrees to be bound by the terms of this Agreement and has executed an
agreement to that effect on terms reasonably satisfactory to Investors. Upon the
expiration of the ninety (90) day period set forth above, the Selling
Shareholder must comply with all the provisions of this Section prior to making
any further sale of such Shares.
e. Right of Co-Sale. In the event a Selling Shareholder
disposes of Shares pursuant to subsection 2.d. hereof, Investors shall have the
right to sell a proportionate number of shares of capital stock to the third
party acquiring the Selling Shareholder's Shares, on the same terms as outlined
in the Notice, in accordance with the following procedure:
i. The Selling Shareholder shall, prior to sale, give written
notice to each Investor of its right of co-sale.
ii. Each Investor shall have ten (10) days to determine if it
desires to sell Shares to the third party acquiring the Selling
Shareholder's Shares.
iii. If any Investor elects to sell pursuant to this Section,
it shall have the right to sell a number of Shares of the total number
of Shares to be sold that is proportionate to its interest in all
outstanding Shares (determined on an as-converted, as-exercised,
fully-diluted basis, including Shares issuable upon conversion of the
Debentures, and Series A Preferred stock issued or issuable upon
conversion thereof, and exercise of vested warrants held by Investors).
f. Failure to Deliver Shares. If a Selling Shareholder becomes
obligated to sell to an Investor under this Agreement any Shares, and the
Selling Shareholder fails to comply with its obligations hereunder relating to
the delivery of certificates for the Shares, such Investor may, at its option,
in addition to all other remedies it may have, send to Company for the benefit
of such Selling Shareholder the purchase price for such Shares as is herein
specified. Thereupon, Company upon written notice to such Selling Shareholder
(i) shall cancel on its books the certificate(s) representing the Shares to be
sold, and (ii) shall issue, in lieu thereof, in the name of such Investor, a new
certificate(s) representing such Shares, and thereupon all of such Selling
Shareholder's rights in and to such Shares shall terminate. Company may exercise
a similar remedy in enforcing its rights hereunder.
3. Prohibition Against Transfer to Competitors. Notwithstanding any
provision of this Agreement, no Shareholder shall sell or otherwise transfer any
Shares to any person or entity which is a competitor of the Company.
<PAGE>
4. Prohibition Against Pledge of Stock. Without the prior written
consent of the Investors, which consent shall not be unreasonably withheld, no
Shareholder shall pledge, hypothecate or grant a security interest in all or any
part of the Shares other than pledges, hypothecations or security interests
granted to lenders in connection with loans to purchase Shares.
5. Legend. Each certificate for capital stock in Company held by any
Shareholder shall be presented to Company and the following legend shall be
placed on the face thereof:
"The shares represented by this Certificate may not be sold or
transferred without compliance with the terms of a Shareholders
Agreement dated as of September 24, 1999 among Company and certain
shareholders of Company, a copy of which Agreement is on file in the
office of the Secretary of Company. The Agreement provides for certain
restrictions on transfer and rights to purchase."
6. Termination. This Agreement shall remain in full force and effect
until the closing of the sale of shares of Company's Common Stock by Company in
an underwritten public offering registered under the Securities Act of 1933 (the
"1933 ACT") (other than a registration relating solely to employee benefit plans
or to a transaction under Rule 145 under the 1933 Act or any successor rule
thereto) in which (before deduction of underwriter commissions and selling
expenses) the public offering price is equal to or exceeds Five Dollars ($5.00)
per share of Common Stock (subject to adjustment for stock splits, reverse stock
splits and other similar corporate reorganizations) and the gross proceeds to
Company equal or exceed Fifteen Million Dollars ($15,000,000.00) (hereinafter, a
"QUALIFIED PUBLIC OFFERING").
7. Notice Provisions. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with a foreign address)
following mailing by registered or certified mail, return receipt requested,
postage prepaid, addressed: (a) if to a Shareholder, at such Shareholder's
address as set forth on Schedule 1 attached hereto, or at such other address as
such Shareholder shall have furnished to the other parties hereto in writing;
(b) if to an Investor, at such Investor's address as set forth on Schedule 2
attached hereto, or at such other address as such Investor shall have furnished
to the other parties hereto in writing, with a copy to:
Kennedy Covington Lobdell & Hickman, L.L.P.
Attn: Robert B. Womble, Esq.
Two Hannover Square
Suite 1900 (27601)
Post Office Box 1070 (27602)
Raleigh, North Carolina
Telephone: (919) 743-7300
Facsimile: (919) 743-7358
(c) if to Company, at the address noted below, or at such other address as
Company shall have furnished to the other parties hereto in writing:
<PAGE>
ID Technologies Corporation
Attn: J. Phillips L. Johnston
NCSU Centennial Campus
920 Main Campus Drive
Suite 400
Raleigh, North Carolina 27606
Telephone: (919) 424-3722
Facsimile: (919) 424-3723
with a copy to:
Poyner & Spruill, L.L.P.
Attn: James M. O'Brien III
3600 Glenwood Avenue
Post Office Box 10096
Raleigh, North Carolina 27605-0096
Telephone: (919) 783-6400
Facsimile: (919) 783-1075
8. Amendment and Waiver. Except as otherwise expressly provided herein,
(a) any matter requiring the approval or consent of Investors shall require the
approval or consent of Investors, or their transferees, holding greater than
fifty percent (50%) of the Shares held by the Investors, and (b) any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely) with the written consent of Company and Investors (or their
transferees) holding greater than fifty percent (50%) of the Shares held by the
Investors; PROVIDED, HOWEVER, that no such amendment or waiver shall increase
the obligation of a Shareholder or an Investor hereunder, or directly or
indirectly reduce the equity percentage of a Shareholder or Investor (on an
as-converted, as-exercised, fully-diluted basis), without the written consent of
such party; and PROVIDED, FURTHER, that no such amendment or waiver shall reduce
the aforesaid percentage of Shares, the holders of which are required to consent
to any waiver or supplemental agreement, without the consent of the holders of
all of such Shares. Any amendment or waiver effected in accordance with this
Section 8 shall be binding upon Company, Shareholders, Investors and each of
their future transferees. Upon the effectuation of each such amendment or
waiver, Company shall promptly give written notice thereof to the holders of the
Shares who have not previously consented thereto in writing.
9. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of North Carolina, as applied to agreements among
North Carolina residents made and to be performed entirely within the State of
North Carolina, and without regard to the conflicts of law principles as may
otherwise be applicable.
10. Jurisdiction and Venue. Each party to this Agreement hereby
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereunder may be
brought in the courts of Wake County in the State of North
<PAGE>
Carolina or of the United States of America for the Eastern District of North
Carolina, and hereby expressly submits to the personal jurisdiction and venue of
such courts for the purposes thereof and expressly waives any claim of improper
venue and any claim that such courts are an inconvenient forum. Each party
hereby irrevocably consents to the service of process of any of the
aforementioned courts in any such suit, action or proceeding, by the mailing of
copies thereof by registered or certified mail, postage prepaid, to its address
set forth in this Agreement, such service to become effective ten (10) days
after such mailing.
11. Binding on Successors. This Agreement shall bind and inure to the
benefit of the parties hereto, their respective heirs, executors,
administrators, successors and permitted assigns, including any transferees
permitted under Section 1 hereof.
12. Entire Agreement. This instrument shall constitute the entire
understanding between the parties, superseding any and all previous
understandings, oral or written, pertaining to the subject matter contained
herein.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
SIGNATURE PAGE FOR COMPANY
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written, the corporate parties acting by
their duly authorized officers.
COMPANY:
ATTEST: ID TECHNOLOGIES CORPORATION
/s/ Barbara D. Lane By: /s/ J. Phillips L. Johnston
- ------------------------------ ----------------------------------
Asst. Secretary J. Phillips L. Johnston, President
[Corporate Seal]
<PAGE>
SIGNATURE PAGE FOR CENTENNIAL VENTURE PARTNERS, LLC
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written, the corporate parties acting by
their duly authorized officers.
CENTENNIAL VENTURE PARTNERS, LLC (SEAL)
By: Centennial Venture Management, LLC,
Manager (SEAL)
By: /s/ Glenn J. Kline
--------------------------------------------
Glenn J. Kline, Managing Director and Manager
<PAGE>
SIGNATURE PAGE FOR WILLIAM F. LANE AND BARBARA D. LANE
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written, the corporate parties acting by
their duly authorized officers.
/s/ William F. Lane (SEAL)
-------------------------------------
William F. Lane
/s/ Barbara D. Lane (SEAL)
-------------------------------------
Barbara D. Lane
<PAGE>
SIGNATURE PAGE FOR KAYE B. AMICK
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written, the corporate parties acting by
their duly authorized officers.
/s/ Kaye B. Amick (SEAL)
-------------------------------------
Kaye B. Amick
<PAGE>
SIGNATURE PAGE
FOR
INFORMATION RESOURCE ENGINEERING, INC.
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written, the corporate parties acting by
their duly authorized officers.
INFORMATION RESOURCE ENGINEERING,
INC. (SEAL)
By: /s/ A. A. Caputo (SEAL)
-------------------------------------
Name: A.A. Caputo
-------------------------------------
Title: President
-------------------------------------
<PAGE>
SIGNATURE PAGE FOR PETER COKER AND SUSAN COKER
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written, the corporate parties acting by
their duly authorized officers.
/s/ Peter Coker (SEAL)
-------------------------------------
Peter Coker
/s/ Susan Coker (SEAL)
-------------------------------------
Susan Coker
<PAGE>
SIGNATURE PAGE FOR ADDITIONAL INVESTORS
IN WITNESS WHEREOF, the parties have executed this Agreement under seal
as of the day and year first above written, the corporate parties acting by
their duly authorized officers.
___________________________________ (SEAL)
By:_________________________________
Name: ___________________________
Title: ___________________________
<PAGE>
SCHEDULE 1
SHAREHOLDERS
<TABLE>
<CAPTION>
===========================================================================================================
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK SHARES OF COMMON
STOCK
(FULLY-DILUTED)
===========================================================================================================
<S> <C> <C>
Willian F. Lane and Barbara D. Lane 2,427,404 %
2506 West Nash Street, Suite C
Wilson, North Carolina 27896
- -----------------------------------------------------------------------------------------------------------
Kaye B. Amick 1,045,956 %
1809 Faison Road
Durham, North Carolina 27705
- -----------------------------------------------------------------------------------------------------------
Information Resource Engineering, Inc. 1,120,660 %
8029 Corporate Drive
Baltimore, Maryland 21236
- -----------------------------------------------------------------------------------------------------------
Peter and Susan Coker 320,000 %
1305 Slatestone Court
Raleigh, North Carolina 27615
- -----------------------------------------------------------------------------------------------------------
Total 4,914,020 %
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 2
INVESTORS
<TABLE>
<CAPTION>
===========================================================================================================
NAME AND ADDRESS ORIGINAL PRINCIPAL PERCENTAGE OF
AMOUNT OF ORIGINAL
DEBENTURES PRINCIPAL AMOUNT
===========================================================================================================
<S> <C> <C>
Centennial Venture Partners, LLC $300,000 100%
2 Davis Drive
Research Triangle Park, NC 27709
Telephone: (919) 485-8844
Facsimile: (919) 485-8843
Attn: Glenn J. Kline
- -----------------------------------------------------------------------------------------------------------
Total $300,000 100%
===========================================================================================================
</TABLE>
Exhibit 6.01
LICENSE AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of October 1999 (the
"Effective Date"), by and between ID Technologies Corporation, a North Carolina
corporation, having a place of business and address of 2506 West Nash Street,
Suite C, Wilson, North Carolina 27893 (the "Licensor"), and BrentScott
Associates, LLC, having a place of business and address of 5050 Barney Road,
Suite A, Traverse City, MI 49684 (the "Licensee") (together, the "Parties").
WHEREAS, Licensor owns all right, title and interest in United States
Patent No. 5,623,552 (the '552 Patent), dated April 22, 1997, and entitled
"Self-Authenticating Identification Card With Fingerprint Identification".
WHEREAS, Licensor has obtained from Technical Partners (defined below)
a license to practice and use Technical Partners' inventions and patent(s)
(hereinafter referred to as "Technical Partners' Technology") in the Field of
License (defined below), to the extent to which they pertain to the subject
matter described and claimed in the '552 Patent and has further obtained from
Technical Partners' the right to sublicense such Technical Partners' Technology
in said Field of License to Licensee.
WHEREAS, Licensor desires to grant to Licensee an exclusive and
transferable license (subject to the provisions of 2.1) to the '552 Patent and
also the Technical Partners Technology to facilitate Licensee's application of
the '552 Patent technology, and Licensee desires to receive such license and
technology pursuant to the terms of this Agreement.
NOW, THEREFORE, the Parties agree that for and in consideration of the
mutual obligations contained herein, the receipt and sufficiency of which is
acknowledged, the Parties do hereby agree as follows:
1.0 DEFINITIONS
1.1 "SYSTEM" means Licensor's fingerprint identification technology
described and claimed in the '552 Patent and the Licensor Technology
(defined below).
1.2 "LICENSED PATENTS" means the '552 Patent and other patents licensed to
Licensee hereunder.
1.3 "SUBSIDIARY" means a corporation, company or other entity more than
fifty percent of whose outstanding shares or securities (representing
the right, other than as affected by events of default, to vote for the
election of directors or other managing authority) are, now or
hereafter, owned or controlled directly by a corporation, company or
other entity which is a party to this Agreement (either by Licensee or
the Licensor), so long as such ownership or control exists.
1.4 "LICENSEE TECHNOLOGY" means presently existing or future developed
inventions, patents, and technology of Licensee relating to the subject
matter of the '552 patent and licensed or otherwise transferred to
Licensor pursuant to this Agreement.
<PAGE>
1.5 "TECHNICAL PARTNERS" Licensor's partners that develop and apply
technology covered by or related to the subject matter described and
claimed in the '552 Patent.
1.6 "LICENSOR AFFILIATE" shall mean a Subsidiary of Licensor.
1.7 "LICENSOR TECHNOLOGY" means and includes the Licensed Patents as well
as all present and future intellectual property including rights in
inventions, patents, trade secrets, copyrights and other technology,
and any portion thereof, associated with or supportive of use of the
System, which Licensor owns or is authorized to license or otherwise
transfer to Licensee under this Agreement and which Licensor receives
either from Licensee or Technical Partners, and includes present and
future Licensee and Technical Partners' Technology, as well as other
technology acquired by Licensor with respect to which Licensor has the
right to license.
1.8 "FIELD OF LICENSE" means identification, access, and security cards,
associated systems and equipment of whatever type used for all fields,
except for the Excluded Fields of License, which are not part or
otherwise encompassed by "Field of License," unless one or more of
Excluded Fields of License (defined below) are acquired pursuant to
Article 9 of this Agreement.
1.9 "EXCLUDED FIELDS OF LICENSE" means the several Fields of License and
described in Schedule A attached hereto.
1.10 "LICENSED PRODUCT" means any product or component of a product which
incorporates some or all of Licensor's Technology, or whose
manufacture, sale or use would infringe directly, contributorily, or by
inducement any claim of the '552 Patent or any other patent licensed
hereunder.
1.11 "AUTHORIZED SOURCE" means a company selected by Licensor to manufacture
the Licensed Product or a company selected by Licensee with Licensor's
written approval pursuant to Article 3.0 below.
1.12 "THE RECITALS AND ATTACHED SCHEDULE" set forth in the "Whereas"
provisions on page 1 of this Agreement and the Schedule(s) attached
hereto are incorporated herein by reference and are made a part of this
Agreement herein.
2.0 GRANT OF EXCLUSIVE TECHNOLOGY LICENSE
AND LICENSEE'S INTENDED INDUSTRIES
2.1 GRANT. Licensor hereby grants and conveys to Licensee, subject to the
express limitations of this Agreement and to the extent that it
lawfully may issue an exclusive license to: (a) make and sell the
System or any component thereof only in the Field of License (b) to use
such certification mark(s), trademark(s) and/or other marking(s) on
Licensed Products pursuant to Article 14; and (c) to disclose the
System to its Authorized Sources and others necessary for its practice
by Licensee, subject, however, to the confidentiality duty set forth in
Article 22 within the member States of the Gulf Cooperation Counsel
(GCC) States in the Middle East consisting of the Kingdom of Saudi
Arabia, Kuwait, Bahrain, U.A.E., Oman and Qatar. Due to the unique
business rules for the conduct of business in the Middle East, it is
understood by the Licensor that
<PAGE>
it is operationally essential that the Licensee be able to grant a
"sub-license" to selected business partners and that it is not possible
for the Licensee to independently operate in the GCC target market area
as defined above without a partner and the ability to a "sub-license".
2.2 LICENSEE'S INTENDED INDUSTRIES. Simultaneous with execution of this
Agreement, Licensee shall indicate in writing on attached Schedule C,
the industries within the Field of License that Licensee intends to
pursue under this Agreement. It is understood that Schedule C is merely
for Licensor to determine the identity of those industries to which its
System may be sold or otherwise transferred by the exclusive Licensee,
and is not binding on the Licensee.
3.0 LICENSEE CERTIFICATE OF LICENSE AND
AUTHORIZED SOURCE OF LICENSED PRODUCT
3.1 AUTHORIZED SOURCE LIST. Licensor shall provide Licensee, in a writing,
the name and address of at least one company, to be designated as an
Authorized Source, with the expertise, skill, and knowledge to
manufacture and produce Licensee's designated ones of the Licensed
Products within Licensee's Field of License according to Licensee's
specifications and which Licensee is prepared to develop and market.
The date of the writing required by this Article 3.1 shall determine
the date upon which the Term of this Agreement, specified in Article
12.0, begins.
3.2 ADDITIONAL AUTHORIZED SOURCES. At any time during the term of this
Agreement, the Licensee may request adding to the list of Authorized
Sources one or more manufacturers of Licensed Products within
Licensee's Field of License. Such request shall affirmatively state
that the Licensee has investigated the proposed source and has an
adequate basis for believing that the proposed source can manufacture
the particular Licensed Product of interest to the Licensee to such
standards of quality and grade at least equal to and in all respects
not less reliable than the Authorized Sources identified by Licensor
pursuant to Article 3.1. Licensor, not more than thirty (30) days after
it receives the proposed Additional Authorized Sources from Licensee,
shall advise Licensee with respect to such request, and shall not
unreasonably reject such proposed source.
3.3 LICENSEE CERTIFICATE OF LICENSE. Simultaneous with the execution of
this Agreement, Licensor shall complete a Licensee Certificate of
License, a blank copy of which is attached hereto as Schedule B. The
completed Licensee Certificate of License shall include Licensee's
corporate name, business address, telephone number, and shall include a
licensee number assigned by Licensor. Each Authorized Source will have
a list of valid licensee numbers. An Authorized Source is not
authorized by Licensor to manufacture and/or transfer Licensed Products
to Licensee, unless Licensee first presents to the Authorized Source a
Licensee Certificate of License containing a valid licensee number.
3.4 PROCUREMENT. Licensee shall procure the Licensed Product only from an
Authorized Source, and only by presenting to the Authorized Source the
Licensee Certification of License.
<PAGE>
3.5 LICENSEE NOT OBLIGATED TO PURCHASE FROM PERSONS SELECTED BY LICENSOR.
The Licensee acknowledges that it is not required to obtain the product
from any person affiliated with the Licensor, and that it has a full
and sufficient opportunity to seek out alternative sources of the
product and will take such advantage of that opportunity as it
independently elects, relying exclusively on its own business judgment
and not on the recommendation of the Licensor for that purpose. The
Licensee further warrants that it will conduct its own inspection of
any Authorized Source whose identity is provided to the Licensee by the
Licensor and will independently determine the capability and quality of
such Authorized Source to meet the requirements of the Licensee, and
will not rely on the judgment of the Licensor for that purpose. The
Licensor makes no warranty or representation whatsoever as to the
capabilities or performance of any Authorized Source, and expressly
disclaims all such warranties and representations.
4.0 LICENSEE'S RIGHT TO PROPOSE SPECIFICATIONS
The Licensee shall have the right to propose modifying Licensed Product
specifications in a manner that would permit the Licensed Product to better
service customers in the Field of License. Licensor has the right to reject such
modifications, if such modified specifications call for a Licensed Product of a
lesser grade or quality than desired by Licensor or a Licensed Product likely to
impair consumer acceptance of the Licensed Products.
5.0 DEVELOPMENT OF PROTOTYPES OF LICENSED PRODUCTS
5.1 Upon selection of an Authorized Source for the first selected Licensed
Product within Licensee's Field of License which Licensee stands ready
to procure, develop and market in commercial quantities at reasonable
prices, Licensee shall promptly and forthwith proceed to procure such
selected Licensed Product in prototype form from such Authorized
Source, and upon procurement thereof provide Licensor with a sample
thereof.
5.2 Licensor shall within forty (40) days after receipt of a sample of
Licensee's first selected Licensed Product in a prototype form suitable
for reproduction in commercial quantities promptly notify Licensee of
its approval or disapproval thereof. In the event that the Licensor
shall fail to reply within said forty (40) days, the proposed prototype
form shall be deemed to be approved by Licensor. In the event of
approval, which shall not be unreasonably withheld, Licensee shall use
its best efforts to commence production, marketing, and sale of such
first selected Licensed Product in the Field of License. In the event
of disapproval, Licensor shall inform Licensee of the reasons therefore
and Licensee shall promptly take steps to improve such prototype of the
first selected Licensed Product and shall again submit such prototype
to Licensor for approval in accordance with the terms of this Article
5.2.
5.3 After introduction and marketing of the first selected Licensed Product
as referred to above, Licensee shall proceed to select the next and
subsequent Licensed Products in the same manner as set forth above and
shall again submit such prototype to Licensor for approval in
accordance with the terms of Article 5.2.
<PAGE>
6.0 WARRANTIES AND REPRESENTATIONS OF THE PARTIES
6.1 LICENSORS WARRANTIES AND REPRESENTATIONS
6.1.1 LICENSOR TECHNOLOGY.
(a) The Licensor warrants that it is the owner of all
right, title and interest in Letters Patent of the
United States, No. 5,623,552 dated April 22, 1997,
and entitled Self Authenticating Identification Card
With Fingerprint Identification," and has the right
to grant licenses to others to manufacture, use, and
sell, products covered by the patent, and further
warrants that it has the right to license the System
to Licensee pursuant to the terms of this Agreement.
(b) Licensor also warrants that it has obtained from
Technical Partners a license in the Field of License
to receive certain of Technical Partners' Technology
to the full extent to which such technology pertains
to the subject matter described and claimed in the
'552 Patent and has further obtained from Technical
Partners the right to sublicense such Technical
Partners' Technology in said Field of License to
Licensee.
(c) Licensor fully warrants and shall warrant throughout
the term of this Agreement that it has full,
unrestricted right to grant to Licensee the rights
granted in Article 2.0.
6.1.2 PROSECUTION OF LICENSOR PATENTS. Licensor shall maintain the
'552 Patent and any other presently or future existing United
States or foreign patents owned by Licensor and relating to
the System.
6.1.3 LICENSOR BEST EFFORTS. Licensor shall use its best efforts to
develop, improve, enhance and commercialize the System through
its dealings with its Technical Partners, Subsidiaries and
Licensees.
6.1.4 LICENSOR EMPLOYEES. Licensor represents and warrants that it
shall require its employees to assign to Licensor all
intellectual property rights to the inventions developed by
its employees relating to the System.
6.1.5 DUE ORGANIZATION, GOOD STANDING, AUTHORITY OF LICENSOR.
Licensor is a corporation duly organized, validly existing,
and in good standing under the laws of North Carolina.
Licensor has full right, power, and authority to own its
properties and assets, and to carry on its business. To the
best of Licensor's knowledge, Licensor is duly licensed,
qualified and authorized to do business, and is in good
standing in each jurisdiction in which the properties and
assets owned by it or the nature of the business conducted by
it makes such licensing, qualification and authorization
legally necessary.
<PAGE>
6.1.6 LICENSE NOT IN CONFLICT WITH OTHER INSTRUMENTS; REQUIRED
APPROVALS OBTAINED.
6.1.6.1 To the best of Licensor's knowledge, the execution,
delivery, and performance of this License by Licensor
will not (a) violate or require any registration,
qualification, or filing under, (i) any law, statute,
ordinance, rule or regulation ("Laws") of any
federal, state or local government ("Governments") or
any agency, bureau, commission or instrumentality of
any Governments, or (ii) any judgment, injunction,
order, writ or decree or any court, arbitrator, or
Government.
6.1.6.2 To the best of Licensors knowledge, the execution,
delivery, and performance of this License by Licensor
will not conflict with, require any consent,
approval, or filing under, result in the breach or
termination of any provision of, or constitute a
default under (i) any indenture, mortgage, deed of
trust, license, permit, approval, consent, franchise,
lease, contract, or any instrument or agreement to
which the Licensor is a party or is bound, or (iii)
any judgment, injunction, order, writ, or decree of
any court, arbitrator, or government by which the
Licensor or any of its assets or properties is bound.
6.1.7 LEGAL PROCEEDINGS-LICENSOR. To the best of Licensor's
knowledge, there is no action, suit, proceeding, claim,
arbitration, or investigation by any Government or any other
person (i) pending to which the Licensor is a party, (ii)
threatened against or relating to the Licensor or any of the
Licensor's assets or businesses, (iii) challenging the
Licensor's right to execute, deliver, or perform under this
License, or (iv) asserting any right against Licensor with
respect to the System and there is no basis for any such
action, suite, proceeding, claim, arbitration, or
investigation.
6.2 LICENSEE'S WARRANTIES AND REPRESENTATIONS
6.2.1 Licensee's Best Efforts. Licensee represents and warrants to
use its best efforts to proceed diligently with its
manufacture, marketing, distribution, and sale of the Licensed
Products and System in the Field of License in accordance with
the terms of this Agreement. Licensee shall at its cost and
expense use its best efforts and all due diligence to
energetically and aggressively develop the market for the
Licensed Products in the Field of License, to promote the
sale, and use of the Licensed Products and to enhance the
reputation and goodwill associated with the Licensed Products.
In connection with its obligations under this Article 6.2.1,
Licensee shall through its partners in the target market area
maintain facilities of a nature and style suitable in the
Field of License to facilitate the marketing, distribution,
and sale of the Licensed Products; shall, through its
sub-licensee partners provide aggressive, dedicated,
continuous representation in the Field of License by means of
sales and support staff sufficient in number, qualifications,
and training to aggressively and effectively promote, market,
and service the Licensed Products.
<PAGE>
6.2.2 LICENSEE TECHNOLOGY. Licensee represents and warrants in
recognition of mutual benefits to be derived by Licensee, that
it shall grant to Licensor a nonexclusive, royalty free
license, with the right to sublicense, to make, use, and sell
any Licensee made improvement or enhancement, or improvement
or enhancement made on behalf of Licensee, to the Licensed
Product (Licensee Technology). With regard to technology
developed by Licensee, Licensee represents and warrants that
it shall have the sole and exclusive right to grant the
license to manufacture, use, sell, and otherwise transfer
Licensee's Technology relating to the System to Licensor
6.2.3 QUALITY OF LICENSED PRODUCTS. Licensee represents, warrants
and covenants that it shall diligently inspect goods delivered
by Authorized Sources to assure conformity with
specifications, grade and quality satisfactory to Licensor,
and shall not procure goods from any unauthorized source.
Furthermore, Licensee shall not induce any Authorized Source
to engage in adulteration, substitution or other practices
that would constitute a variance from such specifications,
grade and quality and shall not knowingly countenance any such
practices.
6.2.4 LICENSE NOT IN CONFLICT WITH OTHER INSTRUMENTS; REQUIRED
APPROVALS OBTAINED.
6.2.4.1 To the best of Licensee's knowledge, the execution
delivery, and performance of this License by Licensee
will not (a) violate or require any registration,
qualification, or filing under, (i) any law, statute,
ordinance, rule or regulation ("Laws") of any
federal, state or local government ("Governments") or
any agency, bureau, commission or instrumentality of
any Governments, or (ii) any judgment, injunction,
order, writ or decree or any court, arbitrator, or
Government.
6.2.4.2 To the best of Licensee's knowledge, the execution
delivery and performance of this License by Licensee
will not conflict with, require any consent,
approval, or filing under, result in the breach or
termination of any provision of, or constitute a
default under (i) any indenture, mortgage, deed of
trust, license, permit, approval, consent, franchise,
lease, contract, or any instrument or agreement to
which the Licensee is a party or is bound, or (iii)
any judgment, injunction, order, writ, or decree of
any court, arbitrator, or government by which the
Licensee or any of its assets or properties is bound.
6.2.5 LEGAL PROCEEDINGS-LICENSEE. To the best of Licensee's
knowledge, there is no action, suit, proceeding, claim,
arbitration, or investigation by any Government or any other
person (i) pending to which the Licensee is a party, (ii)
threatened against or relating to the Licensee or any of the
Licensee's assets or businesses, (iii) challenging the
Licensee's right to execute, deliver, or perform under this
License, or (iv) asserting any right against Licensee with
respect to the System and there is no basis for any such
action, suite, proceeding, claim, arbitration, or
investigation.
<PAGE>
6.2.6 DUE ORGANIZATION, GOOD STANDING, AUTHORITY OF LICENSEE.
Licensee is a Limited Liability Corporation duly organized,
validly existing, and in good standing under the laws of
Michigan. Licensee has full right, power, and authority to own
its properties and assets, and to carry on its business. To
the best of Licensee's knowledge, Licensee is duly licensed,
qualified and authorized to do business, and is in good
standing in each jurisdiction in which the properties and
assets owned by it or the nature of the business conducted by
it makes such licensing, qualification and authorization
legally necessary.
7.0 ASSIGNMENT
ASSIGNMENT. This Agreement may not be assigned by Licensee without the written
consent of Licensor, such consent not to be unreasonably withheld. Furthermore,
Licensee may not transfer this Agreement along with the sale or transfer of
Licensee's business to a third party without first obtaining the written consent
of Licensor, such consent not to be unreasonably withheld. Except as otherwise
provided under this Article 7.0, it is expressly understood and agreed that
Licensee shall not license, sublicense, or otherwise dispose of the System or
rights provided under this Agreement to any third party.
8.0 LICENSE FEE
8.1 LICENSE FEE. The Licensee shall pay to the Licensor a License Fee in
the amount of Twenty Five Thousand Dollars ($25,000) payable as
follows:
(a) INITIAL LICENSE FEE PAYMENT. Licensee shall pay to Licensor an
initial payment of Two Thousand Dollars ($2,000) upon the
Effective Date of this Agreement.
(b) FINAL LICENSE FEE PAYMENT. The balance of the license fee
Twenty Three Thousand Dollars ($23,000) shall be due and
payable by the Licensee to the Licensor within ten (10) days
of the receipt of a functioning/demonstrable and stand alone
operational product by the Licensee in accordance with Article
12 of this Agreement coinciding with the start of the initial
term of the Agreement
8.2 SURCHARGE. It is understood that Licensor collects a surcharge from
Authorized Source(s) that is To Be Determine percent of the final
price, before applicable sales tax, that Licensee pays to such
Authorized Source(s) for Licensed Product.
9.0 ACQUIRING RIGHTS TO EXCLUDED FIELDS OF LICENSE
It is understood that Licensor is without the right to grant a license to make,
use, sell, sublicense or otherwise transfer the System in any of the Excluded
Fields of License in the United States listed and described in Schedule A of
this Agreement. Should Licensee desire to acquire an exclusive license to make,
use, and sell the System or any component thereof in one or more of the Excluded
Fields of License, Licensee shall contact Licensor in writing requesting a
grant(s) of such license(s). Licensor shall submit the request to the owner of
the Field(s) of License that Licensee wishes to acquire. The owner of the
Field(s) of License may grant Licensee, at its sole discretion, an exclusive
license in owner's Field of License. The terms and conditions of any such
exclusive license shall be negotiated on a case by case basis. Once Licensee
acquires one or
<PAGE>
more of the Excluded Fields of License, such acquired Excluded Fields of License
shall be deemed as part of Licensee's Field of License for purposes of this
Agreement.
10.0 INFRINGEMENT AND INDEMNIFICATION
10.1 INFRINGEMENT CLAIMED BY THIRD PARTIES.
10.1.1 If the Licensee shall be sued for infringement by reason of
the Licensee's activities under the license granted in this
Agreement, the Licensee shall immediately notify the Licensor
and the Licensor shall defend, indemnify, and hold the
Licensee harmless against any such claims, which, if proven,
would constitute a breach of any of the Licensor's
representations or warranties of Article 6.1 above. Provided,
however, that the Licensor shall not have a duty to defend if
the claim of infringement is based upon acts of the Licensee
which go beyond the scope of the Licenses granted, such as by
reason of combination of practice under the license and
authorized practices, with additional unlicensed activity,
which combined licensed and unlicensed activity shall be the
subject matter of the infringement action. Without limiting
the foregoing, the Licensor shall have the control of any such
defense and the right to enter into any settlement and/or
compromise of any such claim. The Licensee shall, if requested
by Licensor, make such reasonable modifications in the
practice of the license granted under this Agreement such as
would enable the parties to avoid or mitigate any third-party
claims of infringement or misappropriation.
10.1.2 If Licensor shall be sued for infringement by reason of the
Licensor's activities under any cross-license as anticipated
by Article 6.2.2, the Licensor shall immediately notify the
Licensee and the Licensee shall defend, indemnify, and hold
the Licensor harmless against any such claims, which, if
proven, would constitute a breach of any of the Licensee's
representations or warranties of Article 6.2 above. Provided,
however, that the Licensee shall not have a duty to defend if
the claim of infringement is based upon acts of the Licensor
which go beyond the scope of the Licenses granted, such as by
reason of combination of practice under the license and
authorized practices, with additional unlicensed activity,
which combined licensed and unlicensed activity shall be the
subject matter of the infringement action. Without limiting
the foregoing, the Licensee shall have the control of any such
defense and the right to enter into any settlement and
compromise of any such claim or action. The Licensor shall, if
requested by Licensee, make such reasonable modifications in
the practice of the license granted under this Agreement such
as would enable the parties to avoid or mitigate any
third-party claims of infringement or misappropriation.
10.2 INFRINGEMENT BY THIRD PARTIES. Licensor shall have the right, but not
the obligation, to institute and prosecute any and all suits to enjoin
any and all infringers of the '552 Patent where such infringement
affects Licensor's use, sale, or rights to the System, and from time to
time during the continuance of this Agreement, and at its own expense,
may institute any suit or suits it may deem necessary. The Licensor
shall have the right to institute and prosecute such suits, and to
employ its own counsel for such suits; and
<PAGE>
Licensor shall pay for all services rendered by counsel so retained,
and for all incidental costs and expenses. Licensor agrees that
Licensee may join as a party plaintiff in any suit initiated by
Licensor pertaining to infringement in the Field of License regarding
the System, at Licensee's sole expense, where Licensee deems that
joining as a party plaintiff is necessary and in Licensee's best
interests.
11.0 LIMITATIONS OF LIABILITY AND CONSEQUENTIAL DAMAGES
IN NO EVENT, WHETHER BASED ON CONTRACT, INDEMNITY, WARRANTY, TORT (INCLUDING
NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, SHALL LICENSOR OR ITS SUBCONTRACTORS
OR SUPPLIERS, OR ANY OF ITS RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS,
BE LIABLE FOR (I) SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES; OR (II) ANY LOSSES OR
DAMAGES ARISING OUT OF, CONNECTED WITH, OR RESULTING FROM (A) THE PERFORMANCE OF
ANY THIRD PARTY NOT HIRED BY LICENSOR, (B) ANY SOFTWARE, HARDWARE OR OTHER
PRODUCT OR COMPONENT PROVIDED BY ANY OTHER PARTY, (C) THE RELIANCE BY LICENSOR
ON ANY STATEMENT OR REPRESENTATION MADE BY LICENSEE REGARDING A THIRD PARTY
VENDOR; OR (D) ANY FAILURES STEMMING FROM PROBLEMS RELATING TO THE YEAR 2000.
12.0 TERM OF AGREEMENT AND RENEWAL
12.1 INITIAL TERM OF AGREEMENT. The initial term of this Agreement shall be
three (3) years from the date that Licensor provides Licensee with
(a) The name of an Authorized Source pursuant to Article 3.1 of
this Agreement.
(b) The Licensee is in receipt of a fully operational stand-alone
product that can be marketed/demonstrated to potential
clients.
(c) A product that is "reasonably" priced in accordance with
Article 5.1 of this Agreement.
12.2 LICENSEE RENEWAL OPTION. This Exclusive Agreement shall automatically
renew for sequential one (1) year periods at a cost of ten thousand
dollars ($10,000.00) per year beginning in year four (4) at Licensee
option.
13.0 TERMINATION
13.1 This Agreement may be terminated as follows:
(a) By mutual Agreement of the Parties.
(b) If the Licensee shall (i) commence a voluntary case under the
federal or state bankruptcy laws, (ii) file a petition seeking
to take advantage of any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up
or composition for adjustment of debts, (iii)
<PAGE>
consent to or fail to contest in a timely and appropriate manner any
petition filed against it in an involuntary case under such bankruptcy
laws or other laws, (iv) apply for or consent to, or fail to contest in
a timely and appropriate manner, the appointment of, or the taking of
possession by, a receiver, custodian, trustee, or liquidator of itself
or of a substantial part of its property, domestic or foreign, (v)
admit in writing its inability to pay its debts as they become due,
(vi) make a general assignment for the benefit of creditors, (vii) take
any corporate action authorizing any of the foregoing, (viii) become
the subject of a case or other proceeding in any court of competent
jurisdiction seeking relief under the federal bankruptcy laws or under
any other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or adjustment of debts, which
proceeding shall continue undismissed or unstayed for a period of sixty
consecutive calendar days, or an order granting the relief requested
shall be entered, or (ix) become the subject of the appointment of a
trustee, receiver, custodian, liquidator or the like, which appointment
shall continue undismissed or unstayed for a period of sixty
consecutive calendar days.
(c) If Licensee, without having first terminated this Agreement
and ceased obtaining any of the benefits of this Agreement
challenges the validity of any patent purported to be licensed
by the Licensee under this Agreement.
(d) If Licensee does not procure Licensed Product from an
Authorized Source pursuant to Article 3.4.
(e) By either party due to the other party's material breach of
its obligations under this Agreement, upon giving written
notice.
13.2 Upon termination of this Agreement, any and all rights which the
Licensee shall have or possess under this Agreement shall permanently
cease and be by it relinquished and surrendered to the Licensor. If
such termination is not due to a Licensee breach of this Agreement,
Licensee shall have the right to sell all Licensed Products already
manufactured and in its possession for a period of three (3) months
following the termination date. Should termination of this Agreement be
due to a Licensee breach, then Licensee shall, upon termination,
transfer all Licensed Products to Licensor (unless otherwise agreed to
in writing by Licensor).
14.0 MARKING
The Licensee shall use such certification mark(s), trademark(s), and/or
other marking(s) as may from time to time be adopted by the Licensor to indicate
to the public that the Licensed Products are genuine licensed products, and/or
to indicate the patent protection applicable thereto (Licensor Mark(s)). The
Licensee shall in any event when requested by Licensor mark the patent number of
each patent covering the Licensed Products, on each Licensed Product
manufactured, sold or otherwise distributed by the Licensee in a manner
satisfactory to Licensor; and shall use the trademark registration symbol
adjacent any registered trademark to the extent permitted by
<PAGE>
law. However, it is agreed and understood that Licensee may use its own
certification mark(s), trademarks, and/or other marking(s) (Licensee Mark(s)) as
Licensee may from time to time adopt, on Licensed Products. It is further agreed
and understood that Licensee may use Licensee Mark(s) conspicuously on Licensed
Products, and may use Licensor Mark(s) less conspicuously. By way of example,
Licensee may apply Licensee Mark(s) in large bold type or design on the primary
display surface of Licensed Product and apply Licensor Mark(s) on a secondary
surface of Licensed Product in small, but readable, type or design.
15.0 NO BUSINESS OPPORTUNITY OR FRANCHISE
This Agreement is not intended to be, and shall not be construed to be,
the granting of a business opportunity or of a franchise under the laws of the
United States or any state or territory thereof. The Licensee warrants to the
Licensor that the Licensee possesses business expertise relevant to the field in
which it will engage pursuant to the license granted herein. The Licensee
acknowledges that the Licensor is not obligated by this Agreement to provide any
business advice or business assistance of any kind or nature whatsoever,
including but not limited to the provision of a prescribed marketing plan or
system, and warrants that the Licensee has not received, and does not expect to
receive, any business advice or assistance from Licensor on which it has relied
or intends to rely in any manner whatsoever. The Licensee further acknowledges
that the Licensee, in evaluating the propriety of entering into this Agreement,
has relied exclusively on its own advisors and not on any representations made
by the Licensor except such representations as are expressly stated in the words
of this Agreement.
16.0 NO INVESTMENT OR SECURITIES OFFERING
The Licensee represents and warrants that the Licensor shall not, by
reason of entering into this license with the Licensee, be or become obligated
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Furthermore,
notwithstanding any other provision of this Agreement, the Licensee shall not
enter into any transaction regarding the License that would require the Licensor
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Any violation
of this Article 16.0 is a material default that shall entitle the Licensor to
terminate this Agreement.
17.0 CONSENT TO ADVERTISING AND PUBLICITY
The Licensor may issue and disseminate to the public information
describing the license entered into with the Licensee, including the name and
address of the Licensee, the general terms of the agreement, and a general
description of the Licensee's business.
18.0 GOVERNING LAW
This Agreement shall be interpreted and construed in accordance with
the laws of the United States and the laws of the State of North Carolina.
<PAGE>
19.0 INDEPENDENT CONTRACTORS
The Parties to this Agreement are independent contractors. Nothing in
this Agreement is to be construed as making either party an agent of or joint
venturer with the other.
20.0 UNSERVED AND/OR UNDERSERVED FIELD OR LICENSE
20.1 At any time after the first year during the term of this License (or
any extensions thereof) should Licensor determine that some area or
areas within the "Field of License" are not being served or are being
underserved by Licensee, Licensor may notify Licensee in writing of
such determination. This notification shall clearly reference Article
20.0 of this Agreement as its basis and give reasonable evidence in
support of Licensor's determination of such unserved and/or underserved
areas.
20.2 Licensee shall acknowledge this notice in writing within ten (10)
business days and respond to this same notice in writing within ninety
(90) days setting forth Licensee's plans to serve or better serve the
subject area. Should Licensor and Licensee agree on plan(s) proposed by
Licensee or Licensor, no further action under this provision of Article
20.0 will be necessary. Should Licensor and Licensee fail to agree on
such plan(s) within thirty (30) days of Licensor's receipt of such
plan(s), and should Licensor believe the subject area to be materially
unserved or underserved to the detriment of all parties, then the
matter will be submitted to arbitration under Article 24 of this
Agreement.
20.3 Should such arbitration process result in the determination that
Licensor's position is correct, Licensee shall 1) sublicense the
unserved area(s) to parties reasonably capable of and willing to
deliver such services and or 2) allow the re-licensing of these areas,
splitting all revenues therefrom between Licensor and Licensee on a
fifty/fifty (50/50) basis.
21.0 COMPLETE AGREEMENT AND MODIFICATION
This Agreement represents the entire agreement, both written and oral
of the Parties, and supersedes and replaces any prior written or oral agreements
between Licensee and Licensor. This Agreement may be amended only in a writing
stating that it is an amendment or modification of this Agreement, and signed by
an authorized representative of each of the Parties hereto.
22.0 NOTICES
Any notice required to be given under this Agreement shall be properly
given if delivered by first-class mail as follows:
ID Technologies Corporation BrentScott Associates, LLC
2506 West Nash Street, Suite C 5050 Barney Road, Suite A
Wilson, North Carolina 27896 Traverse City, MI 49684
Attention: President Attention: Brent H. Nichols, General Partner
<PAGE>
23.0 CONFIDENTIALITY
The Parties acknowledge that in order to carry out the License granted
hereunder, it may be necessary for either Parties to transfer or disclose
certain trade secrets that have been developed by Licensor and/or Licensee, or
on their behalf at great expense and that have required considerable effort of
skilled professionals. The Parties acknowledge and agree that in no event shall
either Party disclose any such trade secrets to any third party. In the event
that it is necessary to transfer or otherwise disclose such trade secret and
confidential information to either Party, or an Authorized Source, then the
party disclosing such trade secrets or confidential information shall require
the party to which the information is being disclosed to sign a confidentiality
agreement, requiring that in no event shall the receiving party disclose any
such trade secrets and confidential information to a third party. Confidential
information shall be that information disclosed or transferred to either Party
that is marked "Confidential," or information disclosed or transferred to either
party that at the time of such disclosure or transfer the party receiving such
disclosure was informed that the information must be treated by the receiving
Party as confidential.
24.0 ARBITRATION
Any dispute under this Agreement not resolved within thirty (30) days
of notice to the other party shall be submitted to binding arbitration under the
rules of the American Arbitration Associated then in effect. There shall be no
appeal from the decision other than for gross violation of due process or fraud
in the conduct of the arbitration. Judgment upon the decision may be entered in
a state or federal court, as may be appropriate, selected by the party of whom
arbitration was requested, or, if that party declines to promptly select such a
court, in a court selected by the party who had requested arbitration. The
parties irrevocably agree, for this purpose only, to submit to the jurisdiction
of such a court, or application may be made to such court for confirmation of
the decision, for judicial acceptance thereof, for an order of enforcement, or
for any other legal remedies that may be necessary to effectuate the decision.
The expense of the arbitration and/or arbitrators shall be shared equally by the
Parties. Each of the Parties shall bear its own arbitration costs, including
without limitation its own costs of preparation, attorneys' fees, and witness
fees and expenses. In the event of litigation between the Parties, arbitration
may be so requested at any time prior to the beginning of a trial. Any required
arbitration shall be held at a site in North Carolina as determined by Licensor.
25.0 SEVERABILITY
If any provisions of this Agreement shall be construed to be illegal or
invalid, the legality of the validity of any other provisions hereof shall not
be affected hereby. Any illegal or invalid provision of this Agreement shall be
severable, and all provisions shall remain in full force and effect.
26.0 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All of the representations and warranties of the parties contained in
this Agreement, the indemnification provisions of Article 10, and the
Limitations of Liability and Consequential Damages provisions of Article 11
shall survive termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have through a duly authorized
officer thereof duly executed this Agreement on the dates indicated below to be
effective as of the day first indicated above.
ID Technologies Corporation (Licensor) BrentScott Associates, LLC (Licensee)
By: /s/ J. Phillips L. Johnston By: /s/ Brent H. Nichols
------------------------------------- ----------------------------------
J. Phillips L. Johnston Brent H. Nichols
Title: President Title: General Partner
Date: October 1, 1999 Date: October 1, 1999
---------------------------------- -------------------------------
THE FOLLOWING SCHEDULES, WHEN INITIALED BY BOTH PARTIES, ARE INCORPORATED HEREIN
BY REFERENCE:
LICENSOR LICENSEE
- ----------------------- ------------------------ Exhibit A
- ----------------------- ------------------------ Exhibit B
- ----------------------- ------------------------ Exhibit C
<PAGE>
SCHEDULE A
EXCLUDED FIELDS OF LICENSE
The Excluded Fields of License are:
1. Use of the system for United States FAA approved airline and airport
facilities throughout the world, in particular, for airline and airport
personnel identification and security systems.
2. Use of the system for general purpose credit and debit cards (Visa,
MasterCard, American Express, Discover Card, Carte Blanche, Diners Club,
etc.) or general purpose bank-issued cards of various forms.
3. Use of the System for Internet security.
4. Use of the system in computer security applications, including facilities
and computer access control and information security applications utilizing
computer networks including the Internet.
5. Use of the system in financial applications including government, treasury,
banking, credit and debit cards, and regulatory applications.
6. Use of the system in hotel security industry, including hotel door locking
devices, in-room safes, mini-bars, and all associated security systems.
<PAGE>
SCHEDULE B
CERTIFICATE OF LICENSE
[NAME OF LICENSEE]
BrentScott Associates, LLC
5050 Barney Road, Suite A
Traverse City, MI 49684
Licensee Number: _______________________________
Authorized by: _________________________________ Date: _________________
Officer of ID Technologies Corporation
<PAGE>
SCHEDULE C
LICENSEE'S INTENDED INDUSTRIES
1. All government agencies and ministries within the member states of the Gulf
Cooperation Counsel (GCC) as defined in 2.1 including but not limited to
the Ministries of the Interior, Defense and Aviation, Finance, Oil,
Religion, Pilgrimage, Commerce and Industry, Tourism etc.
2. All commercial agencies and business applications within the member states
of the GCC as defined in 2. 1.
3. Initial specific applications may be male civil registration cards, male
identification cards, female identification cards, expatriate ID and work
permits, airport security systems, drivers licenses, passports, Hajj and
Umrah identification cards, residence permits, military identification,
high security and sensitive area access cards, vehicle identification and
ownership documentation, etc.
4. Security as pertains to the protection and filtration of materials and
information deemed not acceptable for public consumption by the Governments
of GCC member States.
Exhibit 6.02
PATENT LICENSE AGREEMENT
BETWEEN
CARDGUARD INTERNATIONAL, INC.
AND
INFORMATION RESOURCE ENGINEERING, INC.
RELATING TO -
FINGERPRINT IDENTIFICATION TECHNOLOGY
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
THIS LICENSE AGREEMENT is made effective as of July 30, 1997 ("the
effective date") by and between CardGuard International, Inc., a North Carolina
corporation having a principal place of business at 10 Park Plaza, P.O. Box
12694, Research Triangle Park, North Carolina 27709 (hereinafter referred to as
"CardGuard") and Information Resource Engineering, Inc., a Delaware corporation
having a principal place of business at 8029 Corporate Drive, Baltimore,
Maryland 21236 (hereinafter referred to as "IRE").
W I T N E S S E T H
WHEREAS, CardGuard has developed Inventions relating to fingerprint
identification technology and owns full right, title and interest in U.S. Patent
Application Serial No. 08/515,151, filed August 15, 1995, entitled
"SELF-AUTHENTICATING IDENTIFICATION CARD WITH FINGERPRINT IDENTIFICATION" and
U.S. Patent No. 5,623,562, issued therefrom on April 22, 1997;
WHEREAS, IRE and CardGuard entered into a previous "Option" Agreement
dated 14 March 1996, and
WHEREAS, CardGuard has disclosed its inventions relating to fingerprint
identification technology, including U.S. Patent Application Serial No.
08/515,151, in confidence to IRE;
WHEREAS, IRE has a strong background in technologies relating to the
design, development and manufacture of products which can incorporate
fingerprint identification technology and is ready, willing and able to design
and develop state-of-the-art products embodying fingerprint identification
technology; and
WHEREAS, IRE is interested in obtaining a license to make, use and sell
products embodying CardGuard's inventions relating to fingerprint identification
technology, including a license under the aforementioned Patent Application
Serial No. 08/515,151 and U.S. Patent No. 3,623,552 issued therefrom;
<PAGE>
NOW, THEREFORE, for and in consideration of the mutual covenants,
conditions and undertakings contained in this Agreement, CardGuard and IRE agree
as follows:
ARTICLE 1 - DEFINITIONS
1.1 "IRE" shall mean Information Resource Engineering, Inc. and its
Subsidiaries.
1.2 "Subsidiary" shall mean a corporation, company or other entity more
than fifty percent (50%) of whose outstanding shares or securities (representing
the right other than as affected by events of default, to vote for the election
of directors or other managing authority) are, now or hereafter, owned or
controlled directly by IRE, but such corporation, company or other entity shall
be deemed to be a subsidiary only so long as such ownership or control exists.
1.3 "Licensed Patent Applications" shall mean U.S. Application Serial
No. 08/515,151, filed August 15, 1995, entitled "SELF-AUTHENTICATING
IDENTIFICATION CARD WITH FINGERPRINT IDENTIFICATION", and any and all
continuations, divisions, and continuations-in-part of Application Serial No.
08/515,151.
1.4 "Licensed Patents" means all patents issuing from said Licensed
Patent Applications and all reissued or reexamined patents issuing therefrom,
including U.S. Patent 5,623,552.
1.5 "Licensed Product" means any product, the manufacture, use of sale
of which would, except for the licensed rights granted herein, infringe any
claim of any Licensed Patents.
1.6 "Net Selling Price" for purpose of computing running royalties
shall mean, the greater of any of the following: (a) in the case of a sale of a
Licensed Product to a third party customer at arm's length for monetary
consideration, IRE's gross invoice price to the customer, less actual allowances
far returns and less (to the extent separately stated an the invoices) cash and
other trade discounts, shipping, customs and insurance charges, and sales, use,
value added and similar taxes; (b) in the case of a transfer of a Licensed
Product to a purchaser which does not deal at arm's length with IRE, or a
transfer by IRE for other than monetary consideration, or the use of a Licensed
Product by IRE, the Net Selling Price shall be calculated as the price at which
IRE sells comparable quantities of Licensed Products at substantially the same
time to customers dealing at arm's length; (c) in the case of any disposition of
a Licensed Product by or an behalf of IRE, the Net Selling Price shall be IRE's
fully burdened cost of manufacture, determined by IRE's customary accounting
procedures, increased by a factor of one and one tenth (1.1); or (d) in the case
of any disposition of a Licensed Product made by another manufacturer, by or an
behalf of IRE, the Net Selling Price shall be the respective manufacturer's
fully burdened cost of manufacture, determined by the respective manufacturer's
customary accounting procedures, increased by a factor of one and one tenth
(1.1).
1.7 "Including" shall mean including without limitation.
1.8 "Exclusive Field" shall mean the following markets: (i) computer
security applications (including facilities and computer access control and
information security applications utilizing computer networks including the
Internet), and (ii) financial applications including government, treasury,
banking and credit and debit cards and regulatory applications.
<PAGE>
However, excluded from the Exclusive Field are devices and uses set forth in
Attachment A to this Agreement as amended from time to time by written mutual
agreement of the parties.
ARTICLE 2 - LICENSE GRANT
2.1 CardGuard hereby grants to IRE a worldwide license in the Exclusive
Field to make, use and sell Licensed Products and to have Licensed Products made
by another in accordance with designs furnished by IRE, upon the terms and
conditions set forth herein. CardGuard also hereby grants to IRE the right under
the Licensed Patents to grant sublicenses to others.
2.2 No right or license is granted by this Agreement, either expressly
or by implication, to make, use or sell Licensed Products for applications
outside the Exclusive Field.
2.3 IRE agrees to mark all Licensed Products or products containing
Licensed Products in accordance with 35 USC ss.287.
ARTICLE 3 - PAYMENTS AND OTHER CONSIDERATION
3.1 Beginning on the effective date of this Agreement and continuing
for the life of this Agreement, IRE will pay CardGuard a non-refundable running
royalty of five percent (5%) of the applicable Net Selling Price or royalty
received-from all Licensed Products made, used, sold, sublicensed or otherwise
disposed of by or on behalf of IRE in countries in which Licensed Products are
covered by a valid patent. It is understood that, in the event a Licensed
Product or products which incorporate other patents or intellectual property
owned or licensed to IRE (IRE technology) is sold or such technology is
sublicensed as part of one or more other products sold or marketed by IRE, the
royalty with respect to such package sales would be based on a reasonably
allocated portion of gross revenue (or royalty) generated by the Licensed
Product only and not with respect to the value or sales price attributable to
the applicable IRE technology and/or transaction card upon which the
self-authenticating fingerprint identification card technology or intellectual
property resides.
3.2 IRE agrees to make payment of the aforesaid running royalty for
sales during each calendar quarter within thirty (30) days after the first days
of each January, April, July and October during the term of this Agreement. The
date of sale of a Licensed Product shall be the invoice date or the date of any
other revenue related disposition or other disposition of a Licensed Product.
Each payment of any royalty shall be accompanied by a report setting forth the
computation of the royalty payment for such quarter, including a list of unit
sales of Licensed Products by IRE's model number. All such royalty payments made
in under this section shall be non-refundable and shall not be credited against
any other payments or amounts made under this Agreement.
3.3 In connection with such royalty payments, the sales and accounting
records of IRE shall be available for inspection by CardGuard's independent
public accountants during usual business hours for the purpose of verifying such
reports. Such inspections shall be at the expense of CardGuard unless a
variation or error exceeding $20,000, or the equivalent, is discovered in the
course of any such inspection, whereupon all costs, expenses and fees relating
thereto shall be paid by IRE.
<PAGE>
3.4 During the term of this Agreement, CardGuard agrees to timely pay
all government maintenance fees associated with the Licensed Patents.
3.5 In the event of default in payment of any royalties or other
payments owed to CardGuard under the terms of this Agreement, and if it becomes
necessary for CardGuard to undertake legal action to collect said royalties or
payments, IRE shall pay all legal fees and costs incurred by CardGuard in
connection therewith.
3.6 IRE agrees to provide to CardGuard audited IRE financials on or
before 31 March of each year. Such financials shall provide adequate details to
allow CardGuard to reasonably determine that its business with IRE has been
accurately reported by IRE's financial system. Should reasonable detail not be
available in this audit, CardGuard may on written notice of at least ten (10)
business days and no more often than once per year and at its own expense and
using an independent audit firm experienced in such matters have reasonable
access to IRE's accounts and records to verify these matters.
3.7 At CardGuard's request, IRE agrees to consider proposals for
sublicenses from any of CardGuard's prospective licensees. In the event that
CardGuard with IRE's written consent licenses said prospective licensee for
sales of Licensed Products in the Exclusive Field, CardGuard agrees to pay IRE
fifty percent (50%) of all revenue it receives from same relating to sales or
use of Licensed Products in the Exclusive Field. CardGuard agrees to make
payment of the aforesaid revenues received during each calendar quarter within
thirty (30) days after the first days of each January, April, July and October
during the term of this Agreement. Each payment to IRE shall be accompanied by a
report setting forth the computation of this revenue share payment for such
quarter, including a list of unit sales of Licensed Products. All such payments
made by CardGuard to IRE under this section shall be non-refundable and shall
not be credited against any other payments made under this Agreement.
3.8 CardGuard agrees to provide to IRE audited CardGuard financials on
or before 31 March of each year. Such financials shall provide adequate details
to allow IRE to reasonably determine that its business with CardGuard has been
accurately reported by CardGuard's financial system. Should reasonable detail
not be available in this audit, IRE may on written notice of at least ten (10)
business days and no more often than once per year and at its own expense and
using an Independent audit firm experienced in such matters have reasonable
access to CardGuard's accounts and records to verify these matters.
3.9 In the event IRE obtains a patent of patents for an invention or
inventions pertaining to the subject matter claimed in the Licensed Patents, IRE
agrees to grant CardGuard a nonexclusive license to use the inventions or such
patent or patents for the full term of terms thereof. If CardGuard desires to
grant sublicenses to use the IRE invention(s) it will submit written requests to
IRE for its consent and approval which will in IRE's reasonable discretion be
granted or denied. Such nonexclusive license shall be subject to a running
royalty to be paid by CardGuard to IRE at a rate two (2) times the running
royalty set forth in section 3.1.
<PAGE>
ARTICLE 4 - AGREEMENT TERM AND TERMINATION
4.1 This Agreement shall commence on the effective date and shall
continue in full force and effect until the expiration date of the last of the
Licensed Patents upon payment by IRE of Ten Thousand ($10,000) Dollars on the
effective date. All such payments made under this section shall be
non-refundable and shall not be credited against any other payments or amounts
made under this Agreement.
4.2 If after four (4) years from the date of this License IRE has not
commercially developed the subject technologies to a reasonable level, CardGuard
shall have a right to terminate this License Agreement subject to any sublicense
then in effect by paying an amount of Ten Thousand ($10,000) Dollars to IRE. In
the event CardGuard elects to terminate this License Agreement, IRE may
terminate any license agreement granted to CardGuard under Section 3.8. Should
CardGuard so elect, IRE will have an option to require CardGuard to repurchase
IRE's CardGuard stock or any portion thereof at the subscription price set forth
in this Agreement.
4.3 It is expressly agreed that, notwithstanding the provisions of any
other section of this Agreement, if IRE should fail to deliver to CardGuard any
royalty at the time or times that the same should be due to CardGuard or if IRE
should in any material respect violate or fail to keep or perform any covenant,
condition, or undertaking of this Agreement on its part to be kept or performed
hereunder, then and in such event CardGuard shall have the right to cancel and
terminate this Agreement, and the license herein provided for, by written notice
to IRE if IRE has failed to cure any such breach within thirty (30) days of
receipt of written notice from CardGuard describing such breach. IRE's right to
cure a breach will apply only to the first two breaches properly noticed under
the terms of this Agreement, regardless of the nature of those breaches. Any
subsequent breach by IRE will entitle CardGuard to terminate this Agreement upon
proper notice.
4.4 If any one party should be adjudged bankrupt or otherwise enter
bankruptcy, then the other party shall have the right to cancel and terminate
this Agreement and the license herein provided for by providing written notice
to the one party.
4.5 Any termination or cancellation under any provision of this
Agreement shall not relieve IRE of its obligation to pay any royalty of other
fees (including legal fees and costs pursuant to section 3.5 hereof) due or owed
at the time of such cancellation or termination.
ARTICLE 5 - BEST EFFORTS
5.1 IRE shall proceed diligently to conduct research and development
programs to develop prototypes of Licensed Products during the course of this
Agreement. IRE may subcontract parts of the required work and/or acquire needed
technology from third party sources at its sole discretion.
ARTICLE 6 - INFRINGEMENT
6.1 IRE shall notify CardGuard in writing of any suspected
infringement(s) of the Licensed Patents and shall inform CardGuard of any
evidence of such infringement(s).
<PAGE>
6.2 In the event any of the Licensed Patents are infringed by a third
party, IRE shall have the primary right, but not the obligation, to institute,
prosecute and control any action or proceeding with respect to such
infringement, by counsel of its choice, including any declaratory judgment
action arising from such infringement, with all related costs, attorneys' fees
and expenses to be paid by IRE.
6.3 Notwithstanding section 6.2, and in CardGuard's sole discretion,
CardGuard shall be entitled to participate through counsel of its own choosing
in any legal action involving the Licensed Patents.
6.4 IRE shall be entitled to any recovery of damages resulting from any
action or proceeding brought pursuant to section.6.2, however, in the event of
any such recovery IRE shall pay CardGuard an amount equal to the amount of
royalty due under section 3.1, if the acts of the third party were performed by
IRE under this Agreement.
6.5 IRE may not settle any action or proceeding brought pursuant to
section 6.2 without the prior written approval from CardGuard which approval
shall not be unreasonably withheld.
ARTICLE 7 - WAIVER
7.1 It is agreed that no waiver by IRE or CardGuard of any breach or
default of any of the covenants or agreements herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
ARTICLE 8 - PURCHASE OF COMMON STOCK
8.1 Upon the terms and subject to the conditions hereinafter set forth,
at the Closing, CardGuard shall sell, transfer and deliver and/or shall cause
its existing shareholders to sell, transfer and deliver to IRE 1,120,660 shares
of CardGuard's common stock (the "Common Stock") free and clear of all manner of
liens, pledges, encumbrances, charges and claims thereon. Certificates
evidencing the Common Stock shall be delivered by CardGuard to IRE at the
Closing. Such certificates shall also be accompanied by evidence satisfactory to
IRE of CardGuard's payment of any applicable transfer taxes. Said stock will not
be issued in a transaction registered with the Securities and Exchange
Commission and shall, therefore, be restricted from resale to the public. The
Common Stock Certificate shall be in the form annexed hereto as Exhibit B.
8.2 The shares of Common Stock to be delivered by CardGuard to IRE as
set forth above shall constitute thirteen and 7/10 (13.70%) percent of the fully
diluted issued and outstanding Common Stock of CardGuard as of the Closing Date,
as hereinafter defined. The term "fully diluted" as used in this Agreement shall
mean the number of shares of the Common Stock of CardGuard to be outstanding
upon the exercise or conversion of all warrants, options or other securities
convertible into the Common Stock of CardGuard as of the Closing Date, including
the Common Stock to be issued on the Closing Date.
The Common Stock issuable to IRE pursuant to this Article 8 shall be
afforded "full-ratchet" anti-dilution protection. If, at any time or from time
to time from the date of this
<PAGE>
Agreement. CardGuard shall issue or sell any shares of Common Stock, except for
Common Stock underlying existing Warrants, Options or other convertible
securities in existence as of the date of this Agreement, for a consideration
less than $.26 per share, then that number of additional shares of CardGuard
Common Stock shall be issued to IRE so that the average per share price paid by
IRE shall equal the lowest price hereafter paid for CardGuard Common Stock. This
provision will terminate when CardGuard's Common Stock is traded on a national
securities exchange.
8.3 Upon the sale, transfer and delivery to IRE by the Company of the
Common Stock, and in consideration therefor, IRE shall pay CardGuard at the
Closing, in cash, wire transfer or by a certified or bank cashiers check the sum
of Two Hundred Ninety Thousand ($290,000) Dollars, as full consideration for its
subscription therefor.
8.4 If CardGuard shall register any of its securities for sale pursuant
to any appropriate Registration Statement under the Act, CardGuard shall be
required to offer IRE the opportunity to register any or all of its CardGuard
Common Stock ("the Registrable Securities"), without cost to IRE. In connection
with these piggy-back registration rights, CardGuard shall give IRE notice by
certified mail at least thirty (30) business days prior to the filing of such
Registration Statement under the Act. The registration requirement shall not
apply to a Registration Statement filed by CardGuard pursuant to Form S-8 or
S-4, or any other inappropriate form. If the registration of which CardGuard
gives notice is for a registered public offering involving an underwriting,
CardGuard will so advise IRE. In such event, these registration rights shall be
conditioned upon IRE's participation in such underwriting and the inclusion of
the Registrable Securities in the underwriting to the extent provided herein. In
the event that the underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the underwriter may limit
the number of Registrable Securities. In such event, CardGuard shall so advise
IRE of the number of shares of securities that are entitled to be included in
the registration and the underwriting shall be allocated among IRE and other
participants in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities and other securities which they had requested to be
included in such registration statement at the time of filing the registration
statement. If IRE disapproves of the terms of any such underwriting, it may
elect to withdraw therefrom by written notice to CardGuard and the underwriter,
without thereby affecting the right of IRE to participate in subsequent
offerings hereunder.
8.5 CardGuard agrees to allow IRE to appoint one (1) member to
CardGuard's Board of Directors for a 5-year period commencing at the effective
date of this Agreement. CardGuard agrees to hold meetings of its Board of
Directors no less frequently than one meeting each calendar quarter.
ARTICLE 9 - INDEPENDENT CONTRACTOR STATUS
9.1 Neither party to this Agreement is an agent of the other for any
purpose.
<PAGE>
ARTICLE 10 - ARBITRATION
10.1 All disputes arising in connection with the present Agreement and
which cannot be resolved by the parties in a friendly manner shall be submitted
to and finally settled by arbitration in accordance with the Rules of the
American Arbitration Association. The arbitration shall be conducted in
Baltimore, Maryland. The arbitration shall be governed in accordance with (i)
the language of the Agreement and (ii) the substantive law of the State of
Delaware, as is stated elsewhere in this Agreement. Arbitration, pursuant to
this Section, shall be the exclusive remedy for all disputes under this
Agreement, including but not limited to, the validity of the arbitration clause,
fraud or issues of nonarbitrability. There shall be no recourse to law or other
courts regarding interpretation of, or rights under, this Agreement, and each
party hereby expressly renounces any such recourse. The arbitrator(s) is
precluded from considering or awarding punitive or exemplary damages to any
party in said arbitration. Judgment upon the award rendered may be entered in
any court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be.
ARTICLE 11 - WARRANTIES/DISCLAIMERS
11.1 CardGuard makes NO WARRANTIES, express or implied, that any
Licensed Patents will issue, or that any Licensed Patents which do issue will
remain valid or enforceable. CardGuard further makes NO WARRANTIES, express or
implied, as to any matter whatsoever, including, without limitation, the
condition of any right, invention, product or information that are the subject
of this Agreement; the merchantability or fitness for a particular purpose of
any right, invention, product or information; or that any right, invention,
product or information does not infringe any patent or any other rights of
another. ALL RIGHTS, LICENSES, INVENTIONS, PRODUCTS, TECHNOLOGY OR INFORMATION
ARE TRANSFERRED "AS IS." CardGuard shall not be liable for any direct,
consequential, or other damages suffered by IRE or any others resulting from the
use of the right licensed hereunder.
ARTICLE 12 - COMPLETE AGREEMENT
12.1 It is understood and agreed between CardGuard and IRE that this
Agreement constitutes the entire agreement, both written and oral, between IRE
and CardGuard and that all prior written or oral agreements between IRE and
CardGuard shall be abrogated, canceled, and are null and void and of no effect.
This Agreement may be changed only in writing stating that it is an amendment or
modification to this Agreement, and signed by an authorized representative of
each of the parties hereto.
ARTICLE 13 - NOTICES
13.1 Any notice required or permitted to be given to CardGuard or IRE
shall be deemed to have been properly given if delivered in person or mailed by
first-class mail, postage prepaid, to the respective party at the address as set
forth at the beginning of this Agreement or to such other addresses as may be
designated in writing by a party from time to time during the term of this
Agreement.
<PAGE>
ARTICLE 14 - MISCELLANEOUS
14.1 Any term or provision of this Agreement which is invalid or
unenforceable or in conflict with the law of any jurisdiction, shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without affecting the validity of the remaining terms and
provisions of this Agreement or affecting the validity or enforceability of any
of the terms and provisions of this Agreement in any other jurisdiction.
14.2 This Agreement does not constitute a partnership, joint venture or
agency between CardGuard and IRE, nor shall either of the parties to this
Agreement hold itself out as such contrary to the terms hereof by advertising or
otherwise, nor shall either of the parties become bound or become liable because
of any representation, action, or omission of the other.
In WITNESS WHEREOF, CardGuard and IRE have executed this Agreement, In
duplicate originals, by their respective persons or officers hereunto duly
authorized.
IRE CardGuard
BY: /s/ A.A. Caputo BY: /s/ William F. Lane
-------------------------------- --------------------------------
Print Name: A.A. Caputo Print Name: William F. Lane
------------------------ ------------------------
Title: C.E.O. Title: President
----------------------------- -----------------------------
<PAGE>
ATTACHMENT A
1. Driver's Licenses
2. Hunting Licenses
3. Fishing and Boating Licenses
4. Health Care, MediCare, Medicaid and Hospital/Medical Entitlement
Program Cards*
5. Military and National Identity (Citizenship) Cards
6. Social Security Cards*
7. Immigration and Naturalization Cards
8. Passport/Visa Document Systems Cards
9. Building Entry/Security Cards/Systems (not related to network and
computer access)
10. Hotel Security, including Door Lock and In-Room Safe Systems
11. Campus Security/ID Cards/Systems (not related to network and computer
access)
12. Testing ID/Security and Authentication (related to identity for
test-taking: SAT, LSAT, GRE, Civil Service, private sector,
Schools/MOS/Military, etc.
*To the extent that these cards are for ID purposes and excluding financial
applications.
Exhibit 6.03
LICENSE AGREEMENT
THIS AGREEMENT is made effective as of the 31st day of October, 1998
(the "Effective Date"), by and between ID Technologies Corporation, a North
Carolina corporation, having a place of business and address of 2506 West Nash
Street, Suite C, Wilson, North Carolina 27893 (the "Licensor"), and Revolution
Labs, Inc. a Colorado corporation, having a place of business and address of 131
West 10th Avenue, Denver, Colorado 80204 (the "Licensee") (together, the
"Parties").
WHEREAS, Licensor owns all right, title and interest in United States
Patent No. 5,623,552 (the `552 Patent), dated April 22, 1997, and entitled
"Self-Authenticating Identification Card With Fingerprint Identification".
WHEREAS, Information Resources Engineering, Inc. (IRE) located at 8029
Corporate Drive, Baltimore, Maryland 21236, has a strong background in
technologies relating to the design, development, and manufacture of products
which can incorporate and has incorporated in such products with the cooperation
of Licensor the self-authenticating fingerprint identification technology as
described and claimed in the `552 Patent of Licensor.
WHEREAS, the aforementioned IRE owns rights to inventions and patents
pertaining to the same technology as that described and claimed, in the `552
Patent, and may own future inventions and patents pertaining thereto.
WHEREAS, Licensor has entered into an agreement granting IRE a license
under the `552 Patent in a defined exclusive field and has obtained from IRE an
exclusive license in the Field of License (defined below) to receive IRE
technology and use and practice IRE's present and future IRE inventions and
patent(s) (hereinafter referred to as "IRE Technology") for the full terms
thereof to the full extent to which they pertain to the subject matter described
and claimed in the `552 Patent and has further obtained from IRE the exclusive
right to sublicense such IRE Technology in said Field of License to the
Licensee.
WHEREAS, Licensor and IRE recognize that because of the complexity and
extensive potential applications of the technology covered by the `552 Patent it
will be desirable and mutually beneficial to all the parties that Licensor
coordinate the transfer of technology related to application of the '552 Patent
technology and that there be established Technology Development Partners
(defined below) to assist in the development and application of the technology
covered by the '552 Patent and that both IRE and Licensee will usefully serve
the role of being such a Technology Development Partner.
WHEREAS, Licensor anticipates obtaining from time to time from
Technology Development Partners certain additional technology and intellectual
property rights associated with and supportive of the practice of the '552
Patent.
WHEREAS, Licensor desires to license to Licensee the '552 Patent and
also the IRE Technology, and Technology Development Partner Technology to
facilitate Licensee's application of the `552 Patent technology, and Licensee
desires to receive such license, technology and assistance pursuant to the terms
of this Agreement.
<PAGE>
NOW, THEREFORE, the Parties agree that for and in consideration of the
mutual covenants contained herein, and in consideration of the Initial Payment
(hereinafter defined) and other good and valuable considerations each to the
other have paid, the receipt and sufficiency of which is acknowledged the
Parties have covenanted and agreed, and do hereby covenant and agree as follows:
1.0 DEFINITIONS
1.1 "System" means Licensor's fingerprint identification technology
described and claimed in the `552 Patent and the Licensor Technology
(defined below).
1.2 "Licensed Patents" means the `552 Patent and other patents licensed to
Licensee hereunder.
1.3 "Subsidiary" means a corporation, company or other entity more than
fifty percent of whose outstanding shares or securities (representing
the right, other than as affected by events of default, to vote for the
election of directors or other managing authority) are now or
hereafter, owned or controlled directly by a corporation, company or
other entity which is a party to this Agreement (either by Licensee or
the Licensor), so long as such ownership or control exists.
1.4 "Technology Development Partner" (hereinafter referred to as "TDP")
means any individual, corporation, association, or other entity, other
than Licensor or a Subsidiary thereof, with whom Licensor is now or
hereafter becomes associated and to whom Licensor grants a license
under the '552 Patent and from whom the Licensor acquires or has the
right to acquire rights to certain of the TDP's intellectual property
for incorporation into the System.
1.5 "TDP Technology" means inventions, patents and other technology
developed by IRE or another TDP and licensed or otherwise transferred
to Licensor for incorporation into the System and with respect to which
Licensor has the right to license others.
1.6 "Licensee Technology" means presently existing or future developed
inventions, patents, and technology of Licensee relating to the subject
matter of the '552 Patent and licensed or otherwise transferred to
Licensor pursuant to this Agreement.
1.7 "IRE" means Information Resource Engineering, Inc., who shall be
treated as a Technology Development Partner of Licensor.
1.8 "Licensor Affiliate" shall mean a Subsidiary or Technology Development
Partner of Licensor.
1.9 "Licensor Technology" means and includes the Licensed Patents as well
as all present and future intellectual property including rights in
inventions, patents, trade secrets, copyrights and other technology,
and any portion thereof, associated with or supportive of use of the
System, which Licensor owns or is authorized to license or otherwise
transfer to Licensee under this Agreement and which Licensee receives
either from Licensor, IRE or a TDP with Licensor's assistance, and
includes present and future IRE
<PAGE>
Technology, TDP Technology and Licensor Affiliate Technology as well as
other technology acquired by Licensor with respect to which Licensor
has the right to license.
1.10 "Field of License" means identification, access, and security cards,
associated systems and equipment of whatever type used for:
United States FAA approved airline and airport facilities throughout
the world, in particular, for airline and airport personnel
identification and security systems. The Licensee's Field of License
does not include general purpose credit and debit cards (Visa,
MasterCard, American Express, Discover Card, Carte Blanche, Diners
Club, etc.) or general purpose bank-issued cards of various forms, and
also does not include use of the System for internet security.
1.11 "Licensed Product" means any product or component of a product which
incorporates some or all of Licensor's Technology, or whose
manufacture, sale or use would infringe directly, contributorily, or by
inducement any claim of the '552 Patent or any other patent licensed
hereunder.
1.12 (i) "Net Sales" means a) in the context of an arms-length transaction
for monetary consideration, the gross sums received by Licensee for the
sale or other transfer of Licensed Products or for the sublicense or
other transfer of the Licensor Technology, after applying credits for
freight, taxes, refunds, discounts, returns, and bad debts but without
any credit or deduction for commissions or broker fees paid by
Licensee, except as provided pursuant to Article 1.12(ii); b) in the
context of an arms-length transaction for non-monetary consideration,
the fair market value of the consideration received by Licensee in
exchange for the sale or other transfer of Licensed Products or for the
sublicense or other transfer of the Licensor Technology; c) in the
context of an arms-length transaction in which the Licensee combines or
includes Licensed Products in a commercial offering whereby the pricing
of the Licensed Products is some part of a greater total price, the
gross sums received by the Licensee, after applying credits for
freight, taxes, refunds, discounts, returns, and bad debts, attributed
to the sale or other transfer of the Licensed Products. In the event
that Licensed Products are disposed of in a manner other than an
arms-length transaction for money or other consideration, Net Sales
shall be measured by the price at which sales or other transfers of
similar Licensed Products are sold at arms-length by the Licensee.
(ii) Where Net Sales is to be determined for the sublicense or other
transfer of the Licensor Technology, as opposed to the sale or other
transfer of Licensed Products, Net Sales shall be further reduced by
the amount of fees Licensee pays to independent, third-party brokers in
such transactions.
(iii) Where Net Sales is to be determined pursuant to foregoing
subparagraph (i)(c) of this Article 1.12, that portion of the total
price of the commercial offering attributed to the sale or other
transfer of the Licensed Products shall be determined by agreement of
the Parties, assisted by their accounting professionals. Should the
Parties not agree within thirty (30) days from their initial
discussions regarding a particular commercial offering, then the
Parties agree that the matter shall be decided by a panel of accounting
<PAGE>
professionals, whose decision shall be binding on the Parties. The
panel shall consist of one accounting professional selected by each of
the Parties. If, within fifteen days of submission of the dispute to
the panel, the panel cannot agree, the panel members are authorized to
select a third accounting professional, acceptable to each panel
member, to assist in determining what portion of the total price should
be attributed to sale of the Licensed Products. The expanded panel
shall decide the issue by a simple majority, within fifteen (15) days
of the addition of the third panel member. Each party shall pay
one-half the cost of forming the panel and obtaining a final panel
decision.
1.13 "Authorized Source" means a company selected by Licensor to manufacture
the Licensed Product or a company selected by Licensee with Licensor's
written approval pursuant to Article 4.2.below.
1.14 The Recitals set forth in the,"Whereas" provisions on pages 1 and 2 of
this Agreement are incorporated herein by reference and are made a part
of this Agreement herein.
2.0 GRANT OF TECHNOLOGY LICENSE
Licensor hereby grants and conveys to Licensee, subject to the express
limitations of this Agreement, a license to test, experiment with and use the
First Prototype referred to in Article 3.0 below and upon accepting said First
Prototype and making the Production Start-up Payment called for by Article 9.0,
a worldwide exclusive license to make, use, sell, sublicense, or otherwise
transfer the System or any component thereof in the Field of License but only in
the Field of License, to use such certification mark(s), trademark(s) and/or
other marking(s) on Licensed Products pursuant to Article 14, and to disclose
the System to its Authorized Sources and others necessary for its practice by
Licensee and its sublicensees, subject, however, to the confidentiality duty set
forth in Article 22. Except as provided by Article 8.4, Licensor acknowledges
and agrees that it will not grant any rights in the Field of License to any
person other than Licensee, nor will Licensor itself exercise any rights in the
Field of License with regard to the System.
3.0 DEVELOPMENT OF FIRST PROTOTYPE OF SYSTEM AND NINETY DAY ACCEPTANCE PERIOD
3.1 Immediately upon this Agreement coming into effect and receipt by
Licensor of the Initial Payment called for in Article 9.0, Licensor
shall use its best efforts to produce or have produced for Licensee and
deliver to Licensee within one (1) year of the Effective Date a first
prototype (First Prototype) of the System in the form described below:
The First Prototype shall be a card, which uses the System to
function as a self-contained verification process to enable
and disable access to information or data stored in a magnetic
strip or smart chip on the card. The First Prototype shall be
of standard credit card dimensions, appearance and durability,
and, specifically, shall have a thickness of 32 millimeters on
all portions of the card. The First Prototype shall be
functional in all standard magnetic strip and Veri-Phone type
readers must perform with an accuracy of one percent (1%) or
less false acceptances and one
<PAGE>
percent (1%) or less false rejections. The First Prototype
shall be a card which could be made available to Licensee, at
its option, at a price of no more than $20.00 per card for
orders of 100,000 cards or more. The card shall meet current
ISO 7816 standards, except for flexibility in the biometric
sensing area of the card. Notwithstanding the foregoing,
development of the First Prototype shall not obligate Licensee
to purchase cards in any minimum quantity.
3.2 Licensee shall have ninety (90) days from the date it receives both i)
the First Prototype meeting the specification set forth in Article 3.1,
and ii) the name of one Authorized Source as provided in Article 4.1,
to accept such First Prototype. Acceptance of the First Prototype by
Licensee pursuant to Article 3.3 below shall entitle Licensee to make
the First Production Start-Up Payment called for by Article 9.1.2. In
the event that Licensee fails to accept the First Prototype and make
the aforesaid First Production Start-Up Payment within the aforesaid
ninety (90) day acceptance period, this License Agreement shall
automatically terminate, all rights granted to Licensee hereunder shall
revert to Licensor and Licensee shall be obligated to immediately
return to Licensor said First Prototype and all confidential
information received from Licensor or a TDP.
3.3 Acceptance of the First Prototype shall be effective upon Licensee
tendering to Licensor the Production Start-Up Payment described in
Article 9.1.2 in cash or certified funds.
3.4 If within one (1) year of the effective date of this Agreement Licensor
has not delivered the First Prototype to Licensee, this License
Agreement shall terminate.
4.0 AUTHORIZED SOURCE OF LICENSED PRODUCT
4.1 AUTHORIZED SOURCE LIST. Licensor shall provide Licensee within one (1)
year from the Effective Date of this Agreement the name and address of
at least one company with the expertise, skill, and knowledge to
manufacture and produce Licensee's designated ones of the Licensed
Products within Licensee's Field of License according to Licensee's
specifications and which Licensee is prepared to develop and market.
4.2 ADDITIONAL AUTHORIZED SOURCES. At any time during the term of this
Agreement, the Licensee may request adding to the list of Authorized
Sources one or more manufacturers of Licensed Products within
Licensee's Field of License. Such request shall affirmatively state
that the Licensee has investigated the proposed source and has an
adequate basis for believing that the proposed source can manufacture
the particular Licensed Product of interest to the Licensee to such
standards of quality and grade at least equal to and in all respects
not less reliable than the Authorized Sources identified in Article
4.1. Licensor, not more than thirty (30) days after it receives the
proposed Additional Authorized Sources from Licensee, shall advise
Licensee with respect to such request, and shall not unreasonably
reject such proposed source. In the event that the Licensor shall fail
to reply within said 30 days, the proposed additional source shall be
deemed an Authorized Source.
<PAGE>
4.3 PROCUREMENT. Licensee shall procure the Licensed Product only from an
Authorized Source.
4.4 SAMPLES. With regard to Authorized Sources selected by Licensee, the
Licensee shall, at any time requested by the Licensor, either provide
to the Licensor random samples of the Licensed Product from each such
Authorized Source, or enable the Licensor to enter the Licensee's
premises, following reasonable notice, during the Licensee's ordinary
business hours and inspect the Licensed Product supplied by such
Authorized Source(s).
4.5 LICENSEE NOT OBLIGATED TO PURCHASE FROM PERSONS SELECTED BY LICENSOR.
The Licensee acknowledges that it is not required to obtain the product
from any person affiliated with the Licensor, and that it has a full
and sufficient opportunity to seek out alternative sources of the
product and will take such advantage of that opportunity as it
independently elects, relying exclusively on its own business judgment
and not on the recommendation of the Licensor for that purpose. The
Licensee further warrants that it will conduct its own inspection of
any Authorized Source whose identity is provided to the Licensee by the
Licensor, will independently determine the capability and quality of
such Authorized Source to meet the requirements of the Licensee and
will not rely on the judgment of the Licensor for that purpose. The
Licensor makes no warranty or representation whatsoever as to the
capabilities or performance of any Authorized Source, and expressly
disclaims all such warranties and representations.
5.0 LICENSEE'S RIGHT TO PROPOSE SPECIFICATIONS
The Licensee shall have the right to propose modifying Licensed Product
specifications in a manner that would permit the Licensed Product to better
service customers in the Field of License. Licensor has the right to reject such
modifications, if such modified specifications call for a Licensed Product of a
lesser grade or quality than desired by Licensor or a Licensed Product likely to
impair consumer acceptance of the Licensed Products.
6.0 DEVELOPMENT OF PROTOTYPES OF LICENSED PRODUCTS
6.1 Upon selection of an Authorized Source for the first selected Licensed
Product within Licensee's Field of License which Licensee stands ready
to procure, develop and market in commercial quantities, Licensee shall
promptly and forthwith proceed to procure such selected Licensed
Product in prototype form from such Authorized Source, and upon
procurement thereof provide Licensor with a sample thereof.
6.2 Licensor shall within twenty-one (21) days after receipt of a sample of
Licensee's first selected Licensed Product in a prototype form suitable
for reproduction in commercial quantities promptly notify Licensee of
its approval or disapproval thereof. In the event that the Licensor
shall fail to reply within said twenty-one (21) days, the proposed
prototype form shall be deemed to be approved by Licensor. In the event
of approval, Licensee shall use its best efforts to commence
production, marketing and sale of such first selected Licensed Product
throughout the Field of License. In the event of disapproval, Licensor
shall inform Licensee of the reasons therefore and Licensee shall
<PAGE>
promptly take such steps to improve such prototype of the first
selected Licensed Product and shall again submit such prototype to
Licensor for approval in accordance with the terms of this Article 6.2.
6.3 After introduction and marketing of the first selected Licensed Product
as referred to above, Licensee shall proceed to select the next and
subsequent Licensed Products in the same manner as set forth above and
shall again submit such prototype to Licensor for approval in
accordance with the terms of this Article 6.2.
7.0 WARRANTIES AND REPRESENTATIONS OF THE PARTIES
7.1 Licensors Warranties and Representations
7.1.1 Licensor Technology.
a. The Licensor warrants that it is the sole and
exclusive owner of all right, title and interest in
Letters Patent of the United States, No. 5,623,552
dated April 22, 1997, and entitled "Self
Authenticating Identification Card With Fingerprint
Identification," and has the sole and exclusive right
to grant licenses to others to manufacture, use, and
sell, products covered by the patent, and further
warrants that it has the right to license the System
to Licensee pursuant to the terms of this Agreement.
b. Licensor also warrants that it has obtained from IRE
a non-exclusive license in the Field of License to
receive IRE Technology and use and practice IRE's
present and future IRE inventions and patent(s) for
the full terms thereof to the full extent to which
they pertain to the subject matter described and
claimed in the '552 Patent and has further obtained
from IRE the right to sublicense such IRE Technology
in said Field of License to the Licensee, and that
such IRE Technology is covered by the royalty rate
identified in Article 9.3
c. Licensor fully warrants and shall warrant throughout
the term of this Agreement that it has full,
unrestricted right to grant to Licensee the rights
granted in Article 2.0, including without limitation
the right to grant a license to make, use, sell,
sub-license, or otherwise transfer the TDP Technology
which is or shall be incorporated into the System.
7.1.2 Prosecution of Licensor Patents. Licensor shall maintain the
'552 Patent and any other presently or future existing United
States or foreign patents owned by Licensor and relating to
the System.
7.1.3 Licensor Best Efforts. Licensor shall use its best efforts to
develop, improve, enhance and commercialize the System through
its dealings with Subsidiaries, Licensees, and Technology
Development Partners.
<PAGE>
7.1.4 LICENSOR EMPLOYEES. Licensor represents and warrants that it
shall require its employees to assign to Licensor all
intellectual property rights to the inventions developed by
its employees relating to the System.
7.1.5 DEFENDING FIELD OF LICENSE. Licensor shall assist Licensee to
defend against any other of Licensor's Licensees of the System
("other Licensees") from using, practicing, selling, or
transferring the System in Licensee's Field of License.
7.1.6 DUE ORGANIZATION, GOOD STANDING, AUTHORITY OF LICENSOR.
Licensor is a corporation duly organized, validly existing,
and in good standing under the laws of North Carolina.
Licensor has full right, power, and authority to own its
properties and assets, and to carry on its business. To the
best of Licensor's knowledge, Licensor is duly licensed,
qualified and authorized to do business as a foreign
corporation, and is in good standing in each jurisdiction in
which the properties and assets owned by it or the nature of
the business conducted by it makes such licensing,
qualification and authorization legally necessary.
7.1.7 LICENSE NOT IN CONFLICT WITH OTHER INSTRUMENTS; REQUIRED
APPROVALS OBTAINED.
7.1.7.1 To the best of Licensor's knowledge, the execution
delivery, and performance of this License by Licensor
will not (a) violate or require any registration,
qualification or filing under, (i) any law, statute,
ordinance, rule or regulation ("Laws") of any
federal, state or local government ("Governments") or
any agency, bureau, commission or instrumentality of
any Governments, or (ii) any judgment, injunction,
order, writ or decree or any court, arbitrator, or
Government.
7.1.7.2 The execution, delivery, and performance of this
License by Licensor will not conflict with, require
any consent, approval, or filing under, result in the
breach or termination of any provision of, or
constitute a default under (i) any indenture,
mortgage, deed of trust, license, permit, approval,
consent, franchise, lease, contract, license or any
instrument or agreement to which the Licensor is a
party or is bound, or (iii) any judgment, injunction,
order, writ or decree of any court, arbitrator, or
government by which the Licensor or any of its assets
or properties is bound.
7.1.8 LEGAL PROCEEDINGS-LICENSOR. To the best of Licensor's
knowledge, there is no action, suit, proceeding, claim,
arbitration, or investigation by any Government or any other
person (i) pending to which the Licensor is a party, (ii)
threatened against or relating to the Licensor or any of the
Licensor's assets or businesses, (iii) challenging the
Licensor's right to execute, deliver, or perform under this
License, or (iv) asserting any right against Licensor with
respect to the System, and there is no basis for any such
action, suite, proceeding, claim, arbitration, or
investigation.
<PAGE>
7.2 LICENSEE'S WARRANTIES AND REPRESENTATIONS
7.2.1 LICENSEE'S BEST EFFORTS. Licensee represents and warrants to
use its best efforts to proceed diligently with its
development, improvement, enhancement, manufacture and sale of
the Licensed Products and System throughout the Field of
License in accordance with the terms of this Agreement.
Licensee shall at its cost and expense use its best efforts
and all due diligence to energetically and aggressively
develop the market for the Licensed Products in the Field of
License, to promote the sale, sublicense, and use of the
Licensed Products and to enhance the reputation and goodwill
associated with the Licensed Products. In connection with its
obligations under this Article 7.2.1, Licensee shall maintain
facilities of a nature and style suitable in the Field of
License to facilitate the marketing, distribution, sale, and
sublicensing of the Licensed Products; shall provide
aggressive, dedicated, continuous representation throughout
the Field of License by means of sales and support staff
sufficient in number, qualifications, and training to
aggressively and effectively promote, market, and service the
Licensed Products.
7.2.2 LICENSEE TECHNOLOGY. Licensee represents and warrants in
recognition of mutual benefits to be derived by Licensee,
Licensor and the TDPs that it shall grant to the Licensor a
nonexclusive, royalty free license, with the right to
sublicense, to make, use, and sell outside the Field of
License any Licensee made improvement or enhancement to the
fingerprint card that is the Licensed product of this
Agreement. With regard to technology developed by Licensee,
Licensee represents and warrants that it shall have the sole
and exclusive right to grant the license to manufacture, use,
sell, and otherwise transfer Licensee's Technology relating to
the System to Licensor. It is understood and agreed that the
nonexclusive, royalty free license to Licensor under this
Article 7.2.2 is intended to apply to only those improvements
and enhancements to the fingerprint card itself that is the
Licensed Product of this Agreement, and not to technology
developed by Licensee that is not incorporated into the
fingerprint card itself.
7.2.3 QUALITY OF LICENSED PRODUCTS. Licensee represents, warrants
and covenants that it shall diligently inspect goods delivered
by Authorized Sources to assure conformity with
specifications, grade and quality satisfactory to Licensor,
and shall not procure goods from any unauthorized source.
Furthermore, Licensee shall not induce any Authorized Source
to engage in adulteration, substitution or other practices
that would constitute a variance from such specifications,
grade and quality and shall not knowingly countenance any such
practices.
7.2.4 LICENSE NOT IN CONFLICT WITH OTHER INSTRUMENTS; REQUIRED
APPROVALS OBTAINED.
7.2.4.1 To the best of Licensee's knowledge, the execution,
delivery, and performance of this License by Licensee
will not (a) violate or require any registration,
qualification. or filing under, (i) any law, statute,
ordinance, rule or regulation ("Laws") of any
federal, state or local government
<PAGE>
("Governments") or any agency, bureau, commission or
instrumentality of any Governments, or (ii) any
judgment, injunction, order, writ or decree or any
court, arbitrator, or Government.
7.2.4.2 The execution, delivery and performance of this
license by Licensee will not conflict with, require
any consent, approval, or filing under, result in the
breach or termination of any provision of, or
constitute a default under (i) any indenture,
mortgage, deed of trust, license, permit, approval,
consent, franchise, lease, contract, license or any
instrument or agreement to which the Licensee is a
party or is bound, or (ii) any judgment, injunction,
order, writ, or decree of any court, arbitrator, or
government by which the Licensee or any of its assets
or properties is bound.
7.2.5 LEGAL PROCEEDINGS-LICENSEE. To the best of Licensee's
knowledge, there is no action, suit, proceeding, claim,
arbitration, or investigation by any Government or any other
person (i) pending to which the Licensee is a party, (ii)
threatened against or relating to the Licensee or any of the
Licensee's assets or businesses, (iii) challenging the
Licensee's right to execute, deliver, or perform under this
License, or (iv) asserting any right against Licensee with
respect to the System and there is no basis for any such
action, suite, proceeding, claim, arbitration, or
investigation.
7.2.6 DUE ORGANIZATION, GOOD STANDING, AUTHORITY OF LICENSEE.
Licensee is a corporation duly organized, validly existing,
and in good standing under the laws of Colorado Licensee has
full right, power, and authority to own its properties and
assets, and to carry on its business. To the best of
Licensee's knowledge, Licensee is duly licensed, qualified and
authorized to do business as a foreign corporation, and is in
good standing in each jurisdiction in which the properties and
assets owned by it or the nature of the business conducted by
it makes such licensing, qualification and authorization
legally necessary.
8.0 SUBLICENSING AND THE UNDERSERVED FIELD OF LICENSE
8.1 ASSIGNMENT. This Agreement may be assigned by either party without the
consent of the non-assigning party, provided the assignee is an
affiliate of the assigning party. Otherwise, neither this Agreement nor
any rights conveyed to Licensee or Licensor hereunder shall be assigned
by either party except with the prior written consent of the other
party, such consent not to be unreasonably withheld. An "affiliate" for
purposes of this Article 8.1, means any person or entity directly or
indirectly controlled by, or under common control with the assigning
party.
8.2 SUBLICENSING. Licensee may sub-license all or any portion of the System
to any individual, corporation, or other entity for development, use,
manufacture, sale, or further sub-license of the System solely in the
Field of License. Licensee shall have the same responsibility for the
activities of a sublicensee under any such arrangement as if the
activities were directly those of the Licensee. For example, and not by
way of limitation, royalties shall be paid to Licensor by Licensee with
regard to the activities of such
<PAGE>
sublicenses as if those activities were the Licensee's, and each
sublicensee shall be restricted to using, manufacturing, selling, and
further sublicensing the System to the Field of License defined in
Article 1.10 above.
8.3 SUBLICENSING CONDITIONS. In the event that Licensee desires to
exercises its right to sublicense its rights as granted herein,
Licensee shall, unless otherwise agreed by Licensor and Licensee,
negotiate an agreement on terms, which insofar as practical are
substantially consistent with the terms of this Agreement, and shall
also
a. Require royalty payment to Licensee of no less than the
royalty required by Licensor to be negotiated on a case by
case basis, which Licensor's agreed share shall be remitted to
Licensor.
b. Require the sublicensee to keep Licensor informed concerning
infringement by outside parties of the properties transferred,
any potential product fault, improper use and the like.
c. Require the sublicensee to give both Licensee and Licensor the
right to audit the sublicensee's books and records.
d. Include a confidentiality provision in the sublicensee
Agreement comparable to that contained in this Agreement.
e. Require that sublicensee not reverse engineer or disassemble
the Licensed Product.
8.4 UNSERVED AND/OR UNDERSERVED FIELD OF LICENSE.
a. At any time after the first year during the term of this
License (or any extensions thereof) following Licensor's
delivery of the First Prototype to Licensee, should Licensor
determine that some area or areas within the "'Field of
License" are not being served or are being underserved by
Licensee, Licensor may notify Licensee in writing of such
determination. This notification shall clearly reference this
Article 8.4 of the Agreement as its basis and give reasonable
evidence in support of Licensor's determination of such
unserved and/or underserved areas.
b. Licensee shall acknowledge this notice in writing within ten
(10) business days and respond to this same notice in writing
within ninety (90) days setting forth Licensee's plans to
serve or better serve the subject area. Should Licensor and
Licensee agree on plan(s) proposed by Licensee or Licensor, no
further action under this provision of this Article 8.4 will
be necessary. Should Licensor and Licensee fail to agree on
such plan(s) within thirty (30) days of Licensor's receipt of
such plan(s), and should Licensor believe the subject area to
be materially unserved or underserved to the detriment of all
parties, then the matter will be submitted to arbitration
under Article 22 of this Agreement.
c. Should such arbitration process result in the determination
that Licensor's position is correct, Licensee shall 1)
sublicense the unserved area(s) to parties reasonably
<PAGE>
capable of and willing to deliver such services and/or 2)
allow the relicensing of these areas, splitting all revenues
therefrom between Licensor and Licensee on a fifty/fifty
(50/50) basis. Should such arbitration process result in the
determination that Licensor's position is correct, then
Licensee shall also pay Licensor's costs and expenses
(including reasonable attorneys fees) incurred in such
arbitration process. However, should such arbitration process
result in the determination that Licensee's position is
correct, then Licensor shall pay Licensee's costs and expenses
(including reasonable attorneys fees) incurred in such
arbitration process.
9.0 PAYMENTS, ROYALTIES AND COMPENSATION
9.1 INITIAL PAYMENT
9.1.1 Licensee shall pay Licensor upon execution of this Agreement
and as an Initial Payment and in order to make this Agreement
effective, the non-refundable amount of Twenty-Two Thousand
and Five Hundred Dollars ($22,500). Licensee shall pay a
second payment of Twenty-Two Thousand and Five Hundred Dollars
($22,500) on or before October 30, 1998. The Parties
acknowledge and agree that Licensee has already paid as part
of the Initial Payment, the non-refundable amount of Five
Thousand Dollars ($5,000), and that the total Initial Payment
is Fifty Thousand Dollars ($50,000).
9.1.2 It is understood and agreed that should licensee not pay the
second payment of Twenty-Two Thousand and Five Hundred Dollars
($22,500) on or before October 30, 1998 pursuant to Article
9.1.1, then this License Agreement and all obligations
hereunder shall automatically terminate.
9.1.3 It is understood and agreed that the Initial Payment paid by
Licensee pursuant to Article.9.1.1 extends the deadline to
enter into the two Option Agreements for the fields of license
previously identified as "identification and security systems
for the traveling public" and "airline passenger ticketing
systems" until the close of business (5:00 EST) on October
30, 1998. There will be no rights of either party to extend
this deadline except with written consent of the other party.
9.1.4 Upon delivery and acceptance by Licensee of the First
Prototype in accordance with Article 3.0, Licensee shall pay
Licensor the First Production Start-Up Payment of Two Hundred
Twenty-Five Thousand Dollars ($225,000) for Licensee to have
the right to start commercial production under the license
granted by Article 2.0 and represents Licensee's payment for
the worldwide exclusive license granted thereunder, which
Production Start-Up Payment shall be made subject to the terms
of Article 3.0. Within two hundred seventy (270) days from the
date it receives the First Prototype meeting the specification
set forth in Article 3.1, Licensee shall pay Licensor the
Second Production Start-Up Payment of Two Hundred Twenty-Five
Thousand Dollars ($225,000).
<PAGE>
9.2 ROYALTY PAYMENTS.
a. Licensee shall pay to Licensor royalties, after acceptance of
the First Prototype at the Royalty Rate provided in Article
9.3 below for the term of this Agreement according to Article
12 below.
b. Licensee shall determine and pay actual royalties, computed
pursuant to the Royalty Rates set forth below, to Licensor on
a quarterly basis within sixty (60) days after the end of each
quarter ("Actual Royalties"). In addition, within sixty days
after the day or each calendar year, beginning after the year
2000, Licensee shall pay to Licensor the difference, if any,
between the total Actual Royalties to be paid by Licensee to
Licensor during the course of the most-recently concluded
calendar year for that quarter and Sixty Thousand Dollars
($60,000), which the Parties hereby agree shall be the minimum
royalty amount payable by Licensee during each calendar year
of the term hereof. Minimum royalties shall begin to accrue on
April 1, 2000, and Minimum Royalties for the calendar year
2000 shall be pro-rated accordingly. Notwithstanding the
foregoing, if Licensor has separately agreed to supply
Licensee with Licensed Products, Licensee shall not be
responsible for paying Minimum Royalties for any period during
a calendar year in which Licensed Products reasonably
necessary to fill orders to Licensee's customers are not
available from Licensor for use by Licensee when such period
extends for a period of at least one hundred and twenty (120)
days after placing such orders. The Minimum Royalties amount
due for any calendar year shall be prorated to exclude said
time period in which Licensed Products were unavailable to
Licensee.
9.3 ROYALTY RATE. Actual Royalties shall be computed at the rate of six
(6%) of Licensee's Net Sales during the applicable quarterly period
(the "Royalty Rate").
9.4 REPORTS AND AUDITS OF LICENSEE'S NET SALES.
a. Licensee agrees that, within sixty (60) days after the end of
each quarter, in each and every calendar year, commencing with
the first quarter following acceptance of the First Prototype
and continuing for the duration of Licensee's obligation to
make Royalty payments, Licensee will furnish to Licensor
written reports specifying the Licensee's Net Sales during the
preceding quarter (the "Quarterly Reports"). Such reports
shall provide adequate details to allow Licensor to reasonably
determine that its business with Licensee has been accurately
reported by Licensee's financial system.
b. Licensee, agrees to have its auditors verify in writing the
accuracy of the Quarterly Reports for each calendar year,
which written verification is to be submitted to Licensor no
later than ninety (90) days after the end of each calendar
year (the "Licensee's Auditor's Verification").
c. Licensee agrees to allow an independent certified public
accountant or other audit professional selected by Licensor to
audit and analyze Licensee's accounting
<PAGE>
records during regular business hours to determine the
accuracy of Licensee's Quarterly Reports (an "Independent
Audit"). Such audits shall not be requested by Licensor more
than twice per calendar year, may be conducted only upon ten
(10) business days written notice to Licensee, and must be
conducted so as not to interfere unreasonably with Licensee's
business activities.
d. The Independent Audit shall be at the expense of Licensor,
unless a variation or error exceeds five percent (5%) of the
Net Sales for the Quarter in which the error occurs, whereupon
all costs of the Independent Audit shall be paid by Licensee.
e. If Licensor fails to request an Independent Audit within two
years after receipt of the Licensee's Auditor's Verification,
then the Licensee's Auditor's Verification shall be
conclusively determinative of the Net Sales for that calendar
year for the purposes of calculating Actual Royalties, and
Licensor may not thereafter dispute the accuracy of the Net
Sales figure reported by Licensee and verified by Licensee's
Auditor.
9.5 LATE PAYMENT INTEREST. Any payment not paid in full when due shall, as
to that portion thereof not paid when due, bear interest for each day
late at the rate of eighteen percent (18%) per annum, compounded
monthly, or at the maximum rate allowed by law, if said maximum amount
is less. The calculation of a daily rate shall be made based upon a
year of three hundred and sixty (360) days and a month of thirty (30)
days. Payments not made when due because of a dispute as to the correct
amount thereof shall nonetheless be considered late if ultimately
adjudged to be due, and interest shall be paid thereon as set out
above.
10.0 INFRINGEMENT AND INDEMNIFICATION
10.1 INFRINGEMENT CLAIMED BY THIRD PARTIES.
10.1.1 If the Licensee shall be sued for infringement by reason of
the Licensee's activities under the license granted in this
Agreement, the Licensee shall immediately notify the Licensor
and the Licensor shall defend, indemnify, and hold the
Licensee harmless against any such claims, which, if proven,
would constitute a breach of any of the Licensor's
representations or warranties of Article 7.1 above. Provided,
however, that the Licensor shall not have a duty to defend if
the claim of infringement is based upon acts of the Licensee
which go beyond the scope of the Licenses granted, such as by
reason of combination of practice under the license and
authorized practices, with additional activity, which combined
licensed and unlicensed activity shall be the subject matter
of the infringement action. Without limiting the foregoing,
the Licensor shall have the control of any such defense and
the right to enter into any settlement and compromise of any
such claim or action provided, however, that the Licensee
shall assume no further royalty or other obligation, whether
to the Licensor or to any third party, by reason of such
settlement. The Licensee shall, if requested by Licensor, make
such reasonable modifications in the practice of the license
<PAGE>
granted under this Agreement such as would enable the parties
to avoid or mitigate any third-party claims of infringement or
misappropriation.
10.1.2 If Licensor shall be sued for infringement by reason of the
Licensor's activities under any cross-license anticipated by
this Agreement, the Licensor shall immediately notify the
Licensee and the Licensee shall defend, indemnify, and hold
the Licensor harmless against any such claims, which, if
proven, would constitute a breach of any of the Licensee's
representations or warranties of Article 7.2 above. Provided,
however, that the Licensee shall not have a duty to defend if
the claim of infringement is based upon acts of the Licensor
which go beyond the scope of the Licenses granted, such as by
reason of combination of practice under the license and
authorized practices, with additional activity, which combined
licensed and unlicensed activity shall be the subject matter
of the infringement action. Without limiting the foregoing,
the Licensee shall have the control of any such defense and
the right to enter into any settlement and compromise of any
such claim or action provided, however, that the Licensor
shall assume no further royalty or other obligation, whether
to the Licensee or to any third-party, by reason of such
settlement. The Licensor shall, if requested by Licensee, make
such reasonable modifications in the practice of the license
granted under this Agreement such as would enable the parties
to avoid or mitigate any third-party claims of infringement or
misappropriation.
10.2 INFRINGEMENT BY THIRD PARTIES.
10.2.1 Licensee shall have the right, but not the obligation, to
institute and prosecute any and all suits to enjoin any and
all infringers of the licensed patents, where such
infringements affects the Licensee's use of the Technology in
the Field of License; and from time to time during the
continuance of this Agreement, and at its own expense, may
institute any suit or suits which it may deem necessary. The
Licensee shall have the right to institute and prosecute such
suits and to employ its own counsel for such suits; and
Licensee shall pay for all services rendered by counsel so
retained, and for all incidental costs and expenses. Licensee
agrees that Licensor may join as a party plaintiff in any suit
initiated by Licensee regarding the System, at Licensor's sole
expense, where Licensor deems that joining as a party
plaintiff is necessary and in Licensor's best interests.
10.2.2 Except to the extent that Licensee has instituted or plans to
institute a suit under Article 10.2.1, Licensor shall have the
right, but not the obligation, to institute and prosecute any
and all suits to enjoin any and all infringers of the '552
Patent where such infringement affects Licensor's use, sale,
or rights to the System, and from time to time during the
continuance of this Agreement, and at its own expense, may
institute any suit or suits it may deem necessary. The
Licensor shall have the right to institute and prosecute such
suits, and to employ its own counsel for such suits; and
Licensor shall pay for all services rendered by counsel so
retained, and for all incidental costs and expenses. Licensor
agrees that Licensee may join as a party plaintiff in any suit
initiated by Licensor pertaining to infringement in the Field
of License regarding the System, at Licensee's sole
<PAGE>
expense, where Licensee deems that joining as a party
plaintiff is necessary and in Licensee's best interests.
11.0 LIMITATIONS OF LIABILITY AND CONSEQUENTIAL DAMAGES.
In no event, whether based on contract, indemnity, warranty, tort
(including negligence), strict liability or otherwise, shall Licensor or
Licensee or their subcontractors or suppliers, or any of their respective
directors, officers, employees or agents, be liable for (i) special, exemplary,
or punitive damages; or (ii) any losses or damages arising out of, connected
with, or resulting from (A) the performance of any third party not hired by
Licensor or Licensee, (B) any software, hardware or other product or component
provided by any third party, or (C) the reliance by Licensor or Licensee on any
statement or representation made by Licensee or Licensor regarding a third party
vendor.
12.0 TERM OF AGREEMENT AND RENEWAL
The term of this Agreement shall be twenty (20) years from the
Effective Date, with the right of Licensee to renew for subsequent periods of
five (5) years thereafter, provided that for each renewal:
a. the Field of License is not then unserved or underserved and
such unserved or underserved Field of License has not been
cured or is not being cured in accordance with Article 8.4;
b. there is no uncured Licensee breach of this Agreement; and
c. Licensee shall pay Licensor One Hundred Twenty-Five Thousand
Dollars ($125,000).
13.0 TERMINATION
13.1 This Agreement may be terminated as follows:
a. By mutual Agreement of the Parties.
b. By Licensee if Licensor fails to deliver the First Prototype
within one (1) year following the effective date of this
Agreement or if the First Prototype delivered by Licensor to
Licensee is not satisfactory to Licensee.
c. By Licensor upon Licensee failing to pay Licensor the Minimum
Royalty pursuant to Article 9.2, whereupon Licensee's failure
to make such payment, Licensor shall give notice to Licensee
of such failure. This License Agreement shall terminate 10
days from Licensee's receipt of such notice unless Licensee,
within said 10-day period, remedies such default.
d. If the Licensee shall (i) commence a voluntary case under the
federal or state bankruptcy laws, (ii) file a petition seeking
to take advantage of any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding
<PAGE>
up or composition for adjustment of debts, (iii) consent to or
fail to contest in a timely and appropriate manner any
petition filed against it in an involuntary case under such
bankruptcy laws or other laws, (iv) apply for or consent to,
or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver,
custodian, trustee, or liquidator of itself or of a
substantial part of its property, domestic or foreign, (v)
admit in writing its inability to pay its debts as they become
due, (vi) make a general assignment for the benefit of
creditors, (vii) take any corporate action authorizing any of
the foregoing, (viii) become the subject of a case or other
proceeding in any court of competent jurisdiction seeking
relief under the federal bankruptcy laws or under any other
laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts, which
proceeding shall continue undismissed or unstayed for a period
of sixty consecutive calendar days, or an order granting the
relief requested shall be entered, or (ix) become the subject
of the appointment of a trustee, receiver, custodian,
liquidator or the like, which appointment shall continue
undismissed or unstayed for a period of sixty consecutive
calendar days.
e. If Licensee, without having first terminated this Agreement
and ceased obtaining any of the benefits of this Agreement
challenges the validity of any patent purported to be licensed
by the Licensee under this Agreement.
f. By either party due to the other party's material breach of
its obligations under this Agreement, upon giving written
notice, except as limited below:
(i) Where the breach relates solely to Licensee's non-payment
of Royalties, the Licensor's right to terminate this Agreement
is limited as follows:
(aa) Before the Licensor may terminate this Agreement
solely for Licensee's non-payment of Royalties, except for the
automatic termination rights provided by Article 13.1c. above,
Licensor must give Licensee written notice of default and make
a demand for immediate payment, describing the time period at
issue, the amount due, and how the Licensor determined that
the amount demanded is due (the "Licensor's Demand"). To avoid
termination of this Agreement for non-payment of the Royalties
demanded, Licensee must within ten days either: 1) pay to
Licensor the full amount demanded as due; or 2) respond to
Licensor's Demand with an explanation of why no additional
amount is due (the "Licensee's Response").
(bb) If, within thirty (30) days of Licensor's
receipt of the Licensee's Response, the Parties cannot resolve
their dispute, then the Licensor shall submit to Licensee a
list of five (5) independent certified public accountants
acceptable to the Licensor and, within five (5) days
thereafter, Licensee shall select one independent certified
public accountant from said list, and upon agreement of said
accountant to serve, that accountant shall serve as the
Royalties Arbitrator.
<PAGE>
(cc) Within five (5) days of selection of the
Royalties Arbitrator, each party shall forward to the
Royalties Arbitrator copies of this Agreement, the Licensor's
Demand, the Licensee's Response, and any other supporting
documentation and shall jointly request that the Royalties
Arbitrator conduct an expedited review of the documents
submitted to resolve the dispute and to provide a written
determination as to Royalties due, if any.
(dd) The Parties hereby agree to abide by the
Royalties Arbitrator's written decision as to the amount of
Royalties due, if any. Upon a written determination by the
Royalties Arbitrator that some amount of Royalties is due,
Licensee shall pay that amount to Licensor within three (3)
days of receipt of the Royalties Arbitrator's written decision
and shall be responsible for any fees charged or costs
incurred by the Royalties Arbitrator in resolving the dispute.
Upon a written determination by the Royalties Arbitrator that
no Royalties are due, Licensor shall be responsible for any
fees charged or costs incurred by the Royalties Arbitrator in
resolving the dispute. Each party shall otherwise bear its own
fees and costs.
(ee) The Licensor shall be released from its
obligation to follow the foregoing procedure upon a) after a
single determination by the Royalties Arbitrator that the
Licensee's Response was groundless and wholly without
justification or b) upon receipt from the Royalties Arbitrator
its written decisions in two Royalties disputes that the
amount demanded in the Licensor's Demand was in fact the
amount of Royalties due.
ii. Where the breach relates, in whole or in part, to
obligations other than Licensee's nonpayment of Royalties,
then prior to terminating this agreement, the. non-breaching
party must provide written notice of the breach and must
permit the other party thirty days from the date of the
written notice to cure such breach. Each party shall be
released from this obligation of notice and cure after that
party has complied with this provision with respect to the
first two breaches within any successive five year period by
the other party.
g. By the Licensee upon giving Licensor thirty (30) days written
notice of Licensee's intent to terminate and paying all Actual
Royalties owed to the date of termination or the Minimum
Royalties, whichever is greater.
13.2 Upon termination of this Agreement, any and all rights which the
Licensee shall have or possess under this Agreement, including
sublicenses thereunder, shall permanently cease and be by it
relinquished and surrendered to the Licensor. If such termination is
not due to a Licensee breach of this Agreement, Licensee shall have the
right to sell all Licensed Products already manufactured and in its
possession for a period of three (3) months following the termination
date, upon which royalties will be paid as provided above. Should
termination of this Agreement be due to a Licensee breach, then
Licensee shall, upon termination, transfer all Licensed Products to
Licensor, and pay all royalties it owes Licensor.
<PAGE>
14.0 MARKING
The Licensee shall use such certification mark(s), trademark(s) and/or
other marking(s) as may from time to time be adopted by the Licensor to indicate
to the public that the Licensed Products are genuine licensed products, and/or
to indicate the patent protection applicable thereto. The Licensee shall in any
event when requested by Licensor mark the patent number of each patent covering
the Licensed Products, on each licensed product manufactured, sold or otherwise
distributed by the Licensee in a manner satisfactory to Licensor; and shall use
the trademark registration symbol adjacent any registered trademark to the
extent permitted by law.
15.0 NO BUSINESS OPPORTUNITY OR FRANCHISE
This Agreement is not intended to be, and shall not be construed to be,
the granting of a business opportunity or of a franchise under the laws of the
United States or any state or territory thereof. The Licensee warrants to the
Licensor that the Licensee possesses business expertise relevant to the field in
which it will engage pursuant to the license granted herein. The Licensee
acknowledges that the Licensor is not obligated by this Agreement to provide any
business advice or business assistance of any kind or nature whatsoever,
including not limited to the provision of a prescribed marketing plan or system,
and warrants that the Licensee has not received, and does not expect to receive,
any business advice or assistance from Licensor on which it has relied or
intends to rely in any manner whatsoever. The Licensee further acknowledges that
the Licensee, in evaluating the propriety of entering into this Agreement, has
relied exclusively on its own advisors and not on any representations made by
the Licensor except such representations as are expressly stated in the words of
this Agreement.
16.0 NO INVESTMENT OR SECURITIES OFFERING
The Licensee represents and warrants that the Licensor shall not, by
reason of entering into this license with the Licensee, be or become obligated
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Furthermore,
notwithstanding any other provision of this Agreement, the Licensee shall not
enter into any transaction regarding the License that would require the Licensor
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Any violation
of this Article 16.0 is a material default that shall entitle the Licensor to
terminate this Agreement.
17.0 CONSENT TO ADVERTISING AND PUBLICITY
The Licensor may issue and disseminate to the public information
describing the license entered into with the Licensee, including the name and
address of the Licensee, the general terms of the agreement, and a general
description of the Licensee's business.
18.0 GOVERNING LAW
This Agreement shall be interpreted and construed in accordance with
the laws of the United States and the laws of the State of North Carolina.
<PAGE>
19.0 INDEPENDENT CONTRACTORS
The Parties to this Agreement are independent contractors. Nothing in
this Agreement is to be construed as making either party an agent of or joint
venturer with the other.
20.0 COMPLETE AGREEMENT AND MODIFICATION
This Agreement represents the entire agreement, both written and oral
of the Parties, and supersedes and replaces any prior written or oral agreements
between Licensee and Licensor. This Agreement may be amended only in a writing
stating that it is an amendment or modification of this Agreement, and signed by
an authorized representative of each of the Parties hereto.
21.0 NOTICES
Any notice required to be given under this Agreement shall be properly
given if delivered by first-class mail as follows:
ID Technologies Corporation Revolution Labs, Inc.
2506 West Nash Street, Suite C 131 West 10th Avenue
Wilson, North Carolina 27896 Denver, Colorado 80204
Attention: President Attention: President
22.0 CONFIDENTIALITY
The Parties acknowledge that in order to carry out the License granted
hereunder, it may be necessary for either Parties to transfer or disclose
certain trade secrets that have been developed by Licensor and/or a TDP at great
expense and that have required considerable effort of skilled professionals. The
Parties acknowledge and agree that in no event shall either Party disclose any
such trade secrets to any third party. In the event that it is necessary to
transfer or otherwise disclose such trade secret and confidential information to
either Party, an Authorized Source or sublicensee of Licensee then the party
disclosing such trade secrets or confidential information shall require the
party to which the information is being disclosed to sign a confidentiality
agreement requiring that in no event shall the receiving party disclose any such
trade secrets and confidential information to a third party. Confidential
information shall be that information disclosed or transferred to either Party
that is marked "Confidential," or information disclosed or transferred to either
party that at the time of such disclosure or transfer the party receiving such
disclosure was informed that the information must be treated by the receiving
Party as confidential.
23.0 ARBITRATION
Any dispute under this Agreement not resolved within thirty (30) days
of notice to the other party shall be submitted to binding arbitration under the
rules of the American Arbitration Associated then in effect. There shall be no
appeal from the decision other than for gross violation of due process or fraud
in the conduct of the arbitration. Judgment upon the decision may be entered in
a state or federal court, as may be appropriate, selected by the party of whom
<PAGE>
arbitration was requested or, if that party declines to promptly select such a
court, in a court selected by the party who had requested arbitration. The
parties irrevocably agree, for this purpose only, to submit to the jurisdiction
of such a court, or application may be made to such court for confirmation of
the decision, for judicial acceptance thereof, for an order of enforcement, or
for any other legal remedies that may be necessary to effectuate the decision.
Except as otherwise specified in Article 8.4.c., the expense of the arbitration
and/or arbitrators shall be shared equally by the Parties. Except as otherwise
specified. in Article 8.4.c., each of the Parties shall bear its own arbitration
costs, including without limitation its own costs of preparation, attorneys'
fees, and witness fees and expenses. In the event of litigation between the
Parties, arbitration may be so requested at any time prior to the beginning of a
trial. Any required arbitration shall be held in Research Triangle Park, North
Carolina.
24.0 SEVERABILITY
If any provisions of this Agreement shall be construed to be illegal or
invalid, the legality of the validity of any other provisions hereof shall not
be affected hereby. Any illegal or invalid provision of this Agreement shall be
severable, and all provisions shall remain in full force and effect.
25.0 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All of the, representations and warranties of the parties contained in
this Agreement, the indemnification provisions of Article 10.0, and the
Limitations of Liability and Consequential Damages provisions of Article 11
shall survive termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have through a duly authorized
officer thereof duly executed this Agreement on the dates indicated below to be
effective as of the day first indicated above:
ID Technologies Corporation (Licensor) Revolution Labs Inc. (Licensee)
By: /s/ William F. Lane By: /s/ Patrick S. Hamblin
------------------------------- -----------------------------
William F. Lane Patrick S. Hamblin
Title: President Title: President
Date: October 29, 1998 Date: October 31, 1998
------------------------------ ----------------------------
<PAGE>
PROTECTIVE TECHNOLOGIES INC.,
100 SOUTH ASHLEY DRIVE SUITE 870
TAMPA, FLORIDA 33602
AGREEMENT TO PURCHASE
Revolution Labs, Inc.
33500 W.C.R. # 16
Keenesburg, Colorado 80643
Attn. Woody Eppelsheimer
This Agreement is intended to set forth an understanding between Protective
Technologies, Inc. ("PROTEK"), a Delaware corporation, Revolution Labs, Inc.
("RLI") a Colorado corporation, and ID Technologies, ("IDTEK") a North Carolina
corporation.
1. Overall Structure. PROTEK's goal is to purchase the Exclusive Airport
Field of License for IDTEK's Fingerprint Smart Card Technology from RLI
as set forth in the attached Term Sheet. PROTEK is in the process of
securing capital for certain ongoing operations and wishes to purchase
the Exclusive Field of License at a total cost of $75,000.00. Payable
to RLI, Less 50% of the IDTEK transfer Fee of $17,500 or $8,750 paid
directly to IDTEK as set forth in the attached Term Sheet. The balance
remaining of $450,000 will be paid to IDTEK from PROTEK as provided for
in the Airport Field of License Agreement with PROTEK License credits.
2. IDTEK will extend the termination date of Oct 31, 1999 for RLI's
Exclusive license for a period of 120 Days from the date of this
Agreement until February 28, 2000. This extension is for the sole
purpose of PROTEK's completion of the terms and conditions as set forth
in the attached Term Sheet for the license purchase. PROTEK anticipates
that a firm commitment on the bridge funding will be consummated by
October 31, 1999 and complete funding will be consummated by February
28, 2000. The Parties will use their best efforts to consummate this
transaction with an anticipated closing of February 28, 2000. RLI
agrees not to negotiate with any other party during the term of this
Agreement. Should no transfer or conversion of the present license be
consummated by May 31, 2000 the license will revert back to IDTEK.
3. Should PROTEK not consummate its anticipated funding and notifies IDTEK
and RLI of it's decision not to complete the purchase of the Airport
Field of License, IDTEK will extend the extended termination date by an
additional 90 days from the end of first 120 days to allow RLI time to
resell the Airport license. All monies and credits paid to IDTEK and
RLI by PROTEK will be returned to PROTEK upon the successful conversion
or resale of the Airport license.
4. If PROTEK defaults for any unforeseen reasons after the initial deposit
to RLI and before the deposit to IDTEK, the deposit will be refunded to
PROTEK if RLI is able to market the license in the next 90 days. If
this market attempt is unsuccessful, RLI will retain the deposit. If
Protek defaults for any unforeseen reason after they have achieved
partial scheduled percentages by installment, RLI will refund the
deposit and installments if successful in marketing the license. If the
sale is less than the purchase cost to PROTEK,
<PAGE>
PROTEK will share in the sale of the license in schedule percentages of
license ownership. RLI and PROTEK will negotiate in good faith any
alternative solutions that may benefit both parties in case of an
interim default by PROTEK for the total purchase of the license. If
there is an unforeseen default mid payments by PROTEK and the good
faith joint efforts of RLI and PROTEK to sell the license or maintain
the license with IDTEK, RLI will not refund payments to that date. In
case of a mid term default and no sale of the license is possible or
not desirable, PROTEK and RLI will negotiate in good faith to find a
way to retain the license in a joint ownership that is positive to both
parties.
5. Confidentiality of Negotiations. The Parties shall use best efforts to
maintain at all times as confidential information the fact that you or
we have executed this Agreement, the terms of this Agreement and the
existence and content of any negotiations between us except that both
Parties may (i) inform advisors, counsel, and employees with a need to
know as each Parry deems necessary, and (ii) make appropriate
disclosures if required by applicable securities laws. RLI agrees not
to negotiate with other parties during the first 120 day period but
reserves the right to solicit interest in the license.
6. Governing Law. The substantive laws of the State of Florida shall
govern this letter.
7. This Agreement. Here to and their affiliates with respect to its
subject matter and supersedes all prior or contemporaneous agreements,
representations, warranties and understandings of such Parties (whether
oral or written). No promise, inducement, representation or agreement,
other than as expressly set forth herein, has been made to or by the
Parties hereto. This letter and its exhibit hereto may be amended only
by written agreement, signed by the Parties to be bound by the
amendment. Parol evidence and extrinsic evidence shall be inadmissible
to show agreement by and between such Parties to any term or condition
contrary to, or in addition to, the terms and conditions contained in
this Agreement and its exhibit.
8. Construction. This letter shall be construed according to its fair
meaning and not strictly for or against either Party. This letter does,
and is intended to, impose binding obligations on the Parties. The
Parties shall be bound by the terms of this letter.
9. If the terms and conditions of this letter are acceptable, please sign
and return to us a copy of this letter so that we can move forward with
our discussions.
/s/ Daniel Bradley
- --------------------------------
By: Daniel Bradley
Title: CEO
Accepted and Agreed:
Revolution Labs, Inc.
- --------------------------------
By:
Title: CEO
<PAGE>
Accepted and Agreed:
ID Technologies, Inc.
/s/ J. Phillips L. Johnston
- --------------------------------
By: J. Phillips L. Johnston
Title: President
<PAGE>
Protective Technologies Inc.
100 South Ashley Drive Suite 870
Tampa, Florida 33602
Agreement to Purchase
Revolution Labs, Inc.
33500 W.C.R. # 16
Keenesburg, Colorado 80643 10-26-99
TERM SHEET
This term sheet summarizes the principal terms with respect to the agreed
purchase from Revolution Labs, Inc. ("RLI") of an Exclusive Airport Field of
License of the technology under patents of ID Technologies, Inc. ("IDTEK")
("Exclusive License") by Protective Technologies, Inc. ("PROTEK"), PROTEK and
RLI are referred to collectively herein as the "Parties." The Parties have
negotiated a mutually acceptable license purchase and sale agreement as is set
forth herein (the "Agreement").
The Parties are in agreement to a transaction on the following terms:
General: RLI is currently seeking qualified purchasers for its Exclusive
License. PROTEK is interested and intends to acquire the Exclusive License for
$75,000.00. less $8,750.00 to IDTEK for RLI's portion of the transfer fee. Each
Party agrees that it is in their mutual best interest to consummate the
Agreement, as promptly as possible.
Financing Structure, Use of Funds: RLI requires $75,000.00, as funds expended to
date, for the purchase of the fully transferable Exclusive License. ID
Technologies, Inc., the patent and Master Licensor company, has expressed their
desire for the transfer of Exclusive License and has assessed a transfer fee of
$17,500.00 and shall not attempt to void any terms thereto. Payment of the
Exclusive License is proposed as follows: (i) $8,750.00 upon bridge financing
(expected no later than November 15, 1999) paid to RLI and $8,750 paid to IDTEK
(paid no later than November 15, 1999).
(ii) the balance payable upon complete funding as set forth in the PROTEK Letter
of Intent with Square Moon, Inc. PROTEK shall have the sole and exclusive
option, upon the payments of $17,500 or as per the payment schedule to below to
elect to maintain its pro rata ownership of the Exclusive License subject to the
terms and condition therein, and shall be obligated to perform in accordance
with such Exclusive License including its obligation for PROTEK's share of pro
rata payments to ID Technologies, Inc. to maintain the Exclusive License in good
standing. PROTEK, subject to the Conditions of Closing below, intends to
purchase the Exclusive License based on the general parameters as set forth
herein.
Confidentiality: Each Party shall, at all times use its best efforts to
safeguard the secrecy of any of any confidential information, including
marketing plans, customer information, specialized information, or financial
information.
<PAGE>
Representations and Warranties: The Parties will make a number of
representations and warranties, including (a) qualification and authorization to
enter into the Agreement, (b) accuracy and adequacy of the statements made in
the ID Technology patent and the Exclusive License ownership, (c) other
representations and warranties concerning the business, liabilities, and good
standing of the Parties, and (d) other representations and warranties typically
obtained in transactions of this type. The Parties will agree to indemnify and
hold harmless the other Party for any losses or liabilities arising from any
breach of a representation or warranty.
Conditions to Closing:
25.1 Truth and accuracy of representations and warranties and performance of
all obligations by the Parties.
25.2 Exclusive Field of License in good standing.
25.3 Satisfactory conclusion of due diligence investigation.
25.4 Agreement on PROTEK financing and the ancillary agreements.
25.5 No litigation or governmental proceeding pending or threatened.
25.6 Receipt of any needed regulatory approval.
25.7 Other customary conditions.
Expenses: Each Party will bear its own legal fees and expenses in connection
with this transaction.
Schedule: The expected time schedule is as follows:
<TABLE>
<CAPTION>
Event Amount Date Retained %
<S> <C> <C> <C>
Letter of Agreement and first payment to RLI $ 8,750.00 11-15-99 10%
Letter of Agreement and first payment to IDTEK $ 8,750.00 11-15-99
Second payment to IDTEK for RLI $ 8,750.00 12-15-99 20%
- -------------------------------
Second payment to RLI $13,333.00 12-15-99 30%
- --------------------- ---------------------------------
Third payment to RLI $22,083.00 01-30-00 60%
- -------------------- ---------------------------------
Final payment to RLI $22,083.00 02-28-00 100%
- -------------------- ---------------------------------
Total to RLI in cash and credits $75,000.00
---------------------------------
</TABLE>
Exhibit 6.04
AGREEMENT
THIS AGREEMENT ("Agreement") is effective the 30 day of March, 1999
(the "Effective Date"), among SAFE GUARD CORPORATION, a Delaware corporation
("Safe Guard"), PROTECTIVE TECHNOLOGIES, INC., a Delaware corporation
("Protek"), SECURE CARD INTERNATIONAL, INC., a Delaware corporation ("Secure
Card"), INTERNATIONAL BIOMETRICS INCORPORATED, a Delaware corporation ("IBI"),
TELE-GUARD, INC., a Delaware corporation ("Tele-Guard") and ID TECHNOLOGIES
CORPORATION, a North Carolina corporation ("IDTEK").
RECITALS
--------
A. Secure Card, IBI and Tele-Guard (collectively, the "Licensees") each
entered into a License Agreement (three separate agreements) dated April 10,
1998 with IDTEK, formerly known as CardGuard International, Inc. (the "License
Agreements"), regarding certain patent and technology rights (the "Licensed
Technology"). The License Agreements granted the Licensees certain exclusive
rights in the defined fields of license described in the License Agreements and
set forth on Exhibit A attached hereto (the "Protek Fields of License"). The
Licensees have paid IDTEK an aggregate of $75,000.00 for the License Agreements.
B. IDTEK is restructuring its licensing activities away from exclusive
licensing rights and desires to terminate the License Agreements.
C. Protek, an affiliate of Safe Guard and the Licensees, desires: (i)
to obtain certain nonexclusive rights to acquire licenses in the Technology,
(ii) to sell licenses in the Technology to others and receive compensation in
the same manner as others selling those licenses, and (iii) to receive certain
compensation for both the licensing of the Technology and the use of the same
Technology in the Protek Fields of License, all pursuant to the terms of this
Agreement.
D. The Licensees are willing to terminate the License Agreements and
their exclusive licensing rights if Protek obtains the rights described above,
and IDTEK is willing to provide Protek with those licensing rights upon the
termination of the License Agreements pursuant to the terms of this Agreement.
COVENANTS
---------
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, IT IS AGREED:
1. Termination of Exclusive License Agreements. As of the Effective Date, the
License Agreements shall terminate and the parties shall have no further
rights or obligations thereunder, including without limitation, the
requirement to pay the three license fees that total $1,000,000, except that
the provisions in Sections 1, 7, other than Section 7.2.1, 10, 11, 22 and 23
of the License Agreements shall survive such termination.
2. Use or Sale of IDTEK Licenses - Protek Credit. For a period beginning on the
Effective Date and ending March 15, 2006 (the "7-Year Period"), Protek shall
have the right to obtain from
<PAGE>
IDTEK nonexclusive licenses, and any other type of contracts granted by IDTEK
from time to time, for the Licensed Technology in fields and subfields of
license not then subject to exclusive licenses and in fields and subfields
subject to exclusive licenses with the written consent of the exclusive
licensee, which consent may be withheld for any reason ("Nonexclusive License
Agreements"). These licenses may be obtained for use as a licensee by Protek
or by Protek's designee, which is reasonably acceptable to IDTEK, at IDTEK's
then current best rates for comparable licenses and in both cases IDTEK, as
the Licensor, shall be granting the licenses to Protek or Protek's designee.
The Nonexclusive License Agreements shall be in the form attached hereto as
Exhibit B, with such changes as IDTEK shall make from time to time in its
standard nonexclusive license agreement, including, without limitations,
changes to license fees, surcharges and term; provided, however, that in all
events such licenses shall contain provisions substantially similar to
Sections 4.2 and 4.5 of the License Agreements. Protek shall receive a
booking credit of $2,625,000 which shall, at Protek's option, on a
license-by-license basis, be applied to the initial license fees required to
be paid in connection with the Nonexclusive License Agreements granted to
Protek or its designee pursuant to this Section 2 or in connection with the
acquisition of exclusive license agreements by Protek pursuant to Section 6
hereof ("Protek's License Credit"). The amount to be charged to Protek's
booking credit for each license shall be the initial license fee then
chargeable by IDTEK to Protek on a comparable license. Protek shall not be
entitled to any payment or other credit from the Protek License Credit if it
does not utilize the cumulative total of $2,625,000 credit granted under this
Section 2 prior to the expiration of the 7-Year Period. If a license is sold
to a Protek designee, any license fees to be charged against Protek's License
Credit that are received by IDTEK shall be paid to Protek within ten (10)
business days after IDTEK actually receives (i.e., good funds) those license
fees from the Protek designee.
Notwithstanding anything herein contained to the contrary, the parties
agree that IDTEK shall have no obligation to issue any license to Protek,
Protek's designee or otherwise under Sections 2 or 3 of this Agreement or
otherwise, unless the proposed licensee is reasonably acceptable to IDTEK. For
the purpose of the preceding sentence, Protek is currently acceptable as a
licensee of IDTEK, but such determination shall be subject to review if there is
an assignment of this Agreement or the rights hereunder, a merger, consolidation
or other combination of Protek, or a direct or indirect sale, assignment,
exchange, gift or other transfer or conveyance of fifty-one (51%) percent or
more of the ownership or control of capital stock of Protek, or any interest
therein, other than through (i) a public offering of that stock by Protek, or
(ii) the sale by shareholders of Protek of stock in the public secondary market
through an unsolicited broker transaction. Any such review shall be based upon
the reasonable, standards then applied by IDTEK for issuing licenses.
3. Protek's Sale of IDTEK Licenses - Commission Basis. For the period
beginning on the Effective Date and ending March 15, 2019 (the "20-year
Period"), Protek shall have the nonexclusive right to sell Nonexclusive License
Agreements. These licenses may be obtained for use as a licensee by Protek or by
Protek's designee, which is reasonably acceptable to IDTEK, at IDTEK's then
current best rates for comparable licenses and in both cases IDTEK, as the
Licensor, shall be granting the licenses to Protek or Protek's designee. The
Nonexclusive License Agreements shall be in the form attached hereto as Exhibit
B, with such changes as IDTEK shall make from time to time in its standard
nonexclusive license agreement, including, without
<PAGE>
limitations, changes to license fees, surcharges and term; provided,
however, that in all events such licenses shall contain provisions
substantially similar to Sections 4.2 and 4.5 of the License Agreements.
Upon the sale of any such license, Protek shall be entitled to a sales
commission fee of between five (5%) percent and ten (10%) percent of the
initial license fee, manufacturing surcharges and other revenue received by
IDTEK from each of these licenses for the initial term of those licenses,
and any renewals thereof; provided, however, Protek shall not be entitled
to a commission on any initial license fee that is paid by the use of the
credit granted to Protek pursuant to Section 2 hereof. The actual
commission percentage to be applied in each case shall be based upon the
level of unassisted sales activity of Protek, as determined by IDTEK,
subject to Protek's right to dispute such determination, as set forth
below. This commission percentage will apply to the initial license fee, as
well as to manufacturer's surcharges and other revenues received by IDTEK
from each of these licensees. The payments due under this Section, if any,
shall be made no less often than monthly. Protek shall be required to
comply with any reasonable reservation system for prospective licensees
maintained and changed from time to time by IDTEK. The parties acknowledge
that Protek's present list of licensing prospects is set forth on Exhibit C
attached hereto. Any dispute as to the determination of the appropriate
sales percentages as determined by IDTEK under this Section that is not
resolved within fifteen (15) days after notice from Protek shall be
submitted to binding arbitration conducted under the same procedure as set
forth under Section 4 hereof.
4. Protek's Field of License Revenue Sharing. For the 20-Year Period,
IDTEK shall pay Protek a portion of all license fees, manufacturing surcharges
and other revenues IDTEK actually receives during that period under any
exclusive or Nonexclusive License Agreements or other business arrangements in
which licenses cover, or products are produced in, any one of the Protek Fields
of License ("IDTEK Revenue"), on the schedule set forth below:
Protek License Protek Surcharge or
Fee Percentage Other Revenue Percentage IDTEK Payments to Protek
-------------- ------------------------ ------------------------
35% 50% Up to $2,000,000
35% 40% $2,000,000-4,000,000
30% 30% $4,000,000-6,000,000
20% 20% $6,000,000-8,000,000
15% 15% All above $8,000,000
The total amount paid shall be cumulative based on all the license fees,
manufacturing surcharges and other revenues received by IDTEK, less all sales
commissions paid to PROTEK and to unaffiliated third parties, during the entire
20-Year Period. An example of the payments due under this Section is set forth
on Exhibit D attached hereto. The payments due under this Section, if any, shall
be made on a calendar quarter basis. All such payments shall be made within
fifteen (15) business days after the end of each calendar quarter. Amounts
claimed as Protek's License Credit shall not be deemed "IDTEK Payments to
Protek", as set forth in the third column above, and Protek shall not be
entitled to any "Protek License Fee Percentage", set forth in the first column
above, on or with respect to any such amounts. The determination of Protek's fee
sharing eligibility for the initial license fee shall be made by IDTEK upon the
execution of each license pursuant to the declaration of the licensee as to its
intended activities under such license. The parties agree that the initial
declaration by a licensee of an activity in any
<PAGE>
of Protek's Fields of License shall entitle Protek to the full commission
payable hereunder. IDTEK shall not influence the licensee's declaration of
intended activity for the purpose of depriving Protek of license fee revenue
under this Section 4. Any dispute with respect to IDTEK's compliance with the
foregoing sentence will be resolved as set forth below in this Section 4. The
determination of Protek's surcharge and other revenue sharing eligibility shall
be made by IDTEK from time to time thereafter based upon the licensee's actual
product manufacturing activities, subject to Protek's right to dispute such
determination, as set forth below. Any disputes as to the determinations made by
IDTEK pursuant to the preceding two (2) sentences that are not resolved within
fifteen (15) days after notice from Protek shall be submitted to binding
arbitration conducted within a three (3) week period by one designee selected by
Protek and one designee selected by IDTEK. If such designees have not reached a
conclusion within two (2) weeks, such designees shall select a third party who
will make a binding decision within the final one (1) week period.
5. Participation Election. At any time during the 20-Year Period, upon
ninety (90) days prior written notice to IDTEK, Protek may elect to use only
nine-tenths (9/10) of the respective percentage it was entitled to under Section
4 hereof but to multiply that reduced percentage times the gross license fee or
manufacturing surcharge without the reduction for sales commissions. An example
of the calculation resulting from the election under this Section 5 is set forth
on Exhibit E attached hereto. Once Protek elects to receive the reduced
percentages of the gross amounts, it shall have no right to revert back to the
original percentages (i.e. this is a one-time election) and such election shall
apply to all payments made by IDTEK under Section 4 hereof after the expiration
of the ninety (90) day notice period required by this Section 5.
6. New Exclusive Licenses. For the 20-Year Period, if and only if IDTEK
decides to offer exclusive licenses in any one of the Protek Fields of License,
IDTEK shall give Protek written notice of such decision, and upon ninety (90)
days prior written notice, Protek shall have the right to acquire an exclusive
license in the Protek Fields of License, or a subfield thereof described in
IDTEK's notice; provided, however, that such exclusive license(s) shall be
subject to all licenses which at the time of election have been granted by IDTEK
in that Protek Field of License. All such licenses or parts thereof shall be
made available to Protek under substantially the same terms and conditions as
described in the respective License Agreement which are relevant and applicable
to the subfield being licensed, and the amount and payment schedule of the
initial license fee shall be prorated based upon the portion of the specific
Protek Field of License included in the subfield being licensed. Any dispute as
to the terms and conditions of the subfield license that is not resolved within
fifteen (15) days after notice from Protek shall be submitted to binding
arbitration conducted under the same procedures as set forth in Section 4
hereof. Protek shall not be entitled to any sales commission fee for any
exclusive license it obtains under this Section 6.
7. Monitoring. IDTEK shall use its good faith efforts to monitor the
intended use of the Licensed Technology by its licensees to assure that Protek
receives a proper accounting for the payments required by this Agreement. IDTEK
hereby agrees that upon reasonable notice it shall, during normal business
hours, provide Protek and its agents with access to its books, records and
facilities that are directly related to those payments as may be reasonably
necessary for Protek to assure the payment of amounts due it hereunder. Protek
shall keep, and shall require its agents to keep, all data obtained from IDTEK
confidential and, except as hereunder specifically provided,
<PAGE>
shall not disclose such data to third parties unless disclosure is required
by statute or judicial decree.
8. Authority. Each of the parties hereto represents and warrants that
it has the authority to enter into and effectuate this Agreement. Protek, Safe
Guard and the Licensees shall each deliver to IDTEK simultaneously with the
execution of this Agreement, certified copies of the resolutions of the
directors of each of those corporations evidencing such authority. Each of the
parties hereto acknowledges due and adequate consideration for the terms and
provisions set forth in this Agreement.
9. Sale or Other Transfer of IDTEK. IDTEK acknowledges the importance
to Protek of the terms of this Agreement and the nature of IDTEK's continuing
obligations hereunder. IDTEK agrees that it shall not sell or transfer the
Licensed Technology unless the transferee assumes all obligations of IDTEK under
this Agreement. If a transferee assumes the obligations of IDTEK under this
Agreement and is assigned or otherwise obtains the rights to revenues under
license agreements for which Protek is entitled to any revenues under this
Agreement, then IDTEK shall be relieved from its obligations under this
Agreement.
10. Arbitration. Except as provided in Sections 3, 4 and 6 hereof any
dispute under this Agreement not resolved within thirty (30) days of notice to
the other party shall be submitted to binding arbitration under the rules of the
American Arbitration Association then in effect. There shall be no appeal from
the decision other than for gross violation of due process or fraud in the
conduct of the arbitration. Judgment upon the decision may be entered in a state
or federal court, as may be appropriate, selected by the party of whom
arbitration was requested, or, if that party declines to promptly select such a
court, in a court selected by the party who had requested arbitration. The
parties irrevocably agree, for this purpose only, to submit to the jurisdiction
of such a court, or application may be made to such court for confirmation of
the decision, for judicial acceptance thereof for an order of enforcement or for
any other legal remedies that may be necessary to effectuate the decision. The
expense of the arbitration and/or arbitrators shall be shared equally by the
parties. Each of the parties shall bear its own arbitration costs, including,
without limitation, its own costs of preparation, attorneys' fees, and witness
fees and expenses. In the event of litigation between the parties, arbitration
may be so requested at any time prior to the beginning of a trial. Any required
arbitration shall be held in Research Triangle Park, North Carolina.
11. Relationship of the Parties. Nothing herein contained shall be
deemed or construed to create a partnership or joint venture between the parties
hereto. No party shall have the power or right to bind or act for any other
party. Each party shall pay all salaries, compensation, and other benefits of
its own personnel, and the other parties shall have no responsibility whatsoever
for the same. Each party shall keep in full force and effect all required
worker's compensation insurance on its personnel, shall be responsible for all
social security and unemployment compensation payments and benefits, and shall
be responsible for all withholding taxes due and becoming due upon the
compensation of said personnel. Protek, Safe Guard, Secure Card and Tele-Guard
each hereby agree that it shall comply with, and shall protect IDTEK from any
violation of, all applicable federal, state and local laws, rules and
regulations applicable to its activities in connection with this Agreement or
the sale of IDTEK licenses, and hereby jointly and severally agrees, to the
fullest extent permitted by law, to release, indemnify, hold harmless
<PAGE>
and defend IDTEK, and its officers, agents, directors, shareholders and
employees, from and against any and all claims, liabilities, losses,
damages, costs, fines, penalties, clean-up costs and other pollution
related items, expenses or fees (including, without limitation, attorneys'
fees), resulting from any such violation. The provisions of this section
shall survive the expiration or other termination of this Agreement.
12. Assignment. The rights, duties and obligations under this Agreement
may not be assigned by Protek or the Licensees without the prior written consent
of IDTEK, which consent may not be unreasonably withheld. IDTEK may assign its
rights and obligations hereunder without the consent of Protek or the Licensees.
Subject to the restrictions on assignment contained herein, the provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their successors and assigns. Any assignment, even with the consent
of a party hereto, shall not relieve the other party from any of its obligations
or liabilities hereunder.
13. Notice. Any notice, consent or other communication permitted or
required by this Agreement to be given to a party shall be in writing and
addressed to such party at the following address or transmitted via facsimile
machine (provided documentation of completed transmission is retained) to the
following facsimile number:
If to: Safe Guard, Protek, Secure Card, IBI or Tele-Guard
100 South Ashley Drive
Suite 870
Tampa, Florida 33602
Attn: Daniel Bradley
Facsimile No: 813-223-1559
If to: ID Technologies Corporation
2506 West Nash Street
Suite C
Wilson, North Carolina 27896
Attn: William, F. Lane
Facsimile No: 252-206-4990
Unless a different individual, address or facsimile number shall have been
designated by the respective party by notice in writing in accordance herewith.
Any notice given hereunder shall be deemed given when delivered by hand, one (1)
day after being transmitted by facsimile or three (3) days after being deposited
in the United States mail, postage prepaid, certified mail (return receipt
requested).
14. No Construction Against Preparer. This Agreement shall not be
construed more strictly against one party than another merely by virtue of the
fact that it may have been prepared by counsel for one of the parties, it being
recognized that, because of the arm's-length negotiations, all parties hereto
have contributed substantially and materially to the preparation of this
Agreement.
15. Construction Law. This Agreement shall be deemed a contract entered
into, delivered and made in the State of North Carolina, and it shall be
governed, construed, interpreted and
<PAGE>
enforced in accordance with the laws of the State of North Carolina,
notwithstanding the principles of conflicts of law. The captions and
section numbers appearing in this Agreement are inserted only as a matter
of convenience and in no way define, limit, construe or describe the scope
or intent of such sections.
16. Severability. If any Provision of this Agreement, or portion
thereof shall be determined to be void or unenforceable by any court of
competent jurisdiction, then such determination shall not affect any other
provision of this Agreement, or portion thereof all of which other provisions
and portions thereof shall remain in full force and effect. If any provision of
this Agreement or portion thereof is capable of two interpretations, one of
which would render the provision, or portion thereof void and the other of which
would render the provision, or portion thereof valid, then the provision, or
portion thereof, shall have the meaning which renders it valid.
17. Waiver. The failure of either party to enforce at any time any of
the provisions of this Agreement, to require at any time performance by the
other party of any of the provisions hereof or to resort to any remedy or to
exercise one or more remedies, shall in no way be construed to be a waiver of
such provisions, nor in any way to affect the validity of this Agreement or any
part hereof, or the right of such party thereafter to enforce each and every
such provision.
18. Entire Agreement. This instrument shall constitute the entire
understanding between the parties, superseding any and all previous
understandings, oral or written, pertaining to the subject matter contained
herein. The parties hereto may amend, modify and supplement this Agreement only
in writing duly executed by all parties hereto. The recitals are made part of
this Agreement, and the exhibits attached hereto are incorporated by this
reference as if set out fully herein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused these presents
to be executed in its name by a duly authorized officer, to be effective the day
and year first above written.
SAFE GUARD CORPORATION TELE-GUARD, INC.
By: /s/ Daniel Bradley By: /s/ Daniel Bradley
------------------- -------------------
President President
SECURECARD ID TECHNOLOGIES CORPORATION
By: /s/ Daniel Bradley By: /s/ William F. Lane
------------------- -------------------
President President
PROTECTIVE TECHNOLOGIES, INC.
INTERNATIONAL BIOMETRICS
INCORPORATED
By: /s/ Daniel Bradley
By: /s/ Daniel Bradley -------------------
------------------- President
President
<PAGE>
EXHIBIT A
---------
Protek Fields of License
For the purpose of this Agreement the term "Protek Fields of License"
shall collectively mean the areas described in Section 1.10 of the License
Agreements and set forth again below. Any capitalized term set forth below that
is not defined in this Agreement shall have the meaning set forth in the License
Agreements.
1. "FIELD OF LICENSE" means identification, access, and security cards,
associated systems and equipment of whatever type for use worldwide by:
(a) Medical and health care organizations, meaning private or
public hospitals, medical clinics, doctor's offices, and other
organizations that provide medical health care.
(b) Medical insurance organizations, meaning private or public
organizations that provide medical health care insurance.
(c) Retail pharmacy organizations, meaning private or public
organizations that provide pharmaceutics to the public and/or
to medical and health care organizations.
It is understood and agreed that the organizations identified in this
Article 1 only may use the System for activities that relate to the operation of
medical and health care services, insurance, and retail pharmacy services,
respectively, including but not limited to storage, retrieval, and processing of
medical and/or patient information, billing data, parking security and
management, inventory control and patient security, as well as storage,
retrieval, and processing of medical and/or patient information including but
not limited to Medicare, Medicaid, and other government-sponsored and/or
controlled programs. It is also understood and agreed that the Field of License
does not include use of the System for Internet security.
2. "FIELD OF LICENSE" means identification, access, and security cards,
associated systems and equipment of whatever type used in the private
credit/limited use, non-bank card field, worldwide. The Licensee's
Field of License shall be limited to and shall not expand beyond the
following private credit/limited use non-bank card areas as follows:
(a) both general and specialty merchandisers/retailers; of all
kinds (including wholesale/membership clubs and buying
consortiums of various forms);
(b) oil and gas retailers;
(c) restaurants, whether single or multiple ("chain");
(d) resorts and theme/amusements parks (with the exception
that this Field of License does not include resort or
theme/amusement park lodging or hospitality operations with
respect to employee and customer access, in-room safes, and
minibar systems);
<PAGE>
(e) rental car and rental truck companies; and
(f) acceptors of those non-bank cards and non-bank systems
used in the foregoing five areas defined and described in
paragraphs (a) through (e) of this Article 2, provided such
cards are being accepted by such acceptors solely for
transactions taking place within the areas defined and
described in paragraphs (a) through (e) of this Article 1.
By way of example, the Licensee's Field of License does not include general
purpose credit and debit cards (Visa, MasterCard, American Express, Discover
Card, Carte Blanche, Diners Club, etc.) or general purpose bank-issued cards of
various forms, and also does not include use of the System for internet
security.
3. "FIELD OF LICENSE" means identification, access, and security cards,
associated systems and equipment of whatever type for use by local,
regional, long distance, and international telecommunications
companies, private or public, worldwide. This Field of License includes
such credit, debit, and/or calling cards issued by such companies for
use on telecommunications systems and associated systems equipment, any
fixed or mobile telecommunications systems and associated systems
equipment, including fax machines. It is understood and agreed that the
Field of License is intended to cover use of the System with all
telecommunications systems and equipment. It is also understood and
agreed that the Field of License does not include use of the System for
Internet security.
<PAGE>
EXHIBIT B
LICENSE AGREEMENT
THIS AGREEMENT is made effective as of the _____ day of
_________________ (the "Effective Date"), by and between ID Technologies
Corporation, a North Carolina corporation, having a place of business and
address of 2506 West Nash Street, Suite C, Wilson, North Carolina 27893 (the
"Licensor"), and ___________________________, having a place of business and
address of _______________________ (the "Licensee") (together, the "Parties").
WHEREAS, Licensor owns all right, title and interest in United States
Patent No. 5,623,552 (the `552 Patent), dated April 22, 1997, and entitled
"Self-Authenticating Identification Card With Fingerprint Identification".
WHEREAS, Licensor has obtained from Technical Partners (defined below)
a license to practice and use Technical Partners' inventions and patent(s)
(hereinafter referred to as "Technical Partners' Technology") in the Field of
License (defined below), to the extent to which they pertain to the subject
matter described and claimed in the '552 Patent and has further obtained from
Technical Partners' the right to sublicense such Technical Partners' Technology
in said Field of License to Licensee.
WHEREAS, Licensor desires to grant to Licensee a nontransferable,
nonexclusive license to the '552 Patent and also the Technical Partners
Technology to facilitate Licensee's application of the '552 Patent technology,
and Licensee desires to receive such license and technology pursuant to the
terms of this Agreement.
NOW, THEREFORE, the Parties agree that for and in consideration of the
mutual obligations contained herein, the receipt and sufficiency of which is
acknowledged, the Parties do hereby agree as follows:
1.0 DEFINITIONS
1.1 "SYSTEM" means Licensor's fingerprint identification
technology described and claimed in the `552 Patent and the
Licensor Technology (defined below).
1.2 "LICENSED PATENTS" means the '552 Patent and other patents
licensed to Licensee hereunder.
1.3 "SUBSIDIARY" means a corporation, company or other entity
more than fifty percent of whose outstanding shares or
securities (representing the right, other than as affected by
events of default, to vote for the election of directors or
other managing authority) are, now or hereafter, owned or
controlled directly by a corporation, company or other entity
which is a party to this Agreement (either by Licensee or the
Licensor), so long as such ownership or control exists.
<PAGE>
1.4 "LICENSEE TECHNOLOGY" means presently existing or future
developed inventions, patents, and technology of Licensee
relating to the subject matter of the '552 patent and licensed
or otherwise transferred to Licensor pursuant to this
Agreement.
1.5 "TECHNICAL PARTNERS" Licensor's partners that develop and
apply technology covered by or related to the subject matter
described sad claimed in the '552 Patent.
1.6 "LICENSOR AFFILIATE" shall mean a Subsidiary of Licensor.
1.7 "LICENSOR TECHNOLOGY" means and includes the Licensed
Patents as well as all present and future intellectual
property including rights in inventions, patents, trade
secrets, copyrights and other technology, and any portion
thereof, associated with or supportive of use of the System,
which Licensor owns or is authorized to license or otherwise
transfer to Licensee under this Agreement and which Licensor
receives either from Licensee or Technical Partners, and
includes present and future Licensee and Technical Partners'
Technology, as well as other technology acquired by Licensor
with respect to which Licensor has the right to license.
1.8 "FIELD OF LICENSE" means identification, access, and
security cards, associated systems and equipment of whatever
type used for all fields, except for the Excluded Fields of
License, which are not part or otherwise encompassed by "Field
of License," unless one or more of Excluded Fields of License
(defined below) are acquired pursuant to Article 9 of this
Agreement
1.9 "EXCLUDED FIELDS OF LICENSE" means the several Fields of
License listed and described in Schedule A attached hereto.
1.10 "LICENSED PRODUCT" means any product or component of a
product which incorporates some or all of Licensor's
Technology, or whose manufacture, sale or use would infringe
directly, contributorily, or by inducement any claim of the
'552 Patent or any other patent licensed hereunder.
1.11 "AUTHORIZED SOURCE" means a company selected by Licensor
to manufacture the Licensed Product or a company selected by
Licensee with Licensor's written approval pursuant to Article
3.0 below.
1.12 "THE RECITALS AND ATTACHED SCHEDULE" set forth in the
"Whereas" provisions on page 1 of this Agreement and the
Schedule(s) attached hereto are incorporated herein by
reference and are made a part of this Agreement herein.
<PAGE>
2.0 GRANT OF NONEXCLUSIVE TECHNOLOGY LICENSE AND LICENSEE'S INTENDED
INDUSTRIES
2.1 Grant. Licensor hereby grants and conveys to Licensee,
subject to the express limitations of this Agreement and to
the extent that it lawfully may, a nontransferable,
nonexclusive, license to: (a) make and sell the System or any
component thereof only in the Field of License (b) to use such
certification mark(s), trademark(s) and/or other marking(s) on
Licensed Products, pursuant to Article 14; and (c) to disclose
the System to its Authorized Sources and others necessary for
its practice by Licensee, subject, however, to the
confidentiality duty act forth in Article 22. It is expressly
understood and agreed that this Agreement does not grant to
Licensee the right to sublicense the System.
2.2 LICENSEE'S INTENDED INDUSTRIES. Simultaneous with
execution of this Agreement, Licensee shall indicate in
writing on attached Schedule C, the industries within the
Field of License that Licensee intends to pursue under this
Agreement. It is understood that Schedule C is merely for
Licensor to determine the identity of those industries to
which its System may be sold or otherwise transferred by its
Licensees, and is not binding on Licensee.
3.0 LICENSEE CERTIFICATE OF LICENSE AND AUTHORIZED SOURCE OF LICENSED
PRODUCT
3.1 AUTHORIZED SOURCE LIST. Licensor shall provide Licensee,
in a writing, the name and address of at least one company, to
be designated as an Authorized Source, with the expertise,
skill, and knowledge to manufacture and produce Licensee's
designated ones of the Licensed Products within Licensee's
Field of License according to Licensee's specifications and
which Licensee is prepared to develop and market. The date of
the writing required by this Article 3.1 shall determine the
date upon which the Term of this Agreement, specified in
Article 12.0, begins.
3.2 ADDITIONAL AUTHORIZED SOURCES. At any time during the term
of this Agreement, the Licensee may request adding to the list
of Authorized Sources one or more manufacturers of Licensed
Products within Licensee's Field of License. Such request
shall affirmatively state that the Licensee has investigated
the proposed source and has an adequate basis for believing
that the proposed source can manufacture the particular
Licensed Product of interest to the Licensee to such standards
of quality and grade at least equal to and in all respects not
less reliable than the Authorized Sources identified by
Licensor pursuant to Article 3.1. Licensor, not more than
thirty (30) days after it receives the proposed Additional
<PAGE>
Authorized Sources from Licensee, shall advise Licensee with
respect to such request, and shall not unreasonably reject
such proposed source.
3.4 LICENSEE CERTIFICATE OF LICENSE. Simultaneous with the
execution of this Agreement, Licensor shall complete a
Licensee Certificate of License, a blank copy of which is
attached hereto as Schedule B. The completed Licensee
Certificate of License shall include Licensee's corporate
name, business address, telephone number, and shall include a
licensee number assigned by Licensor. Each Authorized Source
will have a list of valid licensee numbers. An Authorized
Source is not authorized by Licensor to manufacture and/or
transfer Licensed Products to Licensee, unless Licensee first
presents to the Authorized Source a Licensee Certificate of
License containing a valid licensee number.
3.5 PROCUREMENT. Licensee shall Procure the Licensed Product
only from an Authorized Source, and only by presenting to the
Authorized Source the Licensee Certification of License.
3.6 LICENSEE NOT OBLIGATED TO PURCHASE FROM PERSONS SELECTED
BY LICENSOR. The Licensee acknowledges that it is not required
to obtain the product from any person affiliated with the
Licensor, and that it has a full and sufficient opportunity to
seek out alternative sources of the product and will take such
advantage of that opportunity as it independently elects,
relying exclusively on its own business judgment and not on
the recommendation of the Licensor for that purpose. The
Licensee further warrants that it will conduct its own
Inspection of any Authorized Source whose identity is provided
to the Licensee by the Licensor and will independently
determine the capability and quality of such Authorized Source
to meet the requirements of the Licensee, and will not rely on
the judgment of the Licensor for that purpose. The Licensor
makes no warranty or representation whatsoever as to the
capabilities or performance of any Authorized Source, and
expressly disclaims all such warranties and representations.
4.0 LICENSEE'S RIGHT TO PROPOSE SPECIFICATIONS
The Licensee shall have the right to propose modifying Licensed Product
specifications in a manner that would permit the Licensed Product to better
service customers in the Field of License. Licensor has the right to reject such
modifications, if such modified specifications call for a Licensed Product of a
lesser grade or quality than desired by Licensor or a Licensed Product likely to
impair consumer acceptance of the Licensed Products.
5.0 DEVELOPMENT OF PROTOTYPES OF LICENSED PRODUCT
<PAGE>
5.1 Upon selection of an Authorized Source for the first
selected Licensed Product within Licensee's Field of License
which Licensee stands ready to procure, develop and market in
commercial quantities, Licensee shall promptly and forthwith
proceed to procure such selected Licensed Product in prototype
form from such Authorized Source, and upon procurement thereof
provide Licensor with it sample thereof.
5.2 Licensor shall within twenty-one (21) days after receipt
of a sample of Licensee's first selected Licensed Product in a
prototype form suitable for reproduction in commercial
quantities promptly notify Licensee of its approval or
disapproval thereof. In the event that the Licensee shall fail
to reply within said twenty-one (21) days, the proposed
prototype form shall be deemed to be approved by Licensor. In
the event of approval, which shall not be unreasonably
withheld, Licensee shall use its best efforts to commence
production, marketing, and sale of such first selected
Licensed Product in the Field of License. In the event of
disapproval, Licensor shall inform Licensee of the reasons
therefore and Licensee shall promptly take steps to improve
such prototype of the first selected Licensed Product and
shall again submit such prototype to Licensor for approval in
accordance with the terms of this Article 5.2.
5.3 After introduction and marketing of the first selected
Licensed Product as referred to above, Licensee shall proceed
to select the next and subsequent Licensed Products in the
same manner as set forth above and shall again submit such
prototype to Licensor for approval in accordance with the
terms of Article 5.2.
6.0 WARRANTIES AND REPRESENTATIONS OF THE PARTIES
6.1 LICENSORS WARRANTIES AND REPRESENTATIONS
6.1.1 LICENSOR TECHNOLOGY.
a. The Licensor warrants that it is the
owner of all right, title and interest in
Letters Patent of the United States, No.
5,623,552 dated April 22, 1997, and entitled
Self Authenticating Identification Card With
Fingerprint Identification," and has the
right to grant licenses to others to
manufacture, use, and sell, products covered
by the patent, and further warrants that it
has the right to license the System to
Licensee pursuant to the terms of this
Agreement.
<PAGE>
b. Licensor also warrants that it has
obtained from Technical Partners a license
in the Field of License to receive certain
of Technical Partners' Technology to the
full extent to which such technology
pertains to the subject matter described and
claimed in the '552 Patent and has further
obtained from Technical Partners the right
to sublicense such Technical Partners'
Technology in said Field of License to
Licensee.
c. Licensor fully warrants and shall warrant
throughout the term of this Agreement that
it has full, unrestricted right to grant to
Licensee the rights granted in Article 2.0.
6.1.2 PROSECUTION OF LICENSOR PATENTS. Licensor shall
maintain the `552 Patent and any other presently or
future existing United States or foreign patents
owned by Licensor and relating to the System.
6.1.3 LICENSOR BEST EFFORTS. Licensor shall use its
best efforts to develop, improve, enhance and
commercialize the System through its dealings with
its Technical Partners, Subsidiaries and Licensees.
6.1.4 LICENSOR EMPLOYEES. Licensor represents and
warrants that it shall require its employees to
assign to Licensor all intellectual property rights
to the inventions developed by its employees relating
to the System.
6.1.5 DUE ORGANIZATION, GOOD STANDING, AUTHORITY OF
LICENSOR. Licensor is a corporation duly organized,
validly existing, and in good standing under the laws
of North Carolina. Licensor has full right, power,
and authority to own its properties and assets, and
to carry on its business. To the best of Licensor's
knowledge, Licensor is duly licensed, qualified and
authorized to do business, and is in good standing in
each jurisdiction in which the properties and assets
owned by it or the nature of the business conducted
by it makes such licensing, qualification and
authorization legally necessary.
6.1.6 LICENSE NOT IN CONFLICT WITH OTHER INSTRUMENTS;
REQUIRED APPROVALS OBTAINED.
<PAGE>
6.1.6.1 To the best of Licensor's knowledge,
the execution, delivery, and performance of
this License by Licensor will not (a) violate
or require any registration, qualification, or
filing under, (i) any law, statute, ordinance,
rule or regulation ("Laws") of any federal,
state or local government ("Governments") or
any agency, bureau, commission or
instrumentality of any Governments, or (ii) any
judgment, injunction, order, writ or decree or
any court arbitrator, or Government.
6.1.6.2 To the best of Licensor's knowledge,
the execution, delivery, and performance of
this License by Licensor will not conflict
with, require any consent, approval, or filing
under, result in the breach or termination of
any provision of, or constitute a default under
(i) any indenture, mortgage, deed of trust,
license, permit, approval, consent, franchise,
lease, contract, or any instrument or agreement
to which the Licensor is a party or is bound,
or (iii) any judgment, injunction, order, writ,
or decree of any court, arbitrator, or
government by which the Licensor or any of its
assets or properties is bound.
6.1.7 LEGAL PROCEEDINGS-LICENSOR. To the best of
Licensor's knowledge, there is no action, suit,
proceeding, claim, arbitration, or investigation by
any Government or any other person (i) pending to
which the Licensor is a party, (ii) threatened
against or relating to the Licensor or any of the
Licensor's assets or businesses, (iii) challenging
the Licensor's right to execute, deliver, or perform
under this License, or (iv) asserting any right
against Licensor with respect to the System, and
there is no basis for any such action, suite,
proceeding, claim, arbitration, or investigation.
6.2 LICENSEE'S WARRANTIES AND REPRESENTATIONS
6.2.1 LICENSEE'S BEST EFFORTS. Licensee represents
and warrants to use its best efforts to proceed
diligently with its manufacture, marketing,
distribution, and sale of the Licensed Products and
System in the Field of License in accordance with the
terms of this Agreement. Licensee shall at its cost
and expense use its best efforts and all due
diligence to energetically and aggressively develop
the market
<PAGE>
for the Licensed Products in the Field of License, to
promote the sale, and use of the Licensed Products
and to enhance the reputation and goodwill associated
with the Licensed Products. In connection with its
obligations under this Article 6.2.1, Licensee shall
maintain facilities of a nature and style suitable in
the Field of License to facilitate the marketing,
distribution, and sale of the Licensed Products;
shall provide aggressive, dedicated, continuous
representation in the Field of License by means of
sales and support staff sufficient in number,
qualifications, and training to aggressively and
effectively promote, market, and service the Licensed
Products.
6.2.3 LICENSEE TECHNOLOGY.
Licensee represents and warrants in recognition of mutual benefits to
be derived by Licensee, that it shall grant to Licensor a nonexclusive,
royalty free license, with the right to sublicense, to make, use, and
sell any Licensee made improvement or enhancement or improvement or
enhancement made on behalf of Licensee, to the Licensed Product
(Licensee Technology). With regard to technology developed by Licensee,
Licensee represents and warrants that it shall have the sole and
exclusive right to grant the license to manufacture, use, sell, and
otherwise transfer Licensee's Technology relating to the System to
Licensor.
6.2.4 QUALITY OF LICENSED PRODUCTS. Licensee
represents, warrants and covenants that it shall
diligently inspect goods delivered by Authorized
Sources to assure conformity with specifications,
grade and quality satisfactory to Licensor, and shall
not procure goods from any unauthorized source.
Furthermore, Licensee shall not induce any Authorized
Source to engage in adulteration, substitution or
other practices that would constitute a variance from
such specifications, grade and quality and shall not
knowingly countenance any such practices.
6.2.5 LICENSE NOT IN CONFLICT WITH OTHER INSTRUMENTS;
REQUIRED APPROVALS OBTAINED.
6.2.5.1 To the best of Licensee's knowledge,
the execution delivery, and performance of
this License by Licensee will not (a)
violate or require any registration,
qualification, or filing under, (i) any law,
statute, ordinance, rule or regulation
("Laws")
<PAGE>
of any federal, state or local government
("Governments") or any agency, bureau,
commission or instrumentality of any
Governments, or (ii) any judgment,
injunction, order, writ or decree or any
court, arbitrator, or Government.
6.2.5.3 To the best of Licensee's knowledge,
the execution, delivery and performance of
this License by Licensee will not conflict
with, require any consent, approval, or
filing under, result in the breach or
termination of any provision of, or
constitute a default under (i) any
indenture, mortgage, deed of trust, license,
permit, approval, consent, franchise, lease,
contract, or any instrument or agreement to
which the Licensee is a party or is bound,
or (iii) any judgment, injunction, order,
writ, or decree of any court, arbitrator, or
government by which the Licensee or any of
its assets or properties is bound.
6.2.6 LEGAL PROCEEDINGS-LICENSEE. To the best of
Licensee's knowledge, there is no action, suit,
proceeding, claim, arbitration, or investigation by
any Government or any other person (i) pending to
which the Licensee is a party, (ii) threatened
against or relating to the Licensee or any of the
Licensee's assets or businesses, (iii) challenging
the Licensee's right to execute, deliver, or perform
under this License, or (iv) asserting any right
against Licensee with respect to the System. and
there is no basis for any such action, suite,
proceeding, claim, arbitration, or investigation.
6.2.7 DUE ORGANIZATION, GOOD STANDING, AUTHORITY OF
LICENSEE. Licensee is a corporation duly organized,
validly existing, and in good standing under the laws
of _________________. Licensee has full right, power
and authority to own its properties and assets, and
to carry on its business. To the best of Licensee's
knowledge, Licensee is duly licensed, qualified and
authorized to do business, and is in good standing in
each jurisdiction in which the properties and assets
owned by it or the nature of the business conducted
by it makes such licensing, qualification and
authorization legally necessary.
7.0 ASSIGNMENT
<PAGE>
This Agreement may not be assigned by Licensee without the written
consent of Licensor, such consent not to be unreasonably withheld. Furthermore,
Licensee may not transfer this Agreement along with the sale or transfer of
Licensee's business to a third party without first obtaining the written consent
of Licensor, such consent not to be unreasonably withheld. Except as otherwise
provided under this Article 7.0, it is expressly understood and agreed that
Licensee shall not license, sublicense, or otherwise dispose of the System or
rights provided under this Agreement to any third party.
8.0 LICENSE FEE
License Fee Schedule:
License Type License Fee
- ------------ -----------
A $ 25,000.00
B 50,000.00
C 100,000.00
D 150,000.00
E 200,000.00
F 250,000.00
Licensee shall pay to Licensor upon the Effective Date of this Agreement a
License Fee in the amount of _________________ dollars ($ ) for License Type
_____ as listed immediately above.
9.0 ACQUIRING RIGHTS TO EXCLUDED FIELDS OF LICENSE
It is understood that Licensor is without the right to grant a license to make,
use, sell, sublicense or otherwise transfer the System in any of the Excluded
Fields of License listed and described in Schedule A of this Agreement. Should
Licensee desire to acquire a nonexclusive license to make, use, and sell the
System or any component thereof in one or more of the Excluded Fields of
License, Licensee shall contact Licensor in writing requesting a grant(s) of
such license(s). Licensor shall submit the request to the owner of the Field(s)
of License that Licensee wishes to acquire. The owner of the Field(s) of License
may grant Licensee, at its sole discretion, a nonexclusive license in owner's
Field of License. The terms and conditions of any such nonexclusive license
shall be negotiated on a case by case basis. Once Licensee acquires one or more
of the Excluded Fields of License, such acquired Excluded Fields of License
shall be deemed as part of Licensee's Field of License for purposes of this
Agreement.
10.0 INFRINGEMENT AND INDEMNIFICATION
10.1 INFRINGEMENT CLAIMED BY THIRD PARTIES.
10.1.1 If the Licensee shall be sued for infringement
by reason of the Licensee's activities under the
license granted in this Agreement, the Licensee shall
immediately notify the Licensor and the licensor
shall defend, indemnify, and hold the licensee
harmless against any such claims, which, if proven,
<PAGE>
would constitute a breach of any of the Licensor's
representations or warranties of Article 6.1 above.
Provided, however, that the Licensor shall not have a
duty to defend if the claim of infringement is based
upon acts of the Licensee which go beyond the scope
of the Licenses granted, such as by reason of
combination of practice under the license and
authorized practices, with additional unlicensed
activity, which combined licensed and unlicensed
activity shall be the subject matter of the
infringement action. Without limiting the foregoing,
the Licensor shall have the control of any such
defense and the right to enter into any settlement
and/or compromise of any such claim. The Licensee
shall, if requested by Licensor, make such reasonable
modifications in the practice of the license granted
under this Agreement such as would enable the parties
to avoid or mitigate any third-party claims of
infringement or misappropriation.
10.1.3 If Licensor shall be sued for infringement by
reason of the Licensor's activities under any
cross-license as anticipated by Article 6.2.2, the
Licensor shall immediately notify the Licensee and
the Licensee shall defend, indemnify, and hold the
licensor harmless against any such claims, which, if
proven, would constitute a breach of any of the
Licensee's representations or warranties of Article
6.2 above. Provided, however, that the Licensee shall
not have a duty to defend if the claim of
infringement is based upon acts of the Licensor which
go beyond the scope of the Licenses granted, such as
by reason of combination of practice under the
license and authorized practices, with additional
unlicensed activity, which combined licensed and
unlicensed activity shall be the subject matter of
the infringement action. Without limiting the
foregoing, the Licensee shall have the control of any
such defense and the right to enter into any
settlement and compromise of any such claim or
action. The Licensor shall, if requested by Licensee,
make such reasonable modifications in the practice of
the license granted under this Agreement such as
would enable the parties to avoid or mitigate any
third-party claims of infringement or
misappropriation.
10.2 INFRINGEMENT BY THIRD PARTIES. Licensor shall have the
right but
<PAGE>
not the obligation, to institute and prosecute any and all
suits to enjoin any and all infringers of the '552 Patent
where such infringement affects Licensor's use, sale, or
rights to the System, and from time to time during the
continuance of this Agreement, and at its own expense, may
institute any suit or suits it may deem necessary. The
Licensor shall have the right to institute and prosecute such
suits, and to employ its own counsel for such suits; and
Licensor shall pay for all services rendered by counsel so
retained, and for all incidental costs and expenses. Licensor
agrees that Licensee may join as a party plaintiff in any suit
initiated by Licensor pertaining to infringement in the Field
of License regarding the System, at Licensee's sole expense,
where Licensee deems that joining as a party plaintiff is
necessary and in Licensee's best interests.
11.0 LIMITATIONS OF LIABILITY AND CONSEQUENTIAL DAMAGES
IN NO EVENT, WHETHER BASED ON CONTRACT, INDEMNITY, WARRANTY, TORT
(INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, SHALL LICENSOR OR ITS
SUBCONTRACTORS OR SUPPLIERS, OR ANY OF ITS RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES OR AGENTS, BE LIABLE FOR (I) SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES;
OR (II) ANY LOSSES OR DAMAGES ARISING OUT OF, CONNECTED WITH, OR RESULTING FROM
(A) THE PERFORMANCE OF ANY THIRD PARTY NOT HIRED BY LICENSOR, (B) ANY SOFTWARE,
HARDWARE OR OTHER PRODUCT OR COMPONENT PROVIDED BY ANY THIRD PARTY, (C) THE
RELIANCE BY LICENSOR ON ANY STATEMENT OR REPRESENTATION MADE BY LICENSEE
REGARDING A THIRD PARTY VENDOR; OR (D) ANY FAILURES STEMMING FROM PROBLEMS
RELATING TO THE YEAR 2000.
12.0 TERM OF AGREEMENT AND RENEWAL
The term of this Agreement shall be two years from the date that Licensor
provides Licensee with the name of an Authorized Source pursuant to Article 3.1
of this Agreement.
13.0 TERMINATION
13.1 This Agreement may be terminated as follows:
a. By mutual Agreement of the Parties.
b. If the Licensee shall (i) commence a voluntary case under the
federal or State bankruptcy laws, (ii) file a petition seeking to
take advantage of any other laws, domestic or foreign, relating
to bankruptcy, insolvency, reorganization, winding up or
composition for adjustment of debts, (iii) consent to or fail to
contest in a timely and appropriate manner any petition filed
against it in an involuntary case under such bankruptcy laws or
other laws, (iv) apply for or consent to, or fail to contest in a
timely and appropriate manner, the appointment of, or the taking
of possession by, a receiver, custodian, trustee, or liquidator
of itself or of a
<PAGE>
substantial part of its property, domestic or
foreign, (v) admit in writing its inability to
pay its debts as they become due, (vi) make a
general assignment for the benefit of
creditors, (vii) take any corporate action
authorizing any of the foregoing, (viii) become
the subject of a case or other proceeding in
any court of competent jurisdiction seeking
relief under the federal bankruptcy laws or
under any other laws, domestic or foreign,
relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of
debts, which proceeding shall continue
undismissed or unstayed for a period of sixty
consecutive calendar days, or an order granting
the relief requested shall be entered, or (ix)
become the subject of the appointment of a
trustee, receiver, custodian, liquidator or the
like, which appointment shall continue
undismissed or unstayed for a period of sixty
consecutive calendar days.
d. If Licensee, without having first terminated this Agreement and
ceased obtaining any of the benefits of this Agreement challenges
the validity of any patent purported to be licensed by the
Licensee under this Agreement.
e. If Licensee does not procure Licensed Product from an Authorized
Source pursuant to Article 3.4.
f. By either party due to the other party's material breach of its
obligations under this Agreement, upon giving written notice.
13.2 Upon termination of this Agreement, any and all rights
which the Licensee shall have or possess under this Agreement
shall permanently cease and be by it relinquished and
surrendered to the Licensor. If such termination is not due to
a Licensee breach of this Agreement, Licensee shall have the
right to sell all Licensed Products already manufactured and
in its possession for a period of three (3) months following
the termination date. Should termination of this Agreement be
due to a Licensee breach, then Licensee shall, upon
termination, transfer all Licensed Products to Licensor
(unless otherwise agreed to in writing by Licensor).
14.0 MARKING
The Licensee shall use such certification mark(s), trademark(s), and/or
other marking(s) as may from time to time be adopted by the Licensor to indicate
to the public that the Licensed
<PAGE>
Products are genuine licensed products, and/or to indicate the patent protection
applicable thereto (Licensor Mark(s)). The Licensee shall in any event when
requested by Licensor mark the patent number of each patent covering the
Licensed Products, on each Licensed Product manufactured, sold or otherwise
distributed by the Licensee in a manner satisfactory to Licensor, and shall use
the trademark registration symbol adjacent any registered trademark to the
extent permitted by law. However, it is agreed and understood that Licensee may
use its own certification mark(s), trademarks, and/or other marking(s) (Licensee
Mark(s)) as Licensee may from time to time adopt, on Licensed Products. It is
further agreed and understood that Licensee may use Licensee Mark(s)
conspicuously on Licensed Products, and may use Licensor Mark(s) less
conspicuously. By way of example, Licensee may apply Licensee Mark(s) in large
bold type or design on the primary display surface of Licensed Product and apply
Licensor Mark(s) on a secondary surface of Licensed Product in small, but
readable, type or design.
15.0 NO BUSINESS OPPORTUNITY OR FRANCHISE
This Agreement is not intended to be, and shall not be construed to be,
the granting of a business opportunity or of a franchise under the laws of the
United States or any state or territory thereof. The Licensee warrants to the
Licensor that the Licensee possesses business expertise relevant to the field in
which it will engage, pursuant to the license granted herein. The Licensee
acknowledges that the Licensor is not obligated by this Agreement to provide any
business advice or business assistance of any kind or nature whatsoever,
including but not limited to the provision of a prescribed marketing plan or
system, and warrants that the Licensee has not received, and does not expect to
receive, any business advice or assistance from Licensor on which it has relied
or intends to rely in any manner whatsoever. The Licensee further acknowledges
that the Licensee, in evaluating the propriety of entering into this Agreement,
has relied exclusively on its own advisors and not on any representations made
by the Licensor except such representations as are expressly stated in the words
of this Agreement.
16.0 NO INVESTMENT OR SECURITIES OFFERING
The Licensee represents and warrants that the Licensor shall not, by
reason of entering into this license with the Licensee, be or become obligated
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Furthermore,
notwithstanding any other provision of this Agreement, the Licensee shall not
enter into any transaction regarding the License that would require the Licensor
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Any violation
of this Article 16.0 is a material default that shall entitle the Licensor to
terminate this Agreement.
17.0 CONSENT TO ADVERTISING AND PUBLICITY
The Licensor may issue and disseminate to the public information
describing the license entered into with the Licensee, including the name and
address of the Licensee, the general terms of the agreement and a general
description of the Licensee's business.
18.0 GOVERNING LAW
This Agreement shall be interpreted and construed in accordance with
the laws of the
<PAGE>
United States and the laws of the State of North Carolina.
19.0 INDEPENDENT CONTRACTORS
The Parties to this Agreement are independent contractors. Nothing in
this Agreement is to be construed as making either party an agent of or joint
venturer with the other.
20.0 COMPLETE AGREEMENT AND MODIFICATION
This Agreement represents the entire agreement, both written and oral
of the Parties, and supersedes and replaces any prior written or oral agreements
between Licensee and Licensor. This Agreement may be amended only in a writing
stating that it is in amendment or modification of this Agreement, and signed by
an authorized representative of each of the Parties hereto.
21.0 NOTICES
Any notice required to be given under this Agreement shall be properly
given if delivered by first-class mail as follows:
ID Technologies Corporation
2506 West Nash Street, Suite C
Wilson, North Carolina 27896
Attention: President
22.0 CONFIDENTIALITY
The Parties acknowledge that in order to carry out the License granted
hereunder, it may be necessary for either Parties to transfer or disclose
certain trade secrets that have been developed by Licensor and/or Licensee, or
on their behalf at great expense and that have required considerable effort of
skilled professionals. The Parties acknowledge and agree that in no event shall
either Party disclose any such trade secrets to any third party. In the event
that it is necessary to transfer or otherwise disclose such trade secret and
confidential information to either Party, or an Authorized Source, then the
party disclosing such trade secrets or confidential information shall require
the party to which the information is being disclosed to sign a confidentiality
agreement, requiring that in no event shall the receiving party disclose any
such trade secrets and confidential information to a third party. Confidential
information shall be that information disclosed or transferred to either Party
that is marked "Confidential," or information disclosed or transferred to either
party that at the time of such disclosure or transfer the party receiving such
disclosure was informed that the information must be treated by the receiving
Party as confidential.
23.0 ARBITRATION
Any dispute under this Agreement not resolved within thirty (30) days
of notice to the other party shall be submitted to binding arbitration under the
rules of the American Arbitration Associated then in effect. There shall be no
appeal from the decision other than for gross violation of due process or fraud
in the conduct of the arbitration. Judgment upon the decision
<PAGE>
may be entered in a state or federal court, as may be appropriate, selected by
the party of whom arbitration was requested, or, if that party declines to
promptly select such a court, in a court selected by the party who had requested
arbitration. The parties irrevocably agree, for this purpose only, to submit to
the jurisdiction of such a court, or application may be made to such court for
confirmation of the decision, for judicial acceptance thereof, for an order of
enforcement, or for any other legal remedies that may be necessary to effectuate
the decision. The expense of the arbitration and/or arbitrators shall be shared
equally by the Parties. Each of the Parties shall bear its own arbitration
costs, including without limitation its own costs of preparation, attorneys'
fees, and witness fees and expenses. In the event of litigation between the
Parties, arbitration may be so requested at any time prior to the beginning of a
trial. Any required arbitration shall be held at a site in North Carolina as
determined by Licensor.
24.0 SEVERABILITY
If any provisions of this Agreement shall be construed to be illegal or
invalid, the legality of the validity of any other provisions hereof shall not
be affected hereby. Any illegal or invalid provision of this Agreement shall be
severable, and all provisions shall remain in full force and effect.
25.0 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All of the representations and warranties of the parties contained in
this Agreement, the indemnification provisions of Article 10, and the
Limitations of Liability and Consequential Damages provisions of Article 11
shall survive termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have through a duly authorized
officer thereof duty executed this Agreement on the dates indicated below to be
effective as of the day first indicated above.
ID Technologies Corporation (Licensor) (Licensee)
By: By:
William F. Lane [Name]
Title: President Title:
----------
Date: Date:
THE FOLLOWING SCHEDULES, WHEN INITIALED BY BOTH PARTIES, ARE INCORPORATED HEREIN
BY REFERENCE:
LICENSOR LICENSEE
Schedule A
Schedule B
Schedule C
<PAGE>
SCHEDULE A
EXCLUDED FIELDS OF LICENSE
The Excluded Fields of License are:
1. Use of the system for United States
FAA approved airline and airport
facilities throughout the world, in
particular, for airline and airport
personnel identification and security
systems.
2. Use of the system for general purpose
credit and debit Cards (Visa,
MasterCard, American Express, Discover
Card, Carte Blanche, Diners Club, etc.)
or general purpose bank-issued cards of
various forms.
3. Use of the System for Internet
security.
4. Use of the system in computer
security applications, including
facilities and computer access control
and information security applications
utilizing computer networks including
the Internet.
5. Use of the system in financial
applications including government,
treasury, banking, credit and debit
cards, and regulatory applications.
6. Use of the system in hotel security
industry, including hotel door locking
devices, in-room safes, mini-bars, and
all associated security systems.
<PAGE>
SCHEDULE B
CERTIFICATE OF LICENSE
[NAME OF LICENSEE]
Street
City, State, Zip Code
Licensee Number:
Authorized by: Date:
Officer of ID Technologies Corporation
<PAGE>
SCHEDULE C
LICENSEE'S INTENDED INDUSTRIES
Number of contacts: 384
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Company Contact Phone Ext Mobile Phone
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
George Graff 508-541-8413
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
PHILLIPS CORP AD SCKALLS 314-0274-3455
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ZIONS 1ST NATIONAL BANK AUSTIN AMUNDSEN 801-974-8749
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ABC News Tom Gubar 212-456-3467
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ABN AMRO BANK NORBERT KATZ 312-0628-7794
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ACCESS SPECIALTIES, INC. SEAN BRESLIN 612-453-1283
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Accountant Gary Gemberling 309-392-2266
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ACTIVCARD JEAN-LUC AZOU 331-4204-8400
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ADC TECHNOLOGIES INTERNATIONAL H LIM 657-438-088
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ADC Technologies International PTE Ltd Vincent Lim 657-438-088
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
AHEARN & SOPER INC. GLENN BEATON 613-226-4520
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
AIC THOMAS MCMAHAN 562-246-8100
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
AMERICAN BANKNOTE COMPANY RICARDO MENEZES 0055-215-8551
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
AMERICAN BOARD FOR CERTIFICATI LINDA MICHEL 703-836-7114
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
American Society Foa Cae Fjoseph Rcc Main (703) 519-6200
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
AMERICAN SOCIETY FOR INDUSTRIAL SEC..CCP. JOHN J. KELLY 813-932-3094
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Andover Controls Corp. William J. LaPointe
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Andover Controls Corp. John Perez
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Anteon/System Resources William B. Hubbard (703) 550-5397
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ARETE ASSOCIATES RANDY POTTER 818-501-2880
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Arnold Company A. Arnold
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
ASCOM AUTELCA DANIEL VOEGELI 413-1999-6330
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
AVILA INTELLIGENT SYSTEM ROBERTO AVILA 113 873 7770
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Avila Sistemas Inteligentes Roberto Avila [55] 11 3873.7770
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Ba Custom Cards Jennifer Campbell (905)712-4500
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BaaCard Lean RE T61: (418) 877-5393 (418) 563-8256
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Bank Chambers 01458253344
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BANKNOTE CORP. OF AMERICA INC. LAURENT DE BERNEDE 2026252727
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BARCLAYS BANK PLC BILL PERRY 441604254887
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Public Relations, Inc. Mindy Franklin (847)291-1010
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BEC-USA WARREN LOK 6262123151
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BES SYSTEMS, INC. MIKHAIL BERESTETSKIY 7323161650
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Biometria Seguridad Control Alejandro Espinosa Figueroa [52] (5) 598-3099
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Biometria Seguridad Control Javier Estrada Figueroa [52] (5) 598-3099
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BIOMETRIC CONTROLLED SYSTEMS MARTIN LICHTMAN 9147748606
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BIOMETRICS IMAGINEERING, INC. HECTOR HOYOS 7877535323
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BIOMETRICS IMAGINEERING, INC. HECTOR T. HOYOS (787) 753-5323x 28 409-2901
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BIOMETRIX INT. Harald Griesser 431-748-1756
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Bryan Garnier & Company Antoine Spillmann [44] 171-208 0222
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BULL JEROME BOISSEAU 39664268
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Bush Ross Gardner Warren & Rudy, P.A. Richard B. Hadlow 813-224-9255
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Mondex USA Services LLC Tetephon4156456919
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
BYTE MAGAZINE DANIEL COYLE 51427O9509
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Cahners Publishing Company Steven L. Brackett (847) 390-2978
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Cahners Publishing Company Bill Zalud (847) 635-8800
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
CAMBRIDGE CAPITAL INVESTMENTS JIM McCULLIN 410-728-7330
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
CANADIAN BANK NOTE COMPANY, LI STEFAN DUMAS 6137226607
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
CANYON POINT TECH. LLC MILTON GARCIA 5104177930
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Capital Funding Ron Sheffron 954-970-9800
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
CAPITAL ONE FINANCIAL CORP. STEVE BARTOS 8049678968
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Card Company Jesse Samberg (212)878-7392
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
Card Systems Inc. Bill Lynch (610)524-2410
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
CARDTECH KELLY KILGA (301)654-0551
- ---------------------------------------------- ------------------------------------ --------------------- ------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CARDTECH Ben Miller (301)654-0551
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Card Technology Corporation Tel Martin W. Chu (201) 845-7373
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CARDTECH ASIA PACIFIC LTD. THOMAS CHAN 85228911936
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CARDXX Frank A. LEO 970-686-2444
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CARDXX George Levy 970-686-2444
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CARDXX Harry J. Tiffany, III 970-686-2444
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CASI-RUSCO TED WRIGHT 5619986188
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CENTURY TECHNOLOGY DON SHAO 88634705140
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Check Corporation Guy Scott (561)802-3442
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CHEVRON INC. DAVID SAVAGE 925-827-6490
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CISA ROCCO VITALI 39546677111
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CISCO COMPUTER SECURITY CHENG BOON CHOO 658428959
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CISCO COMPUTER SECUR17Y JEFFREY TAN 658428991
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
City Bank Dan Clark 301-790-4217
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CLEARPOINT STEVEN WILSON 7734042881
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Co OL! Michabl B. TIC BR (301) 306-5920 (703) 403-9237
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Colorado Plasticard, Inc. Robert A. Clarke (303) 973-9311 Ex
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
COMPULETRA LTDA SCALCO JAIME 55512314848
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Computer Graphics and 3 D Animation Tech Milton V. Garcia (925)417-7930
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Computer Intelligence 2 INC. George Wallace 202-289-4376
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Computer Memory Systems Ltd. 972-2-6751123
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Computerized Security Systems Michael Remenih (714) 722-5400
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
COMPUTERIZED SECURITY SYSTEMS MICHAEL REMINIH 7147225400
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
COMTEC LTD. DAN GALEZER 97236102630
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Control Devices Group Michael C. Harvey (847)662-9200
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Corporate Financial Strategies Jay W. Vandervort 518-869-6499
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CROSS CHECK CORPORATION GUY SCOTT 5618023442
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Current gis Laurs L Evins (281) 379-5333
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CYPRESS COMPUTER SYSTEMS, INC. ANTHONY DIODATO 8106783777
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
CYPRESS COMPUTER SYSTEMS, INC. GEORGE KIESS 8106783777
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DAI NIPPON PRINTING MITSURA IIDA 2122137507
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DAI NIPPON PRINTING CO., LTD. KEIKO KIBUNE 2122137551
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DAI NIPPON PRINTING CORP. HIROAKI KABAMOTO 0354966914
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DATACARD CORPORATION DALE HILL 6129331223
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DATALINE, INC. GREG YARUS 8437445002
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DATING, S.P.A. GIOVANNI BAT MARGAROLI 39331704400
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Delta Air Lines, Inc Gail Griffith (404) 715-6045
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Delta Air Lines, Inc Raymond A. Rikansrud (404) 715-6045
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DEPARTMENT OF DEFENSE ERIC JANLE
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DEPARTMENT OF DEFENSE STEPHEN LUTHER 3016880274
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DEPARTMENT OF DEFENSE LAWRENCE MELTON 3016880275
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DEPARTMENT OF DEFENSE LAWRENCE REINERT
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Department of Emerging Technologies Daniel L Maloney 301-427-3707
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DEPT. OF DEFENSE CHRIS ENGLISH 4109649746
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DEPT. OF NATIONAL DEFENSE CANA CAL CLUPP 6139966203
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DFI International Hannah J. Wolken (202) 785-9041
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DIGICARD ADRIAN WEISZMAN 59824084649
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
DIRECT PLUS ILAN BARTOV 800-503-9020
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
E-mail; [email protected] [81]463 88 8279
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
EATON CORP. DEPT.H-343 ARLENE KLUMB 4146284414
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Electronic Funds Transfer Association H. Kurt Helwig (703) 435-9800
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
ELECTRONIQUE INTERNATIONAL HEB YVON AVENEL 33144253203
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
ELVA CEDRIC COLNOT 331464444
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
ENVIRONMENT AND TRANSPORT CONS JOHN ARMSTONE 44124360243
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
EPS CORP. ROY HANDSCOMBE 3053780001
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Executive business media inc. Della Leighton (516) 334-3030
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
EXXON COMPANY. U.SA H. G. Bray (713) 656-8507
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Fmail:yasuofukuda/HQ/[email protected] (033) 292-4885
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FED. BUREAU OF PRISONS JIM MAHAN 2023073191
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FEDERAL EC PROGRAM KENNETH SARDEGNA 2025012447
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Firmware Wizard (949) 250-8888 Ex
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FIRST DATA RESOURCES TED HENKENIUS 4022221997
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FIRST MILLENNIUM KENNETH GAY 3122368909
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
First Union William V. Norris 904-361-3235
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Fischer Internaiiona[SYS]-EMS Corporation Paul Pieske (941) 643-1500
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FISCHER INTERNATIONAL RANDY MARTIN 9414362530
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Fischer International Systems Corporation Paul Pieske (941) 643-1500
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FITEC DAN MCGRATH 2022198474
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Forte & Associates Kathleen J. Forte (415) 435-2170
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FRANCE TELECOM SYLVIE LANIEPCE 33231759266
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FRANCOIS CHARLES OBERTHUR GUTHMANN PATRICK 33147646433
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
FUTURE TRENDS MUTAZ ZEIDAN 971506226895
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
G E Retail Finical Services Mr. Ed Stewart 203-357-4720
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GARY BRAS 925-757-5995
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Gary Gimberling C.P.A. 309-392-2266
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GE CAPITAL CONSULTING MIKE MINAHAN 7035024438
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GE Medical Systems Tal-Sheng Chang 847-704-8805
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GE MEDICAL SYSTEMS STEVEN ROEHM 847-704-8525
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GENERAL SERVICES ADMIN. SUSAN WHITNEY 202-501-3789
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GENERAL SERVICES ADMINISTRATION AG William Eck 202-501-2830
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GENERAL SERVICES ADMINISTRATION AG DARYL HENDRICKS 202-273-3686
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GENERAL SERVICES ADMINISTRATION AG Ken Sardegna, MBA 202-501-2447
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GENESIS INTERNATIONAL INC JOHN BLANK 314-282-0011
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GET CORP. H JAMAL 7818906700
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Getty Oil Corp. Susan Golden 516-338-6000 1221
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GLOBAL IMAGING PRODUCTS STACEY NYMAN 7704520789
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GROUPE INNOVATRON PHILIPPE LE CLECH 33140463600
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GSA Smart Card Initiatives Team Daryl J. Hendricks (202) 501-2447
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GSA Smart Card Initiatives Team Ken Sardegna, MBA (202)501-2447
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GTE Network Services Melissa Littlefield (972) 887-2767
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
GUSTAVO GRUNDLER 787-782-6006
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HARRIS CORP. JOHN TRINIDAD 7162445830
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HARRIS CORPORATION ROB RAINHART 4077272213
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HEIMANN BIOMETRICS SYSTEM KLAUS WENIGER 493641429732
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Helmann Dipl.-Math. 0-641/4297-32
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HEWLETT PACKARD RAY WALKER 5417156557
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HITACHI FUMIO TAKAMURE 81463888279
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HITACHI MASARU YAMADA 81463888279
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HITACHI TAKAO ZEN 81463888279
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HITACHI INFORMATION TECHN YOSHIAKI EIFUKU 81456819560
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HITACHI, LTD. MITSUO USAMI 81423231111
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HITACHI, LTD. SETO YOICHI 81449669111
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
HZS INTERNATIONAL RONALD E LINCOLN 5088799081
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
I,Ais L:..!lan F_Nte Steven R. Pomerantz (626) 405-5981
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IBM STACEY BARNES 5128389305
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IBM GEORGE KRAFT 5128382688
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IBM CORP. JOHN MERLINO
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IBM CORPORATION MARK BREGMAN 9147663900
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IBM MOBILE COMPUTING JOHN NICHOLSON 9195432250
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IC ONE DAVID ABPLANALP 8013550066
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IC ONE James E. Biorge (801) 355-0066
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
ID NETWORKS, INC KEVIN BURKE 4408264466
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
IDENTICAM SYSTEMS SEAN DONNACHIE 9055130373
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
ILCATEX LTD EDDY L0TZCAR 5712186017
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Illinois Department of Human Services Catherine Wilhelm (217) 782-1363
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
INCARD S.P.A. GIOVANNI PIEROZZI 39823630414
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Incorporated Gregory I. Yarus (800) 666-9858
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
INLINE MARKETING GROUP CHRIS THORNBY 6129381575
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Integrators, Inc. BeSO E. fine Sireel.Renche Oeminouez CR 310 890-1 . 69
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
INTERLOCK AG WERNER VOGT 004117308105
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
INTERNATIONAL MATERIALS AGO AUDREY DEMERS 9784523405
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
INTERNET COMPUTER TECH. JAMES TJOEAN THE 61293145220
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Internet Computer Technology Pty. Ltd. James the Tjoean 61293145220
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
INTERPAY NEDERLAND B.V. KOOS LATTA 31302835795
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
INVESTMENT GROUP Danny W. Beauchamp (703) 412-8036
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
ITT CANNON GARY BETHURUM 7147578273
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
JCM AMERICA CORP. KEN IVORY 702-651-0000
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
JCM AMERICA CORP. Marvin Miller 702-651-0000 5901 702-683-7248
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Jerome Svigals, Incorporated (415) 365-5920
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
JUNGE INGENIEROS CONSULTO FERNANDO JUNGE R 5622352335
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
JUNGWHA DOMOOK KIM
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Kaiser Foundation Health Plan Inc. Ph. D. Brent A. Lowensohn (626) 405-5347
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
KAISER PERMANENTE BRENT LOWENSOHN 6264055347
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
KAISER PERMANENTE STEVE POMERANTZ 6264055981
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
KAISER PERMANENTE BILL WOODMANCY 6264055371
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
KAISER PERMANENTE STEVEN R. POMERANTZ (626) 405-5981
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
KRONOS LEE RIDLON 978-244-1500
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
KYOTO CAPITAL GOODS IND MUHAMMAD HAROON 7039787018
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
I compul ira Jaime Bergmann Scalco Rua Beck5605123
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LABCAL TECHNOLOGIES CARL BOUDREAU 4186923137
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LABCAL TECHNOLOGIES INC GUY DUFOUR 4186923137
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LABCAL TECHNOLOGIES NC. HUGUES GERVAIS 4186923137
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LASERCARD SYSTEMS CORP. LOUIS SCIUPAC 6509694428
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LEAPFROG SMART PRODUCTS JEFF MURPHY 4078721161
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LEI Peter Gleeson
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Leigh David Skinner 612 9315 3006 (041) 829-6782
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LEIGH-MARDON PETER GLEESON 395569469
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LIACOM ZEEV NATIV 97235573443
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Liacom Systems Ltd. Zeev Nativ 972-3-5573400 972-52-513358
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LIBRARY OF CONGRESS GERALD E. MELTZER, MD 202-707-0267
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LISTEN STEVEN LEVINE 7033351111
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LITRONIC, INC. CAMERON DURHAM 7146223606
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LOCKHEED MARTIN DR. ALLAN JAWOSKI 202-414-3507
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LOCKHEED MARTIN ROBERT KIDD 4073067004
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
LUCENT TECHNOLOGIES PATRICE EDWARDS 9085824785
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
M&A GROUP SA MICHEL SCHWAB 41216521150
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MAC-UK BILL RAY 441483447812
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
mail Icorbett@sjb. co. uk linda J Corbett 01458253344
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Merchants Association of Florida, Inc David E. Craig (813) 273-7801
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Metropolitan Transit Authority Jesse Samberg 212-878-7392
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MICRO Identification Systems, Inc Bernal Quiros (305) 447-9579
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MICRO Identification System, Inc Luis R. Sanchez (305) 447-9579
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Micromodular Date Solutions, Inc. Thomas Templeton (408) 986-9000
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MINISTRY OF THE INTERIOR MARC GERRARD 31703027707
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MINISTRY OF THE INTERIOR FONS KNOPJES 31703027707
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MOBIL OIL CORPORATION JOE GIORDANO 703-849-3801
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MOBIL OIL CORPORATION KEVEN JETER 703-849-3801
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Fischer Internaiiona[SYS]-EMS Corporation Paul Pieske (941)643-1500
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Mondex USA Services LLC Tetephon4l56456919
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MOTOROLA JANE CHANG 6029524069
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MOTOROLA EZZY DABBISH 8475765377
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MOTOROLA SMART CARD SYSTEMS STEVE THOMPSON 8475766361
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MOTUS TECHNOLOGIES OMAR BENNIS 4186866887
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Mr. George Graff 508-451-8413
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Mutual Company Cfa Carla N. Cooper (414) 765-3583
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
MYTEC TECHNOLOGIES INC. TERRY MILKIE 41646760000
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
N wDo on Cn rrn Gaot Frans Heideman (202) 624-3931
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Nail:yasuo_fukuda/HQ/[email protected] (033) 292-4885
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NARTIMED CCI MILFORD ESTAY 5626230444
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NATIONAL BUSINESS PRODUCT STEPHEN PRINCE 6157719300
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NATIONAL PHYSICAL LABORATORY GAVIN KELLY 441819436975
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NATIONAL SECURITY AGENCY GLEN JARBOE 4106847251
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NATIONAL SECURITY AGENCY FRED ROEPER 4108594494
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Nationale Defence BSc, CDI C. R. (Cal) Clupp (613) 996-6203
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NCP KEES PETERS 31703010817
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NCR FINANCIAL SOLUTIONS GROUP IAN ROGER 441382598322
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NCR Financial Systems Ltd D.C. C. May 01382 592204
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NEDAP It. W.O. de Jong
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NEDAP R. J. W. Hubers
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NEDAP N.V. HANS HALEBER 31544471111
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NEW HEALTH USA, INC. JOSE BOLANOS 408-358-8662
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NEWMARKET SOLUTIONS INC. JAMES BUTKOVIC 3304871123
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NEZER INFORMATION SYSTEMS, LTD ARNON HAREL 97297424229
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Nissel Sangyo America, Ltd. Tak Komai (847) 981-8989
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Nissel Sangyo Co., Ltd. (033) 504-7555
(03)3504-77
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
NOKIA Mobile Phones Mark Sunderland 972-894-4937
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Nondex USA Services LLC Janet.otsuki mondexusa. (415)645-6919
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
NOORTECH WALEED BAKR 96626609532
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
NORMAN DATA DEFENSE SYSTEMS LEE TAYLOR 7036457616
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
NOVATERIC INC. BRUCE SANDERS 6137822214
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Novell Ph. D. John R. Michener (801) 861-5478
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
NURI Information & Communications Inc. Joseph Chang 822-809-0161
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
O Hitachi, Ltd. [81]1463 88 8279
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
OBERTHUR SMART CARDS DAVID ANKRI 33141252836
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
OFI INTERNATIONAL HANNAH WOLKEN 2027859041
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
OMRON CORPORATION SHOSUKE MORITA 334367178
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
OMRON MANAGEMENT CENTER OF AME KOJI NITTO 4082711724
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
ON CAMPUS HOSPITALITY DELLA LEIGHTON 5163343030
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
ORD FRANK ROGERS 7036138840
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Orell Fassli Security Documents Ltd Raphael K&lin
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Orell Fassli Security Documents Ltd Louis Scivpac ORPORATION
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
ORELL FUSSLI SECURITY DOCUMENT RAPHAEL KAELIN 4114667246
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PANASONIC/ MATSUSHITA ELEC. CO FRANK YAMANAKA 2017713511
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PANASONIC/MIECOA STEVE LANOVICH 6305168313
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Partenaire Siemens Suisse SA Michel Schwab (41)21 652 1 1 50
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Payroll & Security Samir Gulrajani (888) 852-8611
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PFA PRODUCTIONS ALAIN PAOLINI 334-953-06306
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PHILLIPS CORP. BRIAN RODGERS 314-027-451825
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PHILLIPS CORP. AD SCKALLS 314-027-43455
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
phoenix planning &evaluation ltd Gary L Glickman (301) 984-4210
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
phoenix planning &evaluation ltd Iana L Schmitzer (301) 984-4210
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
phoenix planning &evaluation ltd Gerard E. Trimarco (301) 984-4210
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PICS SMARTCARD INC. STEVEN SIMONYI-GINDELE 6044300669
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Pito Eric Milne
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PICS SmartCard Inc. Steven Simonyi-Gindele (604) 430-0669
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PLETTAC ELECTRONIC SECURITY GM JUERGEN PAMPUS 498963646631
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Plettac electronic security GmbH Dr. rer. nat. (0 89) 6 36-4 66 91
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PMO AIT WILLIAM HUBBARD 7035505397
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Preferred Capital Equities Corp. Larry Zuckerman 212-459-9200
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Progressive Media Group, Inc. Paul L Caruso 716-565-0861
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Prudential Capital Tech, Hologies (China) (852) 2782 6232
Ltd.
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
PRUDENTIAL CAPITAL TECH. WELLES ZHANG 861065928032
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Public Relations, Inc. Mindy Franklin (847) 291-1010
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
R&D GEMPLUS GROUP LUDOVIC ROUSSEAU 33442365790
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
RAMON L BAEZ, C. POR A. RAMON BAEZ 8095679541
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
RAY-MCGOVERN TECHNICAL CONSULT DOUG MCGOVERN 9183553522
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Reports International, Inc. Loren C. Goloski (202) 842-3022 x3
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
REVOLUTION DESIGN PATRICK HAMBLIN 303-534-6334
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
ROBERT W. BAIRD & CO., INC. CARLA COOPER 4147653500
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Rotek Consulting Ross M Oakley 61396908877
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
ROTEK CONSULTING PTY LTD ROSS OAKLEY 61396908877
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
ROYAL DIAMOND CASINO CHRISTOPHER JACKSON 6046852340
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Ttgs, Inc: S Cia Sean Breslin (612) 453-1283
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
S EC, URE Signatures (310) 556-4646
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
S&S Public Relations, Inc. (847) 291-1758
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SAGEM MORPHO, INC. DAVID FRIANT 2533833617
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SAGEM SA DOMINIQUE LEPERE 331343058
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SAIC JAMES CHEN 3019246170
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SAIC JOHN SABATO 3019246170
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SALES CORP. OF AMERICA JAN MICHAEL WEINBERG 703-250-2799
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SANDIA NATIONAL LABORATORIES TIMOTHY BUCKLE 5058448243
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SANDIA NATIONAL LABORATORIES GERALD RUDOLFO 5058446701
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SANDIA NATIONAL LABORATORIES BORIS STARR 5058459650
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SANKYO SEIKI AMERICA, INC. MITSUO YOKOZAWA 4089885959
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SAYAG MICHEL SAYAG 6509620899
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Science Applications International Corporation John M. Sabato (301) 924-6170
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SCM MICROSYSTEMS KERSTEN HEINS 4083704888
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SEAS, Inc. Charlie Gragg
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SECRET SERVICE @RETIRED_ RONALD MORRIS 7034519341
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
Secure Signatures (310) 556-4646
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SECURE SIGNATURES DAVIDE BERRUTO (310) 556-4646
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
SECURETECH PERIPHERALS INC. NORIO SHIMAMURA 3107485926
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SECURITY NETWORK JOSE MARIA PISCIONE 342-5141-2560
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Security Sales Andrew Shane (516) 564-8436
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Security Systems & Access Control Dept G. F. (Jerry) Rudoifo (505) 844-6701
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SENSAR INC. DAN WINSCHUH 6092229090
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SERVICIO DE REGISTRO CIVIL EDGARDO KRELL 5626992185
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SERVICIO DE REGISTRO CIVIL PATRICIO POBLETE 5626342738
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Shell Oil Products Company Jerry Greenberg 713-241-6161 3247
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SHELL OIL PRODUCTS COMPANY Mr. Richard Murray 713-241-3528
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SLC EUROPE GINO VAN DER VEN 3227251120
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SMART CARD MFG. GUANGZHOU BRIAN CHEN 862087552970
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Smart Products, Inc. Jeff Murphy (407) 872-1161
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SmMalt'0
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Sobal Real Estate Cliff Sobel 201-907-5359 973-257-0700
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Merchants Association of Florida, Inc David E. Craig (813)273-7801
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Sony Corporation InaHawa 1410001
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Sony Corporation Mr ger 1.1.[81354487456
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SOUTHWEST RESEARCH INSTITUTE MARK CARPENTER 2105222091
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SPARTA INC. DEAN BAKER 4103819400
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
STANDARD REGISTER MARTIN HILEMAN 9374431078
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
STATE OF CALIFORNIA LEE KERCHER 9164453220
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Sto-V-al Chip Card Private Limited Nick Lee Sheng Weng (65) 383 9988
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Stoval Chip Card Private Limited Ken Wong KAI EN (65) 383 9988
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
STROMBERG, LLC RANDY HUJAR 2036248872
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Success Magazine Nancy Cess
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SUMMIT RESEARCH ASSOC. INC. FRANCES MENDELSOHN 3016700980
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Summit Research Associates, Inc. Frances D. Mendelsohn (301) 670-0980
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
SVS BRYAN HAWK 6026327038
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TABSBYMER Al Blank
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Firmware Wizard (949) 250-888 Ex
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Technical Consultants Inc. Doug McGovern Ph. D. (918) 355-3522
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Telly Communications Inc. Jim Kissane 813-931-9537
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TEXACO Louis Sprayberry 800-839-2267
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
THE KINSHIP GROUP William F. Binns 804-784-2769
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Thomson Components and Tubes Corporation John Harris (973) 812-4354
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Three/3 G INTERNATIONAL TERENCE WEHLE 7575641427
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
ADC Technologies International PTE Ltd Vincent Lim (65) 743 8088
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Tracor Systems Technologies Ran DeBarry 843-529-3835
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TRANSCAPITAL JOSEPH F. CAMPAGNA 703-758-2270
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TRANSTEX S. A. LORENZO OFFENHENDEN 5418143777
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TREDEGAR INVESTMENTS TONY RUSSO 2064488422
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TRICON GLOBAL RESTAURANTS, INC CHARLES LEE 9498633718
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Tricon Global Restaurants, Inc. Charles H. Lee (714) 863-3683
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TRW DAVID YU 3107649436
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TSSI STEWART HEFFERMAN 441793747700
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
TSSI ED WHITE` 441793747700
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
U.S. IMMIGRATION AND NATURALIZATION MIKE FLEMIE 202-514-3275
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
U.S. IMMIGRATION AND NATURALIZATION Ronald J. Hays 202-553-0549
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
U.S. IMMIGRATION AND NATURALIZATION Michael J. Hrinyak 202-553-0549
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
United States Department of The Treasury Rick Barrett (912)267-2881
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
UNIVERSAL STUDIOES SECURITY MR. PHIL JONES 407-224-7666
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
University of Washington Raymond A. Rikansrud (206) 685-6100
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Uptech (941) 924-3822
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
US IMMIGRATION & NATURALIZATION MICHAEL J. FLEMMI 202-305-9247
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
US IMMIGRATION & NATURALIZATION BRAD WING 202-305-1619
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
US WEST Communications, Inc. Bruce L. Steven (800) 666-9858
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
USDA/ FOOD & NUTRITION SERVICE T RICHARD ROACHE 4045621828
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
UTIMACO SAFEWARE AG KURT SCHMID 49617191717
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Uzi Elman 972-2-6236791
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
VETERANS ADMINISTRATION JOYCE MOEDER 2022735258
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
VISA INTERNATIONAL PAUL GUTHRIE 6504328443
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
WEST GMBH ATION STEPHEN WEST 4940441376
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
WESTINGHOUSE SECURITY ELECTRON GEORGE SOUSA 4087276521
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Woddtronix(R) Michel Bisson Td.: (514)4608884
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Woddtronix(R) Benoit Guez (514) 460-8884
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
XICOR, INC. GARY CRAIG 4084328888
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
XL VISION, INC. JOHN MCMORRIS 5615897331
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
- ---------------------------------------------- ---------------------------------------- --------------------- ------- --------------
Number of contacts: 185
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Company Contact Phone Ext. Mobile Pho
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
George William Kruse 941-739-6200 204
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Wellese Zhang
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
3M SAFETY AND SECURITY DIVISION ANNE M. WEAVER 612-733-9343
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Abloy Security Inc Douglas Schoenrock 9727531127 97275307
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ABN-AMR0 Services Co Inc CPP Dennis A Morgan 3129048287 31290476
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ABR Benefits Svcs Inc John O'Shea 8137852819 81378790
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ABR Benefits Svcs Inc Gary H Oberman 8137852819 81378790
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ADC TECHNOLOGIES INTERNATIONAL LTD. Vincent Lim 657-438-088
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ADVANCED BUSINESS SYS. DELANDRO WILSON 2464359160 24643772 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ADVANCED CARD SYSTEMS RANDELL HILTBRUNNER 8176493222 81764933 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ADVANCED CARD SYSTEMS BERTRAND PELLETIER 8176493222 81764933 97
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Advanced Security Thoms Marino 2033810060 20338025
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
AFT Exports Inc. ALI Akbar Amin Sharie 847-674-5955
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Airforce Cheryl Ciocci 3104167421 31041676
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
AlliedSignal David Nelson 8169973786 81699747 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
AlliedSignal Ronald Pittman 8169972908 81699747 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
AMAC Corporation JACK OKABAYASHI 714-373-7932
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
AMAC Corporation Stan Yamamoto 714-373-7931
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
AMON CARTER MUSEUM PRESTON BYRD 8177381933 81773840
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Apunix Computer Services Peter Berens 6194959229 61949592
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Atlantek Inc. Werner Voght 4017835700 40178398
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Automatic Control Gustavo Grundler 7877826006 78778219
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Automatic Control Technology ING. Gustavo Grundler 787-782-5555
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Axcess Inc. Philippe Nappey 9724076080 97240790
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
B J REGAN, CONSULTANT BERNIE REGAN [44]1816579356 18140652 [44]94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Baltimore Gas & Electric CPP Alan D Duer 4105977783 41059777
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access Systems Joe Beard 3178492255 31759651
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access Systems Mark Nazarenus 3178492255 31759651
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access System Robert Rodenbeck 3178492250 31759976 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access Systems KEITH RUSSELL 3178492250 31759576 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access Systems CPP Cameron Sharpe 6024430990 60248390
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access Systems Mark Shumaker 3178492255 31759651
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access Systems Tony Tyner 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Best Access Systems Ruth Van Horn 3178492255 31759651
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
BiometriaSeguridad Control Javier Estrada Figueroa [52](5) 983-099 6152509
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Biometric Identification Inc. Jim Frank 8185013897 71759171
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
CAN DO II WOODY STILLWAGON 7703961401 77067110 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
CANSEC SYSTEMS LTD. FRED DAWBER 9058202404 90582003 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
CCD Australia Kerran Campbell
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Cemex Antonio Gaona 528-328-3646 528-328-
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Clairol William C Anderson 2033575914 20335757
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Com-Tech Security Products Inc Joseph Papa 4017322432 4018852 91
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
CONTINUUM CONSULTING MIKE BROCHU 9545816865 95458401 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Corinproinca Eduardo J Flores [58]58-2-751-73-90 58-2-751
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Corporate Protection AB Kent R Rasmusson 4615617475
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
DATACARD JAMES CATILLO 7139350885 98
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
DATASEG JEAN ZUKER [55] 0115222822 01152228 [55]94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
DELTA-ONE STEPHANE BURRESS 9725480755 97254878 93
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
DIAD Imaging Systems Ltd Randy Baird 250-386-2122
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
DICSA Alejandro Espinosa [52] 52516113894 52561525
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Dowley Inc Mikel Woods 4059431656 40594770
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Eastern Maine Medical Ctr Clyde Grant 207-973-7084 207-973
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Elosis Co. Turan Sencil
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
EMFORVIGIL S/A TARCISIO NEVES 55] 0112291011 01122711 [55]90
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Enron Corporation Alan D Jones 7138536112 71364624
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ENTECH Case Coleman 9722418188 97224317 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
EPPI CPP Gene Kelly 7072537142 70725371
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Epworth Villa Randy Fletcher 1-405-752-1200
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ES1 Ted McCorvey 9013867340 90137377
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ES1 Dan Tennyson 9013867340 90137377
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
FBI Bruce Davis 7036306204 70363066
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
French Telecom Mrs. Sylvie Laniepce 332-317-59237
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
French Telecom Oliver Lepetit 332-317-59237
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Gen'l InformationServices, Inc. Nancy Cannon 8033459880 80334561
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
GEORGIA PACIFIC SAL DEPASQUALE 4046524332 40423055 91
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Global Trading Inc. M.B.Kharubi 303-521-5292
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
GOI Mordechai Lindzen 2125510206 21255102
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Gresinsa Alex Omar Garrido Morales [507] 5072604499 50726016 [507]92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
HI- SEC L.T.D. GIDEON SHOVAL [972]9729509604 97295882 [972]94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
HID CORPORATION Peter R. Lowe 303-451-0256
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
HID Corporation Don Nelson 9495981600 94959816
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
HID Corporation Don Small 9495981600 94959816
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Hirsch Electronics Corp Charles Baden 9492508888 94925073
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Hirsch Electronics Corp Lars Suneborn 9492508888 94925073
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
HITACHI Masaaki Chino 335-061433
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Honeywell Vito Caforio 6129513894
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Honeywell Ms. Shirley J. Kroeger 6129513894
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Honeywell Ben Ponce 6129513894 61295183 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Honeywell Corporation Ms. Shirlry J. Krieger 602-561-3271
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Honeywell, Inc. CPP Shirley J Krieger 6025613271 60256131
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Hospital Comm System Inc Stephen Powell 9198788385 91987883
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
HRL Laboratories CPP Rick H Yamasaki 3103175364 31031754
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Huntington National Bank Tim Beverly 6144803635 61448047
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
IBM - AP Smart Cars Solutions Y. Tokuzawa [81](330)8463-8
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
IDENPASS Didier Guillerm 331-348-00430
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Identicator Thomas Baker
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
IDS JAY BELANGER 4079992239 40799926 93
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
IISS. INC. LARRY WINKEL 4148960898 41489608 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Imaging Technology Corporation Steve Handel 9785683600 97858813
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Imaging Technology Corporation Ron Wilfert 9785683600 97856813
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Industrial Service and Supply, Inc. Bill Sims 334-756-8712
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Integrill-T Technologies Rejean Simard
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Interface Technologies Kofo Akinkugbe
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ISS DAVID BAIRD 6135910762 61359104 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
JC Penney Company Paul M. Keil
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Johnson Controls Mike Denny 9054745453 90547454
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
KAISER GROUPS CREATE CENTURY HIGH TUNG LIANG SHAO [886] 34508914
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Kensington Microware Mark Schuster 4155722700
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Kensington Microware Greg Zeren 4155722700 41557296
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
KRZYSZTOF PIECHOWIAK
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
L&B GROUP WILLIAM BERRY 7135520046 93
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
LENTECH SALES AND SERVICE CASE COLEMAN 972-241-8188
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
LOCKHEED MARTIN Allan Jaworski, Ph.D. 202-414-3507
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Martinsson Elektronik AB Hans Lindberg
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
MAS-HAMILTON Howard Dame 606-253-4744
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Master Lock Andy Tischendorf 4144475503 41444931 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Master Lock Co Paul Paect 4144475796 41444931
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
MATSUSHITA ELECTRIC INDUSTRIAL VIASA0 SANO [81] (035)4048-845
CO.,LTD
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
MCM Security Design Conslt Monserrat Mintz 2818904588 28189047
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Megason Electronic Baruch Shaham [972]972 3 5570000 3 556055
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
METROPLEX CONTROL SYS WES PIERCE 9724069300 97240616 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Micro Enhanced Technology, inc Bill Denison 7083523910 70835240
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
MICRON COMMUNICATIONS MICHAEL CACCHILLO 2083337358 20833373 98
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Missouri Botanical William Preiss 3149629637 31457795
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
MODULAR INTEG TECH ALAN DUDLEY 5052432800 50524335 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
MODULAR INTEGRATED TEC ROBERT ALTMAR 7603222858 50524335 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Motus Technologies Inc. Steven Boudreault
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Municipal Parking Inc Dale J Jensen 612-338-7275 612-332-
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Nasatka Barrier, Inc Ryan Bryce 3018680301
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
NATIONAL / PANASONIC MASAO SANO [81] (035) 4048-845
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
NAZIR MATNI ELECTONICS NAZIR MATNI 963-112-221161
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
NCH Healthcare System Jack Maguire 9415137170 94151370
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
NCIS-HQ (24C5) CARLTON MOOREFIELD 2024339142 20243391 95
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
New Health USA Inc. Jose Bolanos MD 408-358-8662
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Norden Security System Inc Bruce G BLUMBERG 516-888-4000 516-665
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Norfolk Southern Corporation CPP Robert W Webber 4044204198 40452917
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
NTC Electronics Mark Lesmeister 7082391670 70823916
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
NTT A. Okamoto 814-225-93121
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
NTT KIYOSHI YAMANAKA
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
0 Teck O. Boecker
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
O-Tech International, LTD. Jon N. Monett 703-893-0552
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Olathe Kansas Police Dept Douglas D Zeckser 9137824500 91378231
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Omron Management Center Koji Nitto 4082711724 40827117 99 (Busine
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
OSIA CISSP Daniel Guinier
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Personal Security & Safety Sys Victor Berglund 2147390800 21426519
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Personal Security & Safety Sys Richard R Jaffe 2147390800 21426519 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Philip S Deming & Associates CPP Phillip S Deming 610-354-0948 610-354-
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Pinnacle Corp Takayuki Gunji [81]03-5366851 53668052 [81]97
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Piters, Inc. Ivo Plecko
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Professional Systems Software Team Greg Zurn 612-937-0788
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Protective Technologies, Inc. Daniel J. Bradley 813-223-1822
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Provetecnia SA Jose Canedo 7137790990 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
QMS EUROPE, B.V. MARCO DQRJEE [31] 0000000000 [31] 93
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Rajinee Technology Corp. Co. Ltd. Supakorn Fa-amnuayphol 662-692-0541
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
RAND Corporation CPP Cynthia P Conlon 310-393-0411 7201
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
RAND Corporation Ms. Cindi Conlon CPP 310-451-7071
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
RAYTHEON CPP DAVID R. TOMES 303-344-6013
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
RF GROUP ALEXIS REIMERS [52] 525444444 52520334 [52] 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
RIO HOTEL & CASINO MARC CRAM 702-247-7860 70225276 93
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Riordan Protective Services Inc John Riordan 7707518600 77047500
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Risk Management Associates Craig Burr 919-834-8584
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Risk Management Assocs Julius Carroll 9198348584 91983481
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
ROULSTON & COMPANY.INC GERGELY TAPOLYAI 2164313000 21643129 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
S 1 Corporation Taesik Jeong [82] 82234498430 82234498
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SAC Technologies Inc Brent Crego 6128357080 61283566
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SAHERO & CO MEXICO ROBERTO SANCHEZ [52]5256878394 52568711 [52] 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SAUDI SCALES & EQMNT BADR REFAE [966] 99 [966] 99
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SECURACOMM CONSULTING MIKE JONES 4129636858 41296316 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Securitech International Arabia Q Greer 4077841161 40779934 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SECURITY PLASTICS JOHN LAWRENCE [64]6494416347 64944163 [64] 98
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SECURMAX PIERRE LALONDE 5143336633 51433359 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Siemens Nixdorf Information Systems Keven Lee
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Simplex Kevin Pound
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Sparta Consulting Corp John G Hayes 301-656-6600 17
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Sparta Consulting Corporation Eric Kelly 3016566600 30165667 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
STUTT GART/STS Brigitte Clement
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SUN MICROSYSTEMS DOUG HENDRICKS 408-544-0572 91
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
SUN MICROSYSTEMS STVE KRUSCHKE 408-544-0527 40854405 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Texas Instruments Ronald Smith 9724803267 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Texas Instruments Inc Bob Womack 9724803375 97248031 94
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Travelers Insurance Frank Teti, Jr 860-954-0259
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
University of St Thomas Timothy J Thompson 6129625100 61296251
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
US Dept of Energy Michael Connor 505-845-5220
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
US Government Thomas R Stutler 415-553-7576
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
USDOT/VOLPE CENTER CPP John Wojtowicz 617-494-3100 95
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
USDR JOHN ROBINSON 817-246-8082 92
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
VIGATEC S.A. SANTIAGO WESCHLER [86] 5622387874 56223879 [86] 99
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Visage Technology William Marshall 9789522212 97895222
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Visa International CPP Scott A Sewell 410-998-8342
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Viteck America Inc. Ken Scott
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Van Duprin Inc Stephen Carl Dean 3178999385 31789993
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Walt Disney World Co Gordon Levin 407-824-7705
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Warner-Lambert Inc Nelson Vazquez-Feliberty 787-855-7572
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
WATCHEYE SAFTY ANTHONY JOHNSON 9727838694 91
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
Weidner & Associates Fritz Weidner 6142281100
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
WSE George Sousa 5103607886 51036078
- --------------------------------------------- ------------------------------------- ------------------- ----------------- ----------
</TABLE>
<PAGE>
EXHIBIT D
EXAMPLES: PROTEK/IDTEK
----------------------
REVENUE SHARING SCENARIOS
-------------------------
Below are examples of varying licensing events and subsequent ID Technology ....
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
IDTEK License Sales Comm. ProTek Source Surcharges(1) Qtr $ to
Amount Agent "Fields" of License in $ to IDTEK ProTek(3)
- ------ ----- ------ -------- ---------- ------------- ------
$50,000 ProTek NA YES ProTek 0 $50,000
50,000 3rd Party 10% YES IDTEK $100,000 65,750
50,000 ProTek 5% YES IDTEK 200,000 116,625(2)
50,000 IDTEK 0% NO IDTEK 150,000 0
50,000 3rd Party 10% NO IDTEK 100,000 0
50,000 ProTek NA NO ProTek 70,000 50,000
40,000* ProTek NA YES ProTek 50,000 65,000
50,000 IDTEK 0% YES IDTEK 100,000 67,500
60,000** ProTek NA NO ProTek 0 60,000
50,000 3rd Party 10% YES*** IDTEK 200,000 15,750
50,000 ProTek NA YES*** ProTek 100,000 50,000
50,000 ProTek NA NO**** ProTek 100,000 100,000
50,000 3rd Party 10% NO**** IDTEK 250,000 125,000
</TABLE>
* Discounted by ProTek from $50,000 IDTEK list price. Debit to ProTek
credit account = $50,000 (list price)
** Marked up by ProTek from $50,000 IDTEK list price. Debit to ProTek credit
account = $50,000 (list price)
*** Licensee initially certifies to ProTek
field but actually builds product in another field (not a ProTek field)
**** Licensee initially certifies to a non-ProTek field but actually builds
product in ProTek field
(1) These surcharges are net of 3rd party commissions
(2) Does not include $2,500 commission paid to ProTek as the sales agent
(3) Does not include sales commissions on license fees, manufacturing
surcharges, etc.
<PAGE>
EXHIBIT E
Example of Election Calculation
Should Protek elect to receive 9/10ths of Section 4 entitlements as allowed in
Section 5, the following example is provided.
TRADITIONAL COMMISSIONS 9/10TH ELECTION
Protek License Fee %
35.0% 31.5%
35.0% 31.5%
30.0% 27.0%
20.0% 18.0%
15.0% 13.5%
Protek Surcharge or
Other Revenue Percentage
50.0% 45.0%
40.0% 36.0%
30.0% 27.0%
20.0% 18.0%
15.0% 13.5%
<PAGE>
April 23, 1999
Richard B. Hadlow, Esq.
Bush Ross Gardner Warren & Rudy, PA.
220 South Franklin Street
Tampa, FL 33602
Re: Agreement Between ID Technologies Corporation and
Protective Technologies, Inc., et al. (the "Agreement")
Dear Rich:
I enjoyed speaking with you and I am glad to be wrapping this matter
up. As we discussed, there is one item I would like to be sure the parties'
intention is clear. It is our understanding that the provisions of Section 4 of
the Agreement are intended to provide that if a license is sold covering
multiple fields and the licensee declares in one or more of Protek Fields of
License, Protek shall be entitled to the applicable percentage of the entire
license fee, but as to manufacturing surcharges and other revenues generated
under that license, Protek shall be entitled to only the applicable percentage
of the manufacturing surcharges and other revenues generated from items
manufactured in the Protek Fields of License. That is, Protek would not be
entitled to share any of the manufacturing surcharges or other revenues, other
than the initial license fee, generated on items outside of Protek's Fields of
License,
Please confirm that this is the understanding of you and your clients
with respect to these matters by signing a copy of this letter and returning it
to me.
Very truly yours,
Kim L. Bayless
KLB/nmm
ACKNOWLEDGED AND AGREED:
BUSH ROSS GARDNER WARREN & RUDY, P.A.
By:
Richard B. Hadlow
Attorney for Safe Guard Corporation,
Protective Technologies, Inc.
Secure Card International, Inc.
International Biometrics Incorporated and
Tele-Guard, Inc.
Exhibit 6.05
LICENSE AGREEMENT
THIS AGREEMENT is made effective as of the 2nd day of February 1999
(the "Effective Date"), by and between ID Technologies Corporation., a North
Carolina corporation, having a place of business and address of 2506 West Nash
Street, Suite C, Wilson, North Carolina 27893 (the "Licensor"), and Power^Up
Marketing Corporation, a corporation, having a place of business and address of
5165 Broadway / Ste. 257 Buffalo, NY 14043 (the "Licensee") (together, the
"Parties").
WHEREAS, Licensor owns all right, title and interest in United States
Patent No. 5,623,552 (the '552 Patent), dated April 22, 1997, and entitled
"Self-Authenticating Identification Card With Fingerprint Identification".
WHEREAS, Information Resources Engineering, Inc. (IRE) located at 8029
Corporate Drive, Baltimore, Maryland 21236, has a strong background in
technologies relating to the design, development, and manufacture of products
which can incorporate and has incorporated in such products with the cooperation
of Licensor the self-authenticating fingerprint identification technology as
described and claimed in the '552 Patent of Licensor.
WHEREAS, the aforementioned IRE owns rights to inventions and patents
pertaining to the same technology as that described and claimed in the `552
patent, and may own future inventions and patents pertaining thereto.
WHEREAS, Licensor has entered into an agreement granting IRE a license
under the '552 patent in a defined exclusive field and has obtained from IRE an
exclusive license in the Field of License (defined below) to receive IRE
technology and use and practice IRE's present and future IRE inventions and
patent(s) (hereinafter referred to as "IRE Technology"), for the full terms
thereof to the full extent to which they pertain to the subject matter described
and claimed in the '552 Patent and has further obtained from IRE the exclusive
right to sublicense such IRE Technology in said Field of License to the
Licensee.
WHEREAS, Licensor and IRE recognize that because of the complexity and
extensive potential applications of the technology covered by the '552 Patent it
will be desirable and mutually beneficial to all the parties that Licensor
coordinate the transfer of technology related to application of the '552 Patent
technology and that there be established Technology Development Partners
(defined below) to assist in the development and application of the technology
covered by the '552 Patent and that both IRE and Licensee will usefully serve
the role of being such a Technology Development Partner.
WHEREAS, Licensor anticipates obtaining from time to time from
Technology Development Partners certain additional technology and intellectual
property rights associated with and supportive of the practice of the '552
Patent.
WHEREAS, Licensor desires to license to Licensee the '552 Patent and
also the IRE Technology, and Technology Development Partner Technology to
facilitate Licensee's application of the '552 Patent technology, and Licensee
desires to receive such license, technology and assistance pursuant to the terms
of this Agreement.
<PAGE>
NOW, THEREFORE, the Parties agree that for and in consideration of the
mutual covenants contained herein, and in consideration of the Initial Payment
(hereinafter defined) and other good and valuable considerations each to the
other have paid, the receipt and sufficiency of which is acknowledged, the
Parties have covenanted and agreed, and do hereby covenant and agree as follows:
1.0 DEFINITIONS
1.1 "SYSTEM" means Licensor's fingerprint identification technology
described and claimed in the '552 Patent and Licensor's Technology
(defined below).
1.2 "LICENSED PATENTS" means the '552 Patent and other patents licensed to
Licensee hereunder.
1.3 "SUBSIDIARY" means a corporation, company or other entity more than
fifty percent of whose outstanding shares or securities (representing
the right, other than as affected by events of default, to vote for the
election of directors or other managing authority) are, now or
hereafter, owned or controlled directly by a corporation, company or
other entity which is a party to this Agreement (either by Licensee or
the Licensor), so long as such ownership or control exists.
1.4 "TECHNOLOGY DEVELOPMENT PARTNER" (hereinafter referred to as "TDP")
means any individual, corporation, association, or other entity, other
than Licensor or a Subsidiary thereof, with whom Licensor is now or
hereafter becomes associated and to whom Licensor grants a license
under the '552 patent and from whom the Licensor acquires or has the
right to acquire rights to certain of the TDP's intellectual property
for incorporation into the System.
1.5 "TDP Technology" means inventions, patents and other technology
developed by IRE or another TDP and licensed or otherwise transferred
to Licensor for incorporation into the System and with respect to which
Licensor has the right to license others.
1.6 "LICENSEE TECHNOLOGY" means presently existing or future developed
inventions, patents, and technology of Licensee relating to the subject
matter of the '552 patent and licensed or otherwise transferred to
Licensor pursuant to this Agreement.
1.7 "IRE" means Information Resource Engineering, Inc., who shall be
treated as a Technology Development Partner of Licensor.
1.8 "LICENSOR AFFILIATE" shall mean a Subsidiary or Technology Development
Partner of Licensor.
1.9 "LICENSOR TECHNOLOGY" means and includes the Licensed Patents as well
as all present and future intellectual property including rights in
inventions, patents, trade secrets, copyrights and other technology,
and any portion thereof, associated with or supportive of use of the
System, which Licensor owns or is authorized to license or otherwise
transfer to Licensee under this Agreement and which Licensee receives
either from Licensor, IRE or a TDF with Licensor's assistance, and
includes present and future IRE
<PAGE>
Technology, TDP Technology and Licensor Affiliate Technology as well as
other technology acquired by Licensor with respect to which Licensor
has the right to license.
1.10 "FIELD OF LICENSE" means identification, access, and security cards,
associated system and equipment of whatever type used in the hotel
security industry, including hotel door locking devices, in-room safes,
mini-bars, and all associated security systems worldwide.
1.11 "LICENSED PRODUCT" means any product or component of a product which
incorporates some or all of Licensor's Technology, or whose
manufacture, sale or use would infringe directly, contributorally, or
by inducement any claim of the '552 Patent or any other patent licensed
hereunder.
1.12 (i) "NET SALES" means a) in the context of an arms-length transaction
for monetary consideration, the gross sums received by Licensee (or a
sublicensee) for the sale or other transfer of Licensed Products or for
the sublicense or other transfer of the Licensor Technology, after
applying credits for freight, taxes, refunds, discounts, returns, and
bad debts but without any credit or deduction for commissions or broker
fees paid by Licensee, except as provided pursuant to Article 1.12(ii);
b) in the context of an arms-length transaction for non-monetary
consideration, the fair market value of the consideration received by
Licensee in exchange for the sale or other transfer of Licensed
Products or for the sublicense or other transfer of the Licensor
Technology; c) in the context of an arms-length transaction in which
the Licensee combines or includes Licensed Products in a commercial
offering whereby the pricing of the Licensed Products is some part of a
greater total price, the gross sums received by the Licensee, after
applying credits for freight, taxes, refunds, discounts, returns, and
bad debts, attributed to the sale or other transfer of the Licensed
Products. In the event that Licensed Products are disposed of in a
manner other than an arms-length transaction for money or other
consideration, Net Sales shall be measured by the price at which sales
or other transfers of similar Licensed Products are sold at arms-length
by the Licensee.
(ii) Where Net Sales is to be determined for the sublicense or other
transfer of the Licensor Technology, as opposed to the sale or other
transfer of Licensed Products, Net Sales shall be further reduced by
the amount of fees Licensee pays to independent, third-party brokers in
such transactions.
(iii) Where Net Sales is to be determined pursuant to foregoing
subparagraph (i)(c) of this Article 1.12, that portion of the total
price of the commercial offering attributed to the sale or other
transfer of the Licensed Products shall be determined by agreement of
the Parties, assisted by their accounting professionals. Should the
Parties not agree within thirty (30) days from their initial
discussions regarding a particular commercial offering, then the
Parties agree that the matter shall be decided by a panel of accounting
professionals, whose decision shall be binding on the Parties. The
panel shall consist of one accounting professional selected by each of
the Parties. If, within fifteen days of submission of the dispute to
the panel, the panel cannot agree, the panel members are authorized to
select a third accounting professional, acceptable to each panel
member, to assist in determining what portion of the total price should
be attributed to sale of the Licensed Products. The expanded panel
shall decide the issue by a simple majority,
<PAGE>
within fifteen (15) days of the addition of the third panel member.
Each party shall pay one-half the cost of forming the panel and
obtaining a final panel decision.
1.13 "AUTHORIZED SOURCE" means a company selected by Licensor to manufacture
the Licensed Product or a company selected by Licensee with Licensor's
written approval pursuant to Article 4.2 below.
1.14 THE RECITALS set forth in the "Whereas" provisions on pages 1 and 2 of
this Agreement are incorporated herein by reference and are made a part
of this Agreement herein.
2.0 GRANT OF TECHNOLOGY LICENSE
Licensor hereby grants and conveys to Licensee, subject to the express
limitations of this Agreement, a license to test, experiment with and use the
First Prototype referred to in Article 3.0 below and upon accepting said First
Prototype and making the Production Start-up Payment called for by Article 9.0,
a worldwide exclusive license to make, use, sell, sub-license, or otherwise
transfer the System or any component thereof in the Field of License but only in
the Field of License, to use such certification mark(s), trademark(s) and/or
other marking(s) on Licensed Products pursuant to Article 14, and to disclose
the System to its Authorized Sources and others necessary for its practice by
Licensee and its sublicensees, subject, however, to the confidentiality duty set
forth in Article 22.
3.0 DEVELOPMENT OF FIRST PROTOTYPE OF SYSTEM AND NINETY DAY ACCEPTANCE PERIOD
3.1.1 Immediately upon this Agreement coming into effect and receipt by
Licensor of the Initial Payment called for in Article 9.0, Licensor
shall use its best efforts to produce or have produced for Licensee and
deliver to Licensee within three (3) years of the effective date of
this Agreement a first prototype (First Prototype) of the System in the
form described below:
The First Prototype shall be a card which uses the System to function
as a self-contained verification process to enable and disable access
to information or data stored in a magnetic strip or smart chip on the
card. The First Prototype shall be of standard credit-card dimensions,
appearance and durability, and, specifically, shall have a thickness of
32 millimeters on all portions of the card except for that portion of
the card which constitutes the fingerprint reader panel, which portion
may have a thickness of up to 52 millimeters. The First Prototype shall
be functional in all standard swipe and Veri-Phone type readers and
shall be a card which could be made available to Licensee, at its
option, at up to $20.00 per card for orders of 100,000 cards or more.
Notwithstanding the foregoing, development of the First Prototype shall
not obligate Licensee to purchase cards in any minimum quantity.
3.2 Licensee shall have ninety (90) days from the date it receives the
First Prototype meeting the specification set forth in Article 3.1
above to accept such First Prototype. Acceptance
<PAGE>
of the First Prototype by Licensee pursuant to Article 3.3 below shall
entitle Licensee to make the Production Start-Up Payment called for by
Article 9.1.2. In the event that Licensee fails to accept the First
Prototype and make the aforesaid Production Start-Up Payment within the
aforesaid ninety (90) day acceptance period, this License Agreement
shall automatically terminate, all rights granted to Licensee hereunder
shall revert to Licensor and Licensee shall be obligated to immediately
return to Licensor said First Prototype and all confidential
information received from Licensor or a TDP.
3.3 Acceptance of the First Prototype shall be effective upon Licensee
tendering to Licensor the Production Start-Up Payment described in
Article 9.1.2 in cash or certified funds.
3.4 If within three (3) years of the effective date of this Agreement
Licensor has not delivered the First Prototype to Licensee, this
License Agreement shall terminate.
4.0 AUTHORIZED SOURCE OF LICENSED PRODUCT
4.1 AUTHORIZED SOURCE LIST. Licensor shall provide Licensee within six (6)
months from the Effective Date of this Agreement the name and address
of at least one company with the expertise, skill, and knowledge to
manufacture and produce Licensee's designated ones of the Licensed
Products within Licensee's Field of License according to Licensee's
specifications and which Licensee is prepared to develop and market.
4.2 ADDITIONAL AUTHORIZED SOURCES. At any time during the term of this
Agreement, the Licensee may request adding to the list of Authorized
Sources one or more manufacturers of Licensed Products within
Licensee's Field of License. Such request shall affirmatively state
that the Licensee has investigated the proposed source and has an
adequate basis for believing that the proposed source can manufacture
the particular Licensed Product of interest to the Licensee to such
standards of quality and grade at least equal to and in all respects
not less reliable than the Authorized Sources identified in Article
4.1. Licensor, not more than thirty (30) days after it receives the
proposed Additional Authorized Sources from Licensee, shall advise
Licensee with respect to such request, and shall not unreasonably
reject such proposed source. In the event that the Licensor shall fail
to reply within said 30 days, the proposed additional source shall be
deemed an Authorized Source.
4.3 PROCUREMENT. Licensee shall procure the Licensed Product only from an
Authorized Source.
4.4 SAMPLES. With regard to Authorized Sources selected by Licensee, the
Licensee shall, at any time requested by the Licensor, either provide
to the Licensor random samples of the Licensed Product from each such
Authorized Source, or enable the Licensor to enter the Licensee's
premises, without notice, during the Licensee's ordinary business hours
and inspect the Licensed Product supplied by such Authorized Source(s).
4.5 LICENSEE NOT OBLIGATED TO PURCHASE FROM PERSONS SELECTED BY LICENSOR.
The Licensee acknowledges that it is not required to obtain the product
from any person affiliated with the Licensor, and that it has a full
and sufficient opportunity to seek out alternative sources of the
product and will take such advantage of that opportunity as it
<PAGE>
independently elects, relying exclusively on its own business judgment
and not on the recommendation of the Licensor for that purpose. The
Licensee further warrants that it will conduct its own inspection of
any Authorized Source whose identity is provided to the Licensee by the
Licensor, will independently determine the capability and quality of
such Authorized Source to meet the requirements of the Licensee, and
will not rely on the judgment of the Licensor for that purpose. The
Licensor makes no warranty or representation whatsoever as to the
capabilities or performance of any Authorized Source, and expressly
disclaims all such warranties and representations.
5.0 LICENSEE'S RIGHT TO PROPOSE SPECIFICATIONS
The Licensee shall have the right to propose modifying Licensed Product
specifications in a manner that would permit the Licensed Product to better
service customers in the Field of License. Licensor has the right to reject such
modifications, if such modified specifications call for a Licensed Product of a
lesser grade or quality than desired by Licensor or a Licensed Product likely to
impair consumer acceptance of the Licensed Products.
6.0 DEVELOPMENT OF PROTOTYPES OF LICENSED PRODUCTS
6.1 Upon selection of an Authorized Source for the first selected Licensed
Product within Licensee's Field of License which Licensee stands ready
to procure, develop and market in commercial quantities, Licensee shall
promptly and forthwith proceed to procure such selected Licensed
Product in prototype form from such Authorized Source, and upon
procurement thereof provide Licensor with a sample thereof.
6.2 Licensor shall upon receipt of a sample of Licensee's first selected
Licensed Product in a prototype form suitable for reproduction in
commercial quantities promptly notify Licensee of its approval or
disapproval thereof. In the event of approval, Licensee shall use its
best efforts to commence production, marketing and sale of such first
selected Licensed Product throughout the Field of License. In the event
of disapproval, Licensor shall inform Licensee of the reasons therefore
and Licensee shall promptly take steps to improve such prototype of the
first selected Licensed Product.
6.3 After introduction and marketing of the first selected Licensed Product
as referred to above, Licensee shall proceed to select the next and
subsequent Licensed Products in the same manner as set forth above.
7.0 WARRANTIES AND REPRESENTATIONS OF THE PARTIES
7.1 LICENSORS WARRANTIES AND REPRESENTATIONS
7.1.1 LICENSOR TECHNOLOGY.
(a) The Licensor warrants that it is the sole and exclusive owner
of all right, title and interest in Letters Patent of the
United States, No. 5,623,552 dated April 22, 1997, and
entitled Self Authenticating Identification Card With
Fingerprint Identification," and has the sole and exclusive
right to grant licenses to others to manufacture, use, and
sell, products covered by the patent, and further warrants
<PAGE>
that it has the right to license the System to Licensee
pursuant to the terms of this Agreement.
(b) Licensor also warrants that it has obtained from IRE a
non-exclusive license in the Field of License to receive IRE
Technology and use and practice IRE's present and future IRE
inventions and patent(s) for the full terms thereof to the
full extent to which they pertain to the subject matter
described and claimed in the '552 Patent and has further
obtained from IRE the right to sublicense such IRE Technology
in said Field of License to the Licensee, and that such IRE
Technology is covered by the royalty rate identified in
Article 9.3.
7.1.2 PROSECUTION OF LICENSOR PATENTS. Licensor shall use its best
efforts to maintain the '552 Patent and any other presently or
future existing United States or foreign patents owned by
Licensor and relating to the System.
7.1.3 LICENSOR BEST EFFORTS. Licensor shall use its best efforts to
develop, improve, enhance and commercialize the System through
its dealings with Subsidiaries, Licensees, and Technology
Development Partners.
7.1.4 LICENSOR EMPLOYEES. Licensor represents and warrants that it
shall require its employees to assign to Licensor all
intellectual property rights to the inventions developed by
its employees relating to the System.
7.2 LICENSEE'S WARRANTIES AND REPRESENTATIONS
7.2.1 LICENSEE'S BEST EFFORTS. Licensee represents and warrants to
use its best efforts to proceed diligently with its
development, improvement, enhancement, manufacture and sale of
the Licensed Products and System throughout the Field of
License in accordance with the terms of this Agreement.
Licensee shall at its cost and expense use its best efforts
and all due diligence to energetically and aggressively
develop the market for the Licensed Products in the Field of
License, to promote the sale, sublicense, and use of the
Licensed Products and to enhance the reputation and goodwill
associated with the Licensed Products. In connection with its
obligations under this Article 7.2.1, Licensee shall maintain
facilities of a nature and style suitable in the Field of
License to facilitate the marketing, distribution, sale, and
sublicensing of the Licensed Products; shall provide
aggressive, dedicated, continuous representation throughout
the Field of License by means of sales and support staff
sufficient in number, qualifications, and training to
aggressively and effectively promote, market, and service the
Licensed Products.
7.2.2 LICENSEE'S TECHNOLOGY. Licensee represents and warrants in
recognition of mutual benefits to be derived by Licensee,
Licensor and the TDPs that it shall grant to the Licensor a
nonexclusive, royalty free license, with the right to
sublicense, to make, use, and sell outside the Field of
License any Licensee made improvement or enhancement to the
System or Licensee Technology. With regard to technology
developed by Licensee, Licensee represents and warrants that
it
<PAGE>
shall have the sole and exclusive right to grant the license
to manufacture, use, sell, and otherwise transfer Licensee's
Technology to Licensor.
7.2.3 QUALITY OF LICENSED PRODUCTS. Licensee represents, warrants
and covenants that it shall diligently inspect goods delivered
by Authorized Sources to assure conformity with
specifications, grade and quality satisfactory to Licensor,
and shall not procure goods from any unauthorized source.
Furthermore, Licensee shall not induce any Authorized Source
to engage in adulteration, substitution or other practices
that would constitute a variance from such specifications,
grade and quality and shall not knowingly countenance any such
practices.
7.3 MUTUAL WARRANTIES AND REPRESENTATIONS. The Parties recognize that the
exchange and cross-licensing of TDP Technology is intended for their
mutual benefit and that neither party, at the time of this Agreement,
is able to determine the legal status of the TDP Technology subject to
licensing under this Agreement. Accordingly, neither party represents
or warrants that TDP Technology, other than the technology developed by
the Parties themselves, is patented or patentable, copyrighted or
copyrightable, or subject to protection under the law of trade secrets,
and do not represent or warrant that such technology is free of any
third-party claims of infringement or misappropriation. Notwithstanding
the absence of representations and warranties with respect to any such
Technology that one party may furnish to the other, the furnishing
party shall make reasonable inquiry and by delivering the Technology to
the other Party shall be deemed to then represent and warrant that it
knows of no infringement or misappropriation claims actual or likely
with respect to such Technology. Such inquiry shall not include the
duty to conduct a patent infringement searches or like level of
investigation.
8.0 SUBLICENSING AND THE UNDERSERVED FIELD OF LICENSE
8.1 ASSIGNMENT. Neither this Agreement nor any rights conveyed to Licensee
hereunder shall be assigned by Licensee except with the prior written
consent of Licensor, such consent not to be unreasonably withheld
8.2 SUBLICENSING. Licensee may sub-license all or any portion of the System
to any individual, corporation, or other entity for development, use,
manufacture, sale, or further sub-license of the System solely in the
Field of License. Licensee shall have the same responsibility for the
activities of a sublicensee under any such arrangement as if the
activities were directly those of the Licensee. For example, and not by
way of limitation, royalties shall be paid to Licensor by Licensee with
regard to the activities of such sublicensees as if those activities
were the Licensee's, and each sublicensee shall be restricted to using,
manufacturing, selling, and further sublicensing the System to the
Field of License defined in Article 1.10 above.
8.3 SUBLICENSING CONDITIONS. In the event that Licensee desires to
exercises its right to sublicense its rights as granted herein,
Licensee shall, unless otherwise agreed by Licensor and Licensee,
negotiate an agreement on terms, which insofar as practical are
substantially consistent with the terms of this Agreement, and shall
also:
<PAGE>
(a) Advise Licensor of the possible intent to sublicense, identify
the potential sublicensee, prepare a proposed written
sublicensee Agreement, submit a copy of the proposed
sublicense agreement to Licensor for its review and obtain
Licensor's written permission to enter into said sublicensee
Agreement which permission shall not be unreasonably withheld,
and shall be granted no more than thirty (30) days from the
date Licensor receives such proposed sublicensee Agreement
until such permission is denied for reasonable cause.
(b) Require royalty payment to Licensee of no less than the
royalty required by Licensor to be negotiated on a case by
case basis, which Licensor's agreed share shall be remitted to
Licensor.
(c) Require quarterly reporting and payment of royalties.
(d) Require the sublicensee to keep Licensor informed concerning
infringement by outside parties of the properties transferred,
any potential product fault, improper use and the like.
(e) Require the sublicensee to give both Licensee and Licensor the
right to audit the sublicensee's books and records.
(f) Require that the sublicensee not assign any rights licensed to
the sublicensee except with written permission of Licensor.
(g) Include a confidentiality provision in the sublicensee
Agreement comparable to that contained in this Agreement.
(h) Provide to Licensor at least once in a calendar year a written
report indicating the extent of its promotional and sales
activities with each actual or prospective sublicensee.
(i) Require that sublicensee not reverse engineer or disassemble
the Licensed Product.
8.4 UNSERVED AND/OR UNDERSERVED FIELD OF LICENSE.
(a) At any time after the first year during the term of this
License (or any extensions thereof) should Licensor determine
that some area or areas within the "Field of License" are not
being served or are being underserved by Licensee, Licensor
may notify Licensee in writing of such determination. This
notification shall clearly reference this Article 8.4 of the
Agreement as its basis and give reasonable evidence in support
of Licensor's determination of such unserved and/or
underserved areas.
(b) Licensee shall acknowledge this notice in writing within ten
(10) business days and respond to this same notice in writing
within ninety (90) days setting forth Licensee's plans to
serve or better serve the subject area. Should Licensor and
Licensee agree on plan(s) proposed by Licensee or Licensor, no
further action
<PAGE>
under this provision of this Article 8.4 will be necessary.
Should Licensor and Licensee fail to agree on such plan(s)
within thirty (30) days of Licensor's receipt of such plan(s);
and should Licensor believe the subject area to be materially
unserved or underserved to the detriment of all parties, then
the matter will be submitted to arbitration under Article 22
of this Agreement.
(c) Should such arbitration process result in the determination
that Licensor's position is correct Licensee shall 1)
sublicense the unserved area(s) to parties reasonably capable
of and willing to deliver such services and/or 2) allow the
relicensing of these areas, splitting all revenues therefrom
between Licensor and Licensee on a fifty/fifty (50/50) basis.
9.0 PAYMENTS, ROYALTIES AND COMPENSATION
9.1 INITIAL PAYMENT
9.1.1 Licensee shall pay Licensor within 90 days of the execution of
this Agreement and as an Initial Payment and in order to make
this Agreement effective, the non-refundable amount of
twenty-five thousand dollars ($ 25,000).
9.1.2 Upon delivery and acceptance by Licensee of the First
Prototype in accordance with Article 3.0, Licensee shall pay
Licensor the Production Start-Up Payment of three hundred
fifty thousand ($350,000) for Licensee to have the right to
start commercial production under the license granted by
Article 2.0 and represents Licensee's payment for the
worldwide exclusive license granted thereunder, which
Production Start-Up Payment shall be made subject to the terms
of Article 3.0.
9.2 ROYALTY PAYMENTS.
(a) Licensee shall pay to Licensor royalties, after acceptance of
the First Prototype, at the Royalty Rate provided in Article
9.3 below for the term of this Agreement according to Article
12 below.
(b) Licensee shall determine and pay actual royalties, computed
pursuant to the Royalty Rates set forth below, to Licensor on
a quarterly basis within sixty (60) days after the end of each
quarter. ("Actual Royalties") In addition, within sixty (60)
days of the last day of each calendar year, Licensee shall pay
to Licensor the difference, if any, between the total Actual
Royalties paid by Licensee to Licensor during the course of
the most-recently concluded calendar year and $120,000, which
the Parties hereby agree shall be the minimum royalty amount
payable by Licensee during each calendar year of the term
hereof. ("Minimum Royalties"). Minimum Royalties for the
calendar year 1999 (the first year of this Agreement) shall be
pro-rated accordingly. Notwithstanding the foregoing. Licensee
shall not be required to pay Minimum Royalties for the period
beginning upon acceptance of the First Prototype and ending
ninety (90) days thereafter. Also notwithstanding the
foregoing, if Licensor has separately agreed to supply
Licensee with Licensed Products, Licensee shall not be
responsible for paying
<PAGE>
Minimum Royalties for any period during a calendar year in
which Licensed Products reasonably necessary to fill orders to
Licensee's customers are not available from Licensor for use
by Licensee when such period extends for a period of at least
one hundred and twenty (120) days after placing such orders.
The Minimum Royalties amount due for any calendar year shall
be prorated to exclude said time period in which Licensed
Products were unavailable to Licensee.
9.3 ROYALTY RATE. Actual Royalties shall be computed at the rate of six
percent (6%) of Licensee's Net Sales during the applicable quarterly
period (the "Royalty Rate").
9.4 REPORTS AND AUDITS OF LICENSEE'S NET SALES.
(a) Licensee agrees that, within sixty (60) days after the end of
each quarter, in each and every calendar year, commencing with
the first quarter following acceptance of the First Prototype
and continuing for the duration of Licensee's obligation to
make Royalty payments, Licensee will furnish to Licensor
written reports specifying the Licensee's Net Sales during the
preceding quarter (the "Quarterly Reports"). Such reports
shall provide adequate details to allow Licensor to reasonably
determine that its business with Licensee has been accurately
reported by Licensee's financial system.
(b) Licensee agrees to have its auditors verify in writing the
accuracy of the Quarterly Reports for each calendar year,
which written verification is to be submitted to Licensor no
later than ninety (90) days after the end of each calendar
year (the "Licensee's Auditor's Verification").
(c) Licensee agrees to allow an independent certified public
accountant or other audit professional selected by Licensor to
audit and analyze Licensee's accounting records during regular
business hours to determine the accuracy of Licensee's
Quarterly Reports (an "Independent Audit"). Such audits shall
not be requested by Licensor more than twice per calendar
year, may be conducted only upon ten (10) business' days
written notice to Licensee, and must be conducted so as not to
interfere unreasonably with Licensee's business activities.
(d) The Independent Audit shall be at the expense of Licensor,
unless a variation or error exceeds five percent (5%) of the
Net Sales for the Quarter in which the error occurs, whereupon
all costs of the Independent Audit shall be paid by Licensee.
(e) If Licensor fails to request an Independent Audit within two
years after receipt of the Licensee's Auditor's Verification,
then the Licensee's Auditor's Verification shall be
conclusively determinative of the Net Sales for that calendar
year for the purposes of calculating Actual Royalties, and
Licensor may not thereafter dispute the accuracy of the Net
Sales figure reported by Licensee and verified by Licensee's
Auditor.
9.5 LATE PAYMENT INTEREST. Any payment not paid in full when due shall, as
to that portion thereof not paid when due, bear interest for each day
late at the rate of eighteen percent
<PAGE>
(18%) per annum, compounded monthly, or at the maximum rate allowed by
law, if said maximum amount is less. The calculation of a daily rate
shall be made based upon a year of three hundred and sixty (360) days
and a month of thirty (30) days. Payments not made when due because of
a dispute as to the correct amount thereof shall nonetheless be
considered late if ultimately adjudged to be due, and interest shall be
paid thereon as set out above.
10.0 INFRINGEMENT AND INDEMNIFICATION
10.1 INFRINGEMENT CLAIMED BY THIRD PARTIES.
10.1.1 If the Licensee shall be sued for infringement by reason of
the Licensee's activities under the license granted in this
Agreement, the Licensee shall immediately notify the Licensor
and the Licensor shall defend, indemnify, and hold the
Licensee harmless against any such claims, which, if proven,
would constitute a breach of any of the Licensor's
representations or warranties of Article 7.1 above. Provided,
however, that the Licensor shall not have a duty to defend if
the claim of infringement is based upon acts of the Licensee
which go beyond the scope of the Licenses granted, such as by
reason of combination of practice under the license and
authorized practices, with additional activity, which combined
licensed and unlicensed activity shall be the subject matter
of the infringement action. Without limiting the foregoing,
the Licensor shall have the control of any such defense and
the right to enter into any settlement and compromise of any
such claim or action provided, however, that the Licensee
shall assume no further royalty or other obligation, whether
to the Licensor or to any third party, by reason of such
settlement. The Licensee shall, if requested by Licensor, make
such reasonable modifications in the practice of the license
granted under this Agreement such as would enable the parties
to avoid or mitigate any third-party claims of infringement or
misappropriation.
10.1.2 If Licensor shall be sued for infringement by reason of the
Licensor's activities under any cross-license anticipated by
this Agreement, the Licensor shall immediately notify the
Licensee and the Licensee shall defend, indemnify, and hold
the Licensor harmless against any such claims, which, if
proven, would constitute a breach of any of the Licensee's
representations or warranties of Article 7.2 above. Provided,
however, that the Licensee shall not have a duty to defend if
the claim of infringement is based upon acts of the Licensor
which go beyond the scope of the Licenses granted, such as by
reason of combination of practice under the license and
authorized practices, with additional activity, which combined
licensed and unlicensed activity shall be the subject matter
of the infringement action. Without limiting the foregoing,
the Licensee shall have the control of any such defense and
the right to enter into any settlement and compromise of any
such claim or action provided, however, that the Licensor
shall assume no further royalty or other obligation, whether
to the Licensee or to any third party, by reason of such
settlement. The Licensor shall, if requested by Licensee, make
such reasonable modifications in the practice of the license
<PAGE>
granted under this Agreement such as would enable the parties
to avoid or mitigate any third-party claims of infringement or
misappropriation.
10.2 INFRINGEMENT BY THIRD PARTIES.
10.2.1 Licensee shall have the right, but not the obligation, to
institute and prosecute any and all suits to enjoin any and
all infringers of the licensed patents, where such
infringements affects the Licensee's use of the Technology in
the Field of License; and from time to time during the
continuance of this Agreement, and at its own expense, may
institute any suit or suits which it may deem necessary. The
Licensee shall have the right to institute and prosecute such
suits, and to employ its own counsel for such suits; and
Licensee shall pay for all services rendered by counsel so
retained, and for all incidental costs and expenses. Licensee
agrees that Licensor may join as a party plaintiff in any suit
initiated by Licensee regarding the System, at Licensor's sole
expense, where Licensor deems that joining as a party
plaintiff is necessary and in Licensor's best interests.
10.2.2 Except to the extent that Licensee has instituted or plans to
institute a suit under Article 10.2.1, Licensor shall have the
right, but not the obligation, to institute and prosecute any
and all suits to enjoin any and all infringers of the '552
Patent where such infringement affects Licensor's use, sale,
or rights to the System, and from time to time during the
continuance of this Agreement, and at its own expense, may
institute any suit or suits it may deem necessary. The
Licensor shall have the right to institute and prosecute such
suits, and to employ its own counsel for such suits; and
Licensor shall pay for all services rendered by counsel so
retained, and for all incidental costs and expenses. Licensor
agrees that Licensee may join as a party plaintiff in any suit
initiated by Licensor pertaining to infringement in the Field
of License regarding the System, at Licensee's sole expense,
where Licensee deems that joining as a party plaintiff is
necessary and in Licensee's best interests.
11.0 LIMITATIONS OF LIABILITY AND CONSEQUENTIAL DAMAGES
In no event, whether based on contract, indemnity, warranty, tort
(including negligence), strict liability or otherwise, shall Licensor or
Licensee or their subcontractors or suppliers, or any of their respective
directors, officers, employees or agents, be liable for (i) special, exemplary,
or punitive damages; or (ii) any losses or damages arising out of, connected
with, or resulting from (A) the performance of any third party not hired by
Licensor or Licensee, (B) any software, hardware or other product or component
provided by any third party, or (C) the reliance by Licensor or Licensee on any
statement or representation made by Licensee or Licensor regarding a third party
vendor.
12.0 TERM OF AGREEMENT AND RENEWAL
The term of this Agreement shall be twenty (20) years from the
Effective Date, with the right of Licensee to renew for subsequent periods of
five (5) years thereafter, provided that for each renewal:
<PAGE>
(a) the Field of License is not then unserved or underserved and
such unserved or underserved Field of License has not been
cured or is not being cured in accordance with Article 8.4;
(b) there is no uncured Licensee breach of this Agreement; and
(c) Licensee shall pay Licensor one hundred twenty thousand
dollars ($ 120,000)
13.0 TERMINATION
13.1 This Agreement may be terminated as follows:
(a) By mutual Agreement of the Parties.
(b) By Licensee if Licensor fails to deliver the First Prototype
within three (3) years following the effective date of this
Agreement or if the First Prototype delivered by Licensor to
Licensee is not satisfactory to Licensee.
(c) By Licensor upon Licensee failing pay Licensor the Minimum
Royalty within sixty (60) days after each calendar year,
whereupon Licensee's failure to make such payment, Licensor
shall give notice to Licensee of such failure. This License
Agreement shall terminate 10 days from Licensee's receipt of
such notice unless Licensee, within said 10 day period, remedy
such default.
(d) If the Licensee shall (i) commence a voluntary case under the
federal or state bankruptcy laws, (ii) file a petition seeking
to take advantage of any other laws, domestic or foreign,
relating to bankruptcy, insolvency, reorganization, winding up
or composition for adjustment of debts, (iii) consent to or
fail to contest in a timely and appropriate manner any
petition filed against it in an involuntary case under such
bankruptcy laws or other laws, (iv) apply for or consent to,
or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver,
custodian, trustee, or liquidator of itself or of a
substantial part of its property, domestic or foreign, (v)
admit in writing its inability to pay its debts as they become
due, (vi) make a general assignment for the benefit of
creditors, (vii) take any corporate action authorizing any of
the foregoing, (viii) become the subject of a case or other
proceeding in any court of competent jurisdiction seeking
relief under the federal bankruptcy laws or under any other
laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or adjustment of debts, which
proceeding shall continue undismissed or unstayed for a period
of sixty consecutive calendar days, or an order granting the
relief requested shall be entered, or (ix) become the subject
of the appointment of a trustee, receiver, custodian,
liquidator or the like, which appointment shall continue
undismissed or unstayed for a period of sixty consecutive
calendar days.
(e) If Licensee, without having first terminated this Agreement
and ceased obtaining any of the benefits of this Agreement
challenges the validity of any patent purported to be licensed
by the Licensee under this Agreement.
<PAGE>
(f) By either party due to the other party's material breach of
its obligations under this Agreement, upon giving written
notice, except as limited below:
(ii) Where the breach relates solely to Licensee's non-payment
of Royalties, the Licensor's right to terminate this Agreement
is limited as follows:
(aa) Before the Licensor may terminate this Agreement
solely for Licensee's non-payment of Royalties, except for the
automatic termination rights provided by Article 13.1(c)
above, Licensor must give Licensee written notice of default
and make a demand for immediate payment, describing the time
period at issue, the amount due, and how the Licensor
determined that the amount demanded is due (the "Licensor's
Demand"). To avoid termination of this Agreement for
non-payment of the Royalties demanded, Licensee must within
ten days either: 1) pay to Licensor the full amount demanded
as due; or 2) respond to Licensor's Demand with an explanation
of why no additional amount is due (the "Licensee's
Response").
(bb) If, within thirty (30) days of Licensor's
receipt of the Licensee's Response, the Parties cannot resolve
their dispute, then the Licensor shall submit to Licensee a
list of five (5) independent certified public accountants
acceptable to the Licensor and, within five (5) days
thereafter, Licensee shall select one independent certified
public accountant from said list, and upon agreement of said
accountant to serve, that accountant shall serve as the
Royalties Arbitrator.
(cc) Within five (5) days of selection of the
Royalties Arbitrator, each party shall forward to the
Royalties Arbitrator copies of this Agreement, the Licensor's
Demand, the Licensee's Response, and any other supporting
documentation and shall jointly request that the Royalties
Arbitrator conduct an expedited review of the documents
submitted to resolve the dispute and to provide a written
determination as to Royalties due, if any.
(dd) The Parties hereby agree to abide by the
Royalties Arbitrator's written decision as to the amount of
Royalties due, if any. Upon a written determination by the
Royalties Arbitrator that some amount of Royalties is due,
Licensee shall pay that amount to Licensor within three (3)
days of receipt of the Royalties Arbitrator's written decision
and shall be responsible for any fees charged or costs
incurred by the Royalties Arbitrator in resolving the dispute.
Upon a written determination by the Royalties Arbitrator that
no Royalties are due, Licensor shall be responsible for any
fees charged or costs incurred by the Royalties Arbitrator in
resolving the dispute. Each party shall otherwise bear its own
fees and costs.
(ee) The Licensor shall be released from its
obligation to follow the foregoing procedure upon a) after a
single determination by the Royalties Arbitrator that the
Licensee's Response was groundless and wholly without
justification or b) upon receipt from the Royalties Arbitrator
its written decisions in two Royalties disputes that the
amount demanded in the Licensor's Demand was in fact the
amount of Royalties due.
<PAGE>
(iii) Where the breach relates, in whole or in part, to
obligations other than Licensee's nonpayment of Royalties,
then prior to terminating this agreement, the non-breaching
party must provide written notice of the breach and must
permit the other party thirty days from the date of the
written notice to cure such breach. Each party shall be
released from this obligation of notice and cure after that
party has complied with this provision with respect to the
first two breaches within any successive five year period by
the other party.
(g) By the Licensee in the event that Licensee has been required
to pay Licensor Minimum Royalty payments, in any amount, over
a period of two consecutive years, upon giving Licensor thirty
(30) days written notice of Licensee's intent to terminate.
13.2 Upon termination of this Agreement, any and all rights which the
Licensee shall have or possess under this Agreement, including
sublicenses thereunder, shall permanently cease and be by it
relinquished and surrendered to the Licensor. If such termination is
not due to a Licensee breach of this Agreement, Licensee shall have the
right to sell all Licensed Products already manufactured and in its
possession for a period of three (3) months following the termination
date, upon which royalties will be paid as provided above. Should
termination of this Agreement be due to a Licensee breach, then
Licensee shall, upon termination, transfer all Licensed Products to
Licensor, and pay all royalties it owes Licensor.
14.0 MARKING
The Licensee shall use such certification mark(s), trademark(s), and/or
other marking(s) as may from time to time be adopted by the Licensor to indicate
to the public that the Licensed Products are genuine licensed products, and/or
to indicate the patent protection applicable thereto. The Licensee shall in any
event when requested by Licensor mark the patent number of each patent covering
the Licensed Products, on each licensed product manufactured, sold or otherwise
distributed by the Licensee in a manner satisfactory to Licensor; and shall use
the trademark registration symbol adjacent any registered trademark to the
extent permitted by law.
15.0 NO BUSINESS OPPORTUNITY OR FRANCHISE
This Agreement is not intended to be, and shall not be construed to be,
the granting of a business opportunity or of a franchise under the laws of the
United States or any state or territory thereof. The Licensee warrants to
the-Licensor that the Licensee possesses business expertise relevant to the
field in which it will engage pursuant to the license granted herein. The
Licensee acknowledges that the Licensor is not obligated by this Agreement to
provide any business advice or business assistance of any kind or nature
whatsoever, including but not limited to the provision of a prescribed marketing
plan or system, and warrants that the Licensee has not received, and does not
expect to receive, any business advice or assistance from Licensor on which it
has relied or intends to rely in any manner whatsoever. The Licensee further
acknowledges that the Licensee, in evaluating the propriety of entering into
this Agreement, has relied exclusively on its own advisors and not on any
representations made by the Licensor except such representations as are
expressly stated in the words of this Agreement.
<PAGE>
16.0 NO INVESTMENT OR SECURITIES OFFERING
The Licensee represents and warrants that the Licensor shall not, by
reason of entering into this license with the Licensee, be or become obligated
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Furthermore,
notwithstanding any other provision of this Agreement, the Licensee shall not
enter into any transaction regarding the License that would require the Licensor
to file a registration statement with the Securities and Exchange Commission to
qualify the License to fall under the blue sky laws of any state. Any violation
of this Article 16.0 is a material default that shall entitle the Licensor to
terminate this Agreement.
17.0 CONSENT TO ADVERTISING AND PUBLICITY
The Licensor may issue and disseminate to the public information
describing the license entered into with the Licensee, including the name and
address of the Licensee, the general terms of the agreement, and a general
description of the Licensee's business.
18.0 GOVERNING LAW
This Agreement shall be interpreted and construed in accordance with
the laws of the United States and the laws of the State of North Carolina.
19.0 INDEPENDENT CONTRACTORS
The Parties to this Agreement are independent contractors. Nothing in
this Agreement is to be construed as making either party an agent of or joint
venturer with the other.
20.0 COMPLETE AGREEMENT AND MODIFICATION
This Agreement represents the entire agreement, both written and oral
of the Parties, and supersedes and replaces any prior written or oral agreements
between Licensee and Licensor. This Agreement may be amended- only in a writing
stating that it is an amendment or modification of this Agreement, and signed by
an authorized representative of each of the Parties hereto.
21.0 NOTICES
Any notice required to be given under this Agreement shall be properly
given if delivered by first-class mail as follows:
ID Technologies Corporation. Power^Up Marketing Corporation
2506 West Nash Street, Suite C 5165 Broadway / Ste. 257
Wilson, North Carolina 27896 Buffalo, NY 14043
Attention: President Attention: President
<PAGE>
22.0 CONFIDENTIALITY
The Parties acknowledge that in order to carry out the License granted
hereunder, it may be necessary for either Parties to transfer or disclose
certain trade secrets that have been developed by Licensor and/or a TDP at great
expense and that have required considerable effort of skilled professionals. The
Parties acknowledge and agree that in no event shall either Party disclose any
such trade secrets to any third party. In the event that it is necessary to
transfer or otherwise disclose such trade secret and confidential information to
either Party, an Authorized Source, or sublicensee of Licensee then the party
disclosing such trade secrets or confidential information shall require the
party to which the information is being disclosed to sign a confidentiality
agreement, requiring that in no event shall the receiving party disclose any
such trade secrets and confidential information to a third party. Confidential
information shall be that information disclosed or transferred to either Party
that is marked "Confidential," or information disclosed or transferred to either
party that at the time of such disclosure or transfer the party receiving such
disclosure was informed that the information must be treated by the receiving
Party as confidential.
23.0 ARBITRATION
Any dispute under this Agreement not resolved within thirty (30) days
of notice to the other party shall be submitted to binding arbitration under the
rules of the American Arbitration Associated then in effect. There shall be no
appeal from the decision other than for gross violation of due process or fraud
in the conduct of the arbitration. Judgment upon the decision may be entered in
a state or federal court, as may be appropriate, selected by the party of whom
arbitration was requested, or, if that party declines to promptly select such a
court, in a court selected by the party who had requested arbitration. The
parties irrevocably agree, for this purpose only, to submit to the jurisdiction
of such a court, or application may be made to such court for confirmation of
the decision, for judicial acceptance thereof, for an order of enforcement, or
for any other legal remedies that may be necessary to effectuate the decision.
The expense of the arbitration and/or arbitrators shall be shared equally by the
Parties. Each of the Parties shall bear its own arbitration costs, including
without limitation its own costs of preparation, attorneys' fees, and witness
fees and expenses. In the event of litigation between the Parties, arbitration
may be so requested at any time prior to the beginning of a trial. Any required
arbitration shall be held in Research Triangle Park, North Carolina.
24.0 SEVERABILITY
If any provisions of this Agreement shall be construed to be illegal or
invalid, the legality of the validity of any other provisions hereof shall not
be affected hereby. Any illegal or invalid provision of this Agreement shall be
severable, and all provisions shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have through a duly authorized
officer thereof duly executed this Agreement on the dates indicated below to be
effective as of the day first indicated above.
<PAGE>
<TABLE>
<S> <C>
ID Technologies Corporation (Licensor) Power^Up Marketing Corporation (Licensee)
By: /s/ William F. Lane By: /s/ Brian D. Mead
-------------------- ------------------
William F. Lane Brian D. Mead
Title: President Title: President
Date: February 28, 1999 Date: February 28, 1999
------------------ -----------------
</TABLE>
Exhibit 6.06
DEBENTURE PURCHASE AGREEMENT
BY AND BETWEEN
ID TECHNOLOGIES CORPORATION
AND
THOSE CERTAIN PURCHASERS LISTED ON SCHEDULE 1.2 ATTACHED
DATED AS OF SEPTEMBER 24, 1999
=================================================================
<PAGE>
ID TECHNOLOGIES CORPORATION
----------------------------------
DEBENTURE PURCHASE AGREEMENT
--------------------------------------------
SEPTEMBER 24, 1999
--------------------------------------------
Table of Contents
<PAGE>
EXHIBITS:
Exhibit A Form of Debentures
Exhibit B Articles of Amendment
Exhibit C Form of Debenture Conversion Warrants
Exhibit D Form of $0.01 Warrants
Exhibit E Form of $0.50 Warrants
Exhibit F Form of Exercise Event Warrants
Exhibit G Form of Investor Rights Agreement
Exhibit H Form of Shareholders Agreement
Exhibit I Form of Opinion
SCHEDULES:
Schedule 1.2 Schedule of Purchasers
Schedule 3.1 Certified Articles of Incorporation and Bylaws
Schedule 3.2 Stockholders' List
Schedule 3.3 Subsidiaries and Joint Ventures
Schedule 3.6 Changes Since July 31, 1999
Schedule 3.7 Material Agreements
Schedule 3.8 Encumbrances
Schedule 3.9 Material Liabilities
Schedule 3.10 Related Party Transactions
Schedule 3.11 Stock Option Plans
Schedule 3.12 Officers, Directors and Key Employees
Schedule 3.14 Litigation
<PAGE>
Schedule 3.15 Permits and Licenses
Schedule 3.16 Intellectual Property
Schedule 3.18 Distribution Agreements
Schedule 3.20 Insurance
Schedule 3.25 Employee Benefit Plans
<PAGE>
DEBENTURE PURCHASE AGREEMENT
This Debenture Purchase Agreement (the "AGREEMENT") is entered
into as of the 24th day of September, 1999, by and among ID Technologies
Corporation, a North Carolina corporation (the "COMPANY"); William F. Lane, a
resident of North Carolina (the "FOUNDER"); and those investors listed on
Schedule 1.2, attached hereto and made a part hereof (individually a "PURCHASER"
and collectively, the "PURCHASERS").
WHEREAS, Purchasers wish to purchase from Company, and Company
wishes to sell, Convertible Debentures in an aggregate original principal amount
of up to Three Hundred Thousand Dollars ($300,000.00), which Convertible
Debentures are convertible into shares of Series A Preferred stock of Company.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties to this Agreement mutually agree as follows:
1. Authorization and Sale of Series A Preferred Stock; Use of
Proceeds.
1.1 Authorization. Company has authorized the issuance and
sale of Convertible Debentures in the form set forth on Exhibit A attached
hereto (the "DEBENTURES") in an aggregate original principal amount of up to
Three Hundred Thousand Dollars ($300,000.00), which Debentures are convertible
into shares of Company's Series A Preferred stock, $0.001 par value (the "SERIES
A STOCK"), having the rights, preferences, privileges and restrictions set forth
in Company's Articles of Amendment, a copy of which is attached hereto as
Exhibit B (the "ARTICLES").
1.2 Sale. Subject to the terms and conditions of this
Agreement, Purchasers agree to purchase from Company and Company agrees to sell
and issue to Purchasers, Debentures in an aggregate original principal amount of
up to Three Hundred Thousand Dollars ($300,000.00), with the original principal
amount of Debentures to be purchased by and sold to each Purchaser being set
forth opposite such Purchaser's name on Schedule 1.2.
1.3 Use of Proceeds. Company shall use the consideration
received hereunder for the Debentures for general working capital purposes.
2. Closing; Delivery.
2.1 Closing. The closing of the purchase and sale of the
Debentures under this Agreement (the "CLOSING") shall take place at 2:00 p.m.
(Raleigh, North Carolina time) on September 24, 1999 at the offices of Poyner &
Spruill, L.L.P., or at such other time and place as Company and Purchasers may
agree. At the Closing, Company shall sell to Purchasers, and Purchasers shall
purchase from Company, Debentures in an aggregate original principal amount of
up to Three Hundred Thousand Dollars ($300,000.00), with each Purchaser to
purchase the original principal amount of Debentures set forth opposite such
Purchaser's name on Schedule
<PAGE>
1.2 attached hereto. Such Debentures purchased shall be considered "DEBENTURES"
for all purposes of this Agreement.
2.2 Delivery of Debentures. At the Closing, subject to the
terms and conditions hereof, Company shall deliver to each Purchaser a Debenture
in the original principal amount to be purchased by such Purchaser from Company,
dated the date of Closing, against payment of the purchase price therefor by
wire transfer, or by such other means as shall be mutually agreeable to such
Purchaser and Company.
2.3 Delivery of Warrants at Closing.
a. Debenture Conversion Warrant. At the Closing, upon
payment of the purchase price for the Debentures to be purchased
hereunder by each Purchaser in accordance with the terms hereof,
Company shall execute and deliver to each such Purchaser a detachable
Common Stock Warrant, dated as of the date of Closing, pursuant to
which each such Purchaser is entitled to purchase up to three (3)
shares of Common stock of Company for every one (1) share of Series A
Stock issuable upon conversion of the Debentures being purchased by
each such Purchaser hereunder, in the form attached hereto as Exhibit C
(the "DEBENTURE CONVERSION WARRANT"), for the purchase price and on
such other terms as set forth in the Debenture Conversion Warrant.
b. $0.01 Warrants. At the Closing, upon payment of
the purchase price for the Debentures to be purchased hereunder by each
Purchaser in accordance with the terms hereof, Company shall execute
and deliver to each such Purchaser a detachable Common Stock Warrant,
dated as of the date of Closing, pursuant to which each such Purchaser
is entitled to purchase its Pro Rata Share (as defined below) of up to
One Hundred Fifty Thousand (150,000) shares of Common stock of Company,
in the form attached hereto as Exhibit D (the "$0.01 WARRANTS"), for
the purchase price of $0.01 per share and on such other terms as set
forth in the $0.01 Warrants. As used herein, "PRO RATA SHARE" means the
proportion of the original principal amount of all Debentures held by a
Purchaser to the aggregate original principal amount of all Debentures
held by all Purchasers.
c. $0.50 Warrants. At the Closing, upon payment of
the purchase price for the Debentures to be purchased hereunder by each
Purchaser in accordance with the terms hereof, Company shall execute
and deliver to each such Purchaser a detachable Common Stock Warrant,
dated as of the date of Closing, pursuant to which each such Purchaser
is entitled to purchase its Pro Rata Share of up to Two Hundred
Thousand (200,000) shares of Common stock of Company, in the form
attached hereto as Exhibit E (the "$0.50 WARRANTS"), for the purchase
price of $0.50 per share and on such other terms as set forth in the
$0.50 Warrants.
d. Exercise Event Warrants. At the Closing, upon
payment of the purchase price for the Debentures to be purchased
hereunder by each Purchaser in accordance with the terms hereof,
Company shall execute and deliver to each such Purchaser a detachable
Common Stock Warrant, dated as of the date of Closing, pursuant
<PAGE>
to which each such Purchaser is entitled to purchase its Pro Rata Share
of shares of Common stock of Company, up to an amount of Five Hundred
Thousand Dollars ($500,000.00), in the form attached of Company hereto
as Exhibit F (the "EXERCISE EVENT WARRANTS"), for the purchase price
and on such other terms as set forth in the Exercise Event Warrants.
The Debenture Conversion Warrants, the $0.01 Warrants, the $0.50
Warrants and the Exercise Event Warrants are collectively referred to
herein as the "WARRANTS".
2.4 Exchangeable Demand Promissory Note. Pursuant to the terms
of that certain Exchangeable Demand Promissory Note in the original principal
amount of Eighty Thousand Dollars ($80,000) executed by Company in favor of
Centennial Venture Partners, LLC ("CENTENNIAL") dated as of April 13, 1999 (the
"EXCHANGEABLE NOTE"), Centennial shall be entitled to receive and Company shall
issue to Centennial at the Closing the Debentures issuable upon exchange by
Centennial of the Exchangeable Note in accordance with its terms. All such
Debentures shall be considered "DEBENTURES" for all purposes of this Agreement.
2.5 Wu Agreement. The parties hereto acknowledge the existence
of the Agreement by and between Company and Li-Pei Wu ("WU") dated as of
September 15, 1999 (the "WU AGREEMENT"), pursuant to which Wu is entitled to
make a certain investment in Company. Company hereby agrees that it shall not
issue any debentures or other securities or otherwise close any of the
transactions contemplated in the Wu Agreement until such time as all requisite
approvals for such transactions are obtained, including, without limitation,
shareholder approval of an amendment to the Articles of Incorporation of Company
to increase the authorized number of shares of Series A Stock in an amount
sufficient to permit the conversion of all of the Debentures hereunder together
with any and all debentures and other securities issued pursuant to the Wu
Agreement. Company acknowledges that the terms of the transactions contemplated
in the Wu Agreement will be subject to the covenants of Company contained in the
Investor Rights Agreement (as defined below), including, without limitation, the
terms of Section 3.3 thereof, except that (for purposes of such Section 3.3)
Centennial hereby consents to (i) the transactions contemplated in the Wu
Agreement provided the investment thereunder by Wu is made on substantially
identical terms to the terms applicable to Centennial in the purchase of
Debentures hereunder (with the exception of the right to designate a member of
the Board of Directors of Company, the right to approve new management of
Company, and the right to receive reimbursement of attorneys' fees and expenses
and due diligence expenses, which rights shall not apply to the investment by
Wu); and (ii) an increase in the authorized number of shares of Series A Stock
as may be necessary in connection with the transactions contemplated in the Wu
Agreement; PROVIDED, HOWEVER, that the number of shares of Series A Stock
issuable in connection with the Wu Agreement shall be less than the number of
shares of Series A Stock issuable upon conversion of the original principal
amount of the Debentures issued hereunder (assuming full conversion by both
parties).
3. Representations and Warranties of Company.
Company, and with respect to the representations and
warranties contained in Sections 3.11, 3.13, 3.14, 3.16 and 3.17, Founder,
hereby represent and warrant to Purchaser(s)
<PAGE>
that except as disclosed herein or on a schedule hereto (matters disclosed on a
particular schedule hereto are deemed to have been disclosed on all schedules
hereto):
3.1 Organization and Standing.
a. Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of North
Carolina and has all requisite corporate power and authority to own and
operate its properties and assets and to carry on its business as now
conducted and as currently proposed to be conducted. Company is duly
qualified and authorized to do business, and is in good standing as a
foreign corporation in each jurisdiction where due to the nature of its
activities and of its properties (both owned and leased), the failure
to so qualify would have a material adverse effect on Company.
b. A copy of Company's Articles of Incorporation, and
all amendments thereto, as certified by the Secretary of State of North
Carolina, and a copy of the Company's Bylaws, as amended to date and as
certified by Company's Secretary, are attached as Schedule 3.1 hereto,
and are true, complete and correct copies of the Articles of
Incorporation and Bylaws of Company as amended and presently in effect.
c. Company is engaged primarily in the business of
the development and exploitation of fingerprint identification
technology.
3.2 Capitalization.
a. The authorized capital of Company consists
of:
(1) Forty-Nine Million Seven Hundred
Thousand (49,700,000) shares of Common stock, no par value
(the "COMMON STOCK"), of which Eight Million Three Hundred
Seventy-Seven Thousand Five Hundred Eighty-Three (8,377,583)
shares are issued and outstanding as of July 31, 1999 (and no
shares of Common Stock have been issued or redeemed by Company
since July 31, 1999); and
(2) Three Hundred Thousand (300,000) shares
of Series A Stock, $0.001 par value, none of which are issued
and outstanding immediately prior to the Closing.
b. Schedule 3.2 hereto sets forth a complete list of
all stockholders of Company as of July 31, 1999, indicating the number
of shares of capital stock owned by each stockholder. To Company's
Knowledge (as defined below), and except as set forth in Schedule 3.2
hereto, each such stockholder owns and has good title to said number of
shares, free and clear of all liens or encumbrances of any kind.
<PAGE>
c. All of the outstanding shares of capital stock of
Company have been duly authorized and validly issued, are fully paid
and nonassessable and were issued in compliance with all applicable
federal and state securities laws.
d. Company has duly and validly reserved (i) Three
Hundred Thousand (300,000) shares of Series A Stock for issuance upon
conversion of the Debentures; (ii) Three Hundred Thousand (300,000)
shares of Common Stock for issuance upon conversion of the Series A
Stock; and (iii) Two Million (2,000,000) shares of Common Stock for
issuance upon exercise of the Warrants (the "WARRANT SHARES").
e. Except as set forth in Schedule 3.2 hereto and the
Articles, Company is not obligated (contingently or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock
or any interest therein or to pay any dividends or make any other
distributions with respect to its capital stock.
f. Except as set forth in Schedule 3.2 hereto and
except for (i) the conversion rights associated with the Debentures and
the Series A Stock, (ii) the rights created under this Agreement, the
Articles and the Investor Rights Agreement (as defined in Section 5.6
below), (iii) the One Million Three Hundred Eighty-Three Thousand One
Hundred Forty-Eight (1,383,148) shares of Common Stock reserved for
issuance to directors, officers, employees, advisors or consultants of
Company (the "UNISSUED STOCK POOL"), and (iv) the Warrants, there are
no outstanding rights of first refusal, preemptive rights or other
rights, options, warrants, conversion rights or other agreements,
either directly or indirectly, for the purchase or acquisition from
Company of any shares of its capital stock.
3.3 Subsidiaries. Except as set forth on Schedule 3.3 hereto,
Company does not currently own or control, directly or indirectly, any other
corporation, association, partnership, or other business entity. Except as set
forth on Schedule 3.3 hereto, Company is not, directly or indirectly, a
participant in any joint venture or partnership.
3.4 Authorization. All corporate action on the part of Company
and its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Articles, the Investor Rights
Agreement, the Shareholders Agreement (as defined in Section 5.7 below) and the
Warrants, the performance of all Company's obligations hereunder and thereunder,
and the authorization, issuance, sale and delivery of the Debentures and the
Series A Stock issuable upon conversion thereof, and the Common Stock issuable
upon conversion of such Series A Stock (the "UNDERLYING COMMON STOCK"), and the
Warrant Shares to be issued upon exercise of the Warrants, has been taken or
will be taken prior to the Closing. This Agreement, the Investor Rights
Agreement, the Shareholders Agreement, the Debentures and the Warrants, when
executed and delivered by Company and the parties hereto and thereto shall
constitute valid and legally binding obligations of Company enforceable in
accordance with their respective terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors, rules and laws
governing specific performance, injunctive relief and other equitable remedies
and, with respect to the indemnification agreements set forth in the Investor
Rights Agreement, principles of public policy.
<PAGE>
3.5 Validity of the Debentures. Except as set forth in
Schedule 3.5, the Investor Rights Agreement and/or the Shareholders Agreement,
the sale of the Debentures and the subsequent conversion of the Debentures into
Series A Stock, and the subsequent conversion of such Series A Stock into the
Underlying Common Stock, and the issuance of the Warrant Shares upon exercise of
the Warrants, are not and will not be subject to any preemptive rights, rights
of first refusal or other preferential rights that have not been waived, and the
Debentures when issued, sold and delivered in accordance with the terms of this
Agreement, the Series A Stock when issued upon conversion of the Debentures, the
Underlying Common Stock when issued upon conversion of the Series A Stock, and
the Warrant Shares when issued, sold and delivered upon exercise of the
Warrants, will be validly issued, fully paid and nonassessable and will be free
of any liens or encumbrances; PROVIDED, HOWEVER, that the Debentures, the Series
A Stock, the Underlying Common Stock and the Warrant Shares may be subject to
restrictions on transfer under state and/or federal securities laws and as set
forth in the Investor Rights Agreement and the Shareholders Agreement.
3.6 Financial Statements; Changes.
a. Company has delivered to Purchasers copies of
Company's audited consolidated financial statements for the fiscal
years ended December 31, 1997 and December 31, 1998 (such December 31,
1998 statements in draft form), together with the notes thereto, and
copies of Company's balance sheet as of July 31, 1999, statement of
operations for the seven months ended July 31, 1999, statement of
changes in shareholders' equity for the seven months ended July 31,
1999, and statement of cash flows for the seven months ended July 31,
1999 (the "FINANCIAL STATEMENTS"). The Financial Statements were
prepared in accordance with generally accepted accounting principles
consistently applied throughout the period indicated, are correct and
complete and fairly present the financial position and condition of
Company at the date thereof and the results of operations of Company
for the period covered thereby, and contain no material misstatements
or omissions.
b. Since July 31, 1999, except as disclosed in
Schedule 3.6 hereto, and/or except as anticipated by this Agreement,
there has not been:
(1) any change in the assets, liabilities,
financial condition or operating results of Company from that
reflected in the Financial Statements, except changes in the
ordinary course of business which have not been, in the
aggregate, materially adverse;
(2) any damage, destruction or loss, whether
or not covered by insurance, materially and adversely
affecting the assets, properties, financial condition,
operating results, prospects or business of Company (as such
business is presently conducted and as it is currently
proposed to be conducted);
(3) any waiver or compromise by Company of a
valuable right or of a material debt owed to it;
<PAGE>
(4) any satisfaction or discharge of any
lien, claim or encumbrance or payment of any obligation by
Company, except in the ordinary course of business and which
is not material to the assets, properties, financial
condition, operating results, prospects or business of Company
(as such business is presently conducted and as it is
currently proposed to be conducted);
(5) any change or amendment to a material
contract or arrangement by which Company or any of its assets
or properties is bound or subject;
(6) any declaration or payment of any
dividend or other distribution of the assets of Company;
(7) any material change in any compensation
arrangement or agreement with any employee; or
(8) to the "Company's Knowledge" (as defined
below), any other event or condition of any character which
might materially and adversely affect the assets, properties,
financial condition, operating results, prospects or business
of Company (as such business is presently conducted and as it
is currently proposed to be conducted).
c. As used herein, "COMPANY'S KNOWLEDGE" means
Company's actual knowledge after inquiry and a signed certificate from
Company's President. As used herein "FOUNDER'S KNOWLEDGE" means
Founder's actual knowledge after inquiry.
3.7 Material Agreements.
a. Schedule 3.7 hereto contains a complete list of
all of the following agreements to which Company is a party, other than
those which are anticipated by this Agreement (collectively, the
"MATERIAL AGREEMENTS"): (1) contracts, agreements and instruments which
involve a commitment by Company in excess of Ten Thousand Dollars
($10,000) per year; (2) leases for real property; (3) equipment leases;
(4) stock purchase agreements; (5) loan or debt agreements; (6)
employment agreements; (7) licenses of any patent, trade secret or
other proprietary right to or from Company; (8) agreements or contracts
under which Company agrees to indemnify any party or to share the tax
liability of any party; (9) contracts or agreements with any labor
union or association representing any employee; (10) joint venture
contracts or agreements; (11) contracts or agreements containing (i)
covenants of Company not to compete in any line of business or with any
person in any geographical area or (ii) covenants of any person not to
compete with Company in any line of business or in any geographical
area; and (12) contracts or agreements which contain restrictions with
respect to payment of dividends or on any other distribution in respect
of Company's capital stock.
<PAGE>
b. Company has delivered to Purchasers true, correct
and complete copies of: all Material Agreements, and the most current
draft or proposed terms of each contract, agreement or instrument
currently contemplated or anticipated by Company to be executed which
(if executed) would be a Material Agreement.
c. All the Material Agreements are valid and binding
obligations of Company, in full force and effect in all material
respects.
d. Company is not in default and not aware of any
default by another party, either pending or threatened, with respect to
the Material Agreements. Further, except as set forth on Schedule 3.7,
Company is current on all debt, accounts payable, leases and other
similar obligations of Company over Fifty Thousand Dollars ($50,000).
e. Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under
its Articles of Incorporation or Bylaws, which adversely affects its
assets, properties, financial condition, operating results, properties
or business presently conducted or as currently proposed to be
conducted.
f. There are no "informal" or "side agreements"
(whether written or verbal) with any Person (as defined in Section 3.12
below) whereby Company or its management has agreed to do anything
beyond the requirements of a formal written contract executed by
Company.
3.8 Title to Properties and Assets. Company has good and
marketable title to its properties and assets as reflected in the Financial
Statements and any properties and assets acquired after the date of the
Financial Statements until the date of Closing (except properties and assets
held under capitalized leases) and has good title to all its leasehold
interests, in each case, except as set forth on Schedule 3.8 hereto, subject to
no mortgage, pledge, lien, lease, encumbrance or charge, other than (a) the lien
of current taxes not yet due and payable, and (b) possible minor liens and
encumbrances which do not in any case, either individually or in the aggregate,
materially detract from the value of the property subject thereto or materially
impair the operations of Company, and which have not arisen other than in the
ordinary course of business. The tangible property and assets held under any
material lease by Company are held by it under leases which remain in force, and
there exists no default or other occurrence or condition which could result in a
material default or termination thereunder.
3.9 Material Liabilities. Except as set forth in Schedule 3.9,
Company has no material liability or obligation, absolute or contingent
(individually or in the aggregate), which is not disclosed in the Financial
Statements, except obligations and liabilities incurred after the date of the
Financial Statements in the ordinary course of business which are not
individually or in the aggregate material. Company after reasonable
investigation has no knowledge of any basis for any other claim against or
liability or obligation of Company.
3.10 Obligations to Related Parties. Schedule 3.10 hereto sets
forth (a) all of the obligations of Company to all current or former officers,
directors, shareholders and
<PAGE>
employees of Company, including any member of their immediate families (other
than normal accrued wages and travel expense vouchers), and (b) all of the
obligations of Company's current officers, directors, shareholders and
employees, including any member of their immediate families (other than expense
advances made in the ordinary course of Company's business) to Company, which
are not otherwise contemplated under this Agreement or other agreements and
transactions to be entered into incident to the Closing, which schedule is
complete and correct in all material respects as of the date of this Agreement.
3.11 Employees.
a. To Company's and Founder's Knowledge, no employee
of Company is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency
that would conflict with such employee's obligation to use his best
efforts to promote the interests of Company or that would conflict with
Company's business as conducted or as proposed to be conducted.
b. To Company's and Founder's Knowledge, no employee
of Company is in violation of any term of (1) any proprietary
information and inventions agreement or non-competition agreement of
any kind; or (2) any other employment contract or agreement relating to
the relationship of any such employee with Company or any previous
employer to the extent such violation would have a material adverse
effect on Company or the employee's ability to perform services for
Company.
c. Company has no collective bargaining agreements
with any of its employees, and to Company's and Founder's Knowledge
there is no labor-union-organizing activity pending or threatened with
respect to Company.
d. Except as set forth in Schedule 3.11, and except
for such matters which are contemplated under this Agreement or other
agreements and transactions to be entered into incident to the Closing,
there is no, and has never been any, pension, health, profit sharing,
bonus, stock purchase, stock option, hospitalization, insurance,
severance or any other employee benefit or welfare benefit plan with
respect to any officer or employee of Company.
3.12 Officers, Directors and Key Employees.
a. Set forth on Schedule 3.12 hereto is a list of
Company's officers, directors and Key Employees (as defined below),
which list is full, complete and correct.
b. To Company's Knowledge, except as set forth on
Schedule 3.12, during the past five (5) years, none of Company's
officers, directors or Key Employees have been arrested or convicted of
any material crime, nor have any of them been bankrupt or affiliated as
an officer, director, partner or member of a bankrupt Person.
<PAGE>
c. To Company's Knowledge, no officer of Company, nor
any Key Employee, the termination of whose employment, either
individually or in the aggregate, would have an adverse effect on
Company, has any present intention of terminating his or her employment
with Company.
d. As used herein, "KEY EMPLOYEE" means and includes
the President, any Vice President and the Treasurer of Company, any
chief financial officer, supervisor, manager or vice president of
operations, financial planning, sales, marketing, research and
development or other functional area of Company, the head of any
division or subsidiary of Company, or any other individual so
designated by the Board of Directors of Company.
e. As used herein, "PERSON" means and includes
natural persons, corporations, limited partnerships, general
partnerships, limited liability companies, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, and
trusts, business trusts or other organizations, whether or not legal
entities, and governments and agencies and political subdivisions
thereof.
3.13 Compliance with Other Instruments. Company is not in
violation of any provisions of its Articles of Incorporation or its Bylaws as
amended and in effect on and as of the Closing, or of any provisions of any
material instrument or contract to which it is a party or any judgment, decree
or order by which it is bound or any material statute, rule or regulation
applicable to Company. The execution, delivery and performance of this
Agreement, and the issuance and sale of the Debentures pursuant hereto, the
Series A Stock upon conversion of the Debentures, and the Underlying Common
Stock upon conversion of such Series A Stock, and the issuance, sale and
delivery of the Warrant Shares upon exercise of the Warrants, will not result in
any such violation or be in conflict with or constitute a default under any such
provisions or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of Company.
3.14 Litigation. Except as set forth in Schedule 3.14
hereto:
a. There is no action, proceeding or investigation
pending or (to Company's and Founder's Knowledge) currently threatened
against Company before any court or administrative agency (or any basis
therefor known to Company or Founder).
b. To Company's and Founder's Knowledge, there is no
action, proceeding or investigation pending or currently threatened
against any director, officer or Key Employee of Company related to
Company's activities, business or assets or which could materially
adversely affect Company.
c. The foregoing representations include, without
limiting their generality, actions pending or threatened (or any basis
therefor known to Company or Founder) involving the prior employment of
any of Company's employees or their use in connection with Company's
business of any information or techniques allegedly proprietary to any
of their former employers.
<PAGE>
3.15 Permits and Licenses. Company has obtained and complied
with all governmental permits, licenses, and consents necessary for the conduct
of Company's business as it is presently conducted; all such permits, licenses
and consents are listed on Schedule 3.15, which list is full, complete and
correct; all such permits, licenses and consents are in full force and effect;
and to Company's Knowledge there is no investigation or other matter that may
materially adversely impair or affect any such permit, license, or consent.
3.16 Patents and Trademarks.
a. Company has sufficient title and ownership of or
is licensed under all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted and as currently
proposed to be conducted without any conflict with or without
infringement of the rights of others.
b. Schedule 3.16 hereto contains a complete list of
patents, service marks, trademarks and copyrights, and pending patent,
service mark, trademark and copyright applications of Company. Except
as set forth on Schedule 3.16, or as contemplated under this Agreement
or other agreements and transactions to be entered into incident to the
Closing, there are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is Company bound by or a party
to any options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, proprietary rights and processes of any
other person or entity.
c. Company has not received any communications
alleging that Company has violated or, by conducting its business as
currently proposed, would violate, any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses or
other proprietary rights or processes of any other person or entity.
d. To Company's and Founder's Knowledge, no third
party has violated any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses or other proprietary rights
or processes owned by the Company or to which the Company has rights.
e. None of Company's officers, directors or employees
is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote the
interests of Company or that would conflict with Company's business as
currently proposed to be conducted.
f. Neither the execution nor delivery of this
Agreement, nor the carrying on of Company's business by the employees
of Company, nor the conduct of Company's business as currently
proposed, will conflict with or result in a breach of the
<PAGE>
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is
now obligated.
3.17 Proprietary Information. Company has done nothing to
materially adversely compromise the secrecy, confidentiality or value of any of
its trade secrets, know-how, inventions, prototypes, designs, processes or
technical data required to conduct its business as now conducted or as proposed
to be conducted.
3.18 Distribution Rights. Except as shown on Schedule
3.18, Company has not granted rights to distribute or sell its products to any
other person.
3.19 Taxes.
a. Company has accurately prepared and timely filed
all United States Tax returns and all state and municipal Tax returns
that are required to be filed by it and has paid or made provision for
the payment of all Taxes that have become due pursuant to such returns.
No deficiency assessment or proposed adjustment of Company's United
States Taxes or state or municipal Taxes is pending and Company has no
knowledge of any liability as of the date hereof for any Tax for which
there is not an adequate reserve reflected in the Financial Statements.
b. Company has provided Purchasers with true and
complete copies of all federal and state income tax returns listed on
Schedule 3.19.
c. As used herein, "TAX" or "TAXES" means all taxes
(including income tax, payroll tax, sales tax, use tax, property tax),
assessments, fees, levies, imposts, duties, penalties, deductions,
withholdings or other charges of any nature whatsoever from time to
time or at any time imposed by any law or any federal, state, local or
foreign jurisdiction.
3.20 Insurance. Company has fire, casualty and liability
insurance pursuant to policies described on Schedule 3.20 hereto, all of which
shall remain in effect after the Closing.
3.21 Registration Rights. Except as required by the Investor
Rights Agreement (as hereinafter defined), and as described on Schedule 3.21,
Company is not under any obligation to register (as defined in the Investor
Rights Agreement) any of its presently outstanding securities or any of its
securities which may hereafter be issued.
3.22 Voting Agreements. Except as set forth in the Articles
and the Investor Rights Agreement, and except as set forth on Schedule 3.22,
Company has no agreement, obligation or commitment with respect to the election
of any individual or individuals to the Board of Directors, and there is no
voting agreement or other arrangement among its shareholders with respect to the
election of any individual or individuals to the Board of Directors.
<PAGE>
3.23 Governmental Consents. All consents, approvals, orders or
authorization of, and registrations, qualifications, designations, declarations
and filings with any federal or state governmental authority on the part of
Company required in connection with the valid execution and delivery of this
Agreement, the Investor Rights Agreement, the Shareholders Agreement and the
Warrants, the offer, sale and issuance of the Debentures hereunder, the Series A
Stock upon conversion of the Debentures, the Underlying Common Stock, and the
Warrant Shares, and the consummation of any other transaction contemplated
hereby have been obtained, or will be obtained prior to the Closing, except for
notices required or permitted to be filed with certain state and federal
securities commissions after the Closing, which notices will be filed on a
timely basis.
3.24 Offering. Assuming the accuracy of the representations
and warranties of Purchasers contained in Section 4 hereof, the offer, issuance
and sale of the Debentures hereunder, the Series A Stock issued upon conversion
of the Debentures, the Underlying Common Stock, the Warrants and the Warrant
Shares, are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 (the "1933 ACT") and have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all applicable
state securities laws.
3.25 ERISA.
a. Definitions. As used herein -
(1) "CODE" means the Internal Revenue Code
of 1986, as amended, or any successor statute.
(2) "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended from time to time, or
any successor statute.
(3) "EMPLOYEE BENEFIT PLAN" means any
employee benefit plan within the meaning of Section 3(3) of
ERISA maintained or contributed to by Company, other than a
Multiemployer Plan.
(4) "MULTIEMPLOYER PLAN" means a Pension
Plan which is a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
(5) "PENSION PLAN" means an employee pension
benefit plan maintained or contributed to by Company for its
employees, and which is subject to the provisions of Title IV
of ERISA.
b. Benefit Plans and Multiemployer Plans. Company
does not maintain or contribute to any Employee Benefit Plan or
Multiemployer Plan other than those identified on Schedule 3.25 hereto.
<PAGE>
c. Compliance with Laws. Company is in compliance in
all material respects with all applicable provisions of ERISA and the
Code with respect to all Employee Benefit Plans.
d. No Actions or Investigations. No material
proceeding, claim, lawsuit and/or investigation is existing or, to
Company's Knowledge, threatened against Company, concerning or
involving any Employee Benefit Plan or Multiemployer Plan.
3.26 Environmental Matters. Company has not caused or allowed,
nor has it contracted with any party for, the generation, use, transportation,
treatment, storage or disposal of any Hazardous Substance (as defined below) in
connection with the operations of its business or otherwise, other than in
compliance with applicable Environmental Laws (as defined below). To Company's
Knowledge, Company, together with any real property that it owns, leases, or
otherwise occupies or uses and the operations of its business (the "PREMISES"),
are in compliance with all applicable Environmental Laws and orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws, including, without limitation, any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances. Company has not received any
citation, directive, letter or other communication, written or oral, or any
notice of any proceedings, claims or lawsuits, from any person, entity or
governmental authority arising out of the ownership or occupation of the
Premises or the conduct of its operations, nor is it aware of any basis
therefor. Company has obtained and is maintaining in full force and effect all
necessary permits, licenses and approvals required by any Environmental Laws
applicable to the Premises and the business operations conducted thereon and is
in compliance with all such permits, licenses and approvals. Company has not
caused or allowed a release, or a threat of release, of any Hazardous Substance
unto, at or near the Premises nor, to Company's Knowledge, has the Premises or
any property at or near the Premises ever been subject to a release, or a threat
of release, of any Hazardous Substance. For purposes of this Agreement, the term
"ENVIRONMENTAL LAWS" shall mean any federal, state or local law, ordinance or
regulation pertaining to the protection of human health or the environment,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 et seq., Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. ss.ss. 11001 et seq., and
the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901 et seq. For
purposes of this Agreement, the term "HAZARDOUS SUBSTANCES" shall include oil
and petroleum products, asbestos, polychlorinated biphenyls and urea
formaldehyde, and any other materials classified as hazardous or toxic under any
Environmental Laws.
3.27 Disclosure. No representation or warranty by Company or
Founder in this Agreement, or in any written statement or certificate furnished
or to be furnished to Purchasers pursuant to this Agreement or in connection
with the transactions contemplated by this Agreement (when read together)
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements
contained herein or therein in the light of the context in which they were made
not misleading.
4. Representations and Warranties of Purchaser.
<PAGE>
Each Purchaser, for itself but not for any other Purchaser,
hereby represents and warrants to Company as follows:
4.1 Power and Authority. It has the requisite power and
authority to enter into this Agreement, to purchase the Debentures hereunder, to
convert the Debentures into Series A Stock, to convert the Series A Stock into
Underlying Common Stock, and to carry out and perform its obligations under the
terms of this Agreement.
4.2 Due Execution. This Agreement has been duly authorized,
executed and delivered by it, and, upon due execution and delivery by Company,
this Agreement will be a valid and binding agreement of it, subject to laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, rules and laws governing specific performance, injunctive relief and
other equitable remedies and, with respect to the indemnification agreements set
forth in the Investor Rights Agreement, principles of public policy.
4.3 Investment Representations.
a. This Agreement is made by Company with Purchasers
in reliance upon each Purchaser's representation to Company, which by
its acceptance hereof each Purchaser hereby confirms, that the
Debentures to be received by it, the Series A Stock issued on
conversion thereof, the Underlying Common Stock, the Warrants and
Warrant Shares will be acquired for investment for its own account, not
as a nominee or agent, and not with a view to the sale or distribution
of any part thereof.
b. Each Purchaser understands that the Debentures,
the Series A Stock issued upon conversion thereof and the Underlying
Common Stock, the Warrants and the Warrant Shares have not been
registered under the 1933 Act or any state securities laws on the
grounds that the sale provided for in this Agreement and the issuance
of securities hereunder are exempt from registration under the 1933
Act, and that Company's reliance on such exemption is predicated in
part on such Purchaser's representations set forth herein.
c. Each Purchaser recognizes that the investment in
the Debentures involves special risks, and represents that it has such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment, and has
the ability to bear the economic risks of its investment. Prior to
making a decision to enter into this Agreement, each Purchaser has been
provided the opportunity to ask questions of, and receive answers from,
the executive officers of Company concerning Company, and to obtain
from Company information requested from Company. Each Purchaser has
conducted an investigation to its satisfaction of the investment and
has received all information requested from Company; PROVIDED, HOWEVER,
that any investigation conducted by any Purchaser shall not be deemed
to release Company from any breach of representation or warranty
contained in this Agreement. On the basis of the foregoing, and on the
basis of the representations, warranties and covenants of Company
contained in this Agreement and the other documents and instruments
delivered in connection herewith, each Purchaser
<PAGE>
acknowledges that it possesses sufficient information and has,
individually or through advisers, such knowledge or experience in
financial, tax and business matters to enable it to understand and
evaluate the merits and risks associated with an investment in the
Debentures.
d. Each Purchaser understands that each certificate
representing the Series A Stock, the Underlying Common Stock and the
Warrant Shares will be endorsed with the following legend:
"The Securities represented by this
Certificate have not been registered under the
Securities Act of 1933 or applicable state securities
laws. These securities have been acquired for
investment and not with a view to distribution or
resale, and may not be sold, mortgaged, pledged,
hypothecated or otherwise transferred without an
effective registration statement for such securities
under the Securities Act of 1933, any applicable
state securities laws, or the availability of an
exemption from the registration provisions of the
Securities Act of 1933 and applicable state
securities laws."
e. All information which each Purchaser has provided
to Company herein is complete and correct as of the date hereof, and if
there should be any material change in such information prior to
Closing, each Purchaser will immediately provide Company with such
information.
f. Each Purchaser is an "accredited investor" within
the meaning of Rule 501(a) of Regulation D of the Securities and
Exchange Commission.
g. Each Purchaser is domiciled in and maintains its
principal place of business in the jurisdiction shown on Schedule 1.2
hereto.
4.4 No Public Market. Each Purchaser understands that no
public market now exists for any of the securities issued by Company and that
there is no assurance that a public market will ever exist for the Debentures
(or the Series A Stock, Underlying Common Stock or the Warrant Shares).
4.5 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 a Purchaser, because of any special
characteristic of such Purchaser, is required in connection with the valid
execution and delivery of this Agreement, the Investor Rights Agreement, or the
Shareholders Agreement by such Purchaser, and the consummation by each Purchaser
of the transactions contemplated hereby and thereby; PROVIDED, HOWEVER, that
each Purchaser make no representations as to compliance by Company with
applicable securities laws.
<PAGE>
5. Conditions to Purchasers' Obligations at Closing.
The obligations of Purchasers to purchase the Debentures at
Closing are subject to the fulfillment on or before Closing of each of the
following conditions:
5.1 Representations and Warranties; Certificate from Company
and President. The representations and warranties of Company and Founder
contained in Section 3 shall be true on and as of Closing with the same force
and effect as if they had been made as of such date, and Purchasers shall have
received a certificate (in form and substance satisfactory to Purchasers)
executed by each of Company and its President and by Founder certifying that
such representations and warranties are true and correct as of Closing.
5.2 Performance. Company and Founder shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by it on or before the Closing, and Purchasers
shall have received a certificate to that effect dated as of Closing, signed by
Company's President and by Founder (in form and substance satisfactory to
Purchasers).
5.3 Qualifications. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required prior to and in connection with the lawful
issuance and sale of the Debentures pursuant to this Agreement shall have been
duly obtained and shall be effective on and as of Closing.
5.4 Legal Investment. At the time of the Closing, the purchase
of the Debentures by Purchasers hereunder shall be legally permitted by all laws
and regulations to which it or Company are subject.
5.5 Articles. Company shall have duly filed the Articles with
the North Carolina Secretary of State, which Articles shall be in full force and
effect at Closing.
5.6 Investor Rights Agreement. Company and the stockholders
named therein shall have executed and delivered an Investor Rights Agreement
substantially in the form of that which is attached hereto as Exhibit G (the
"INVESTOR RIGHTS AGREEMENT").
5.7 Shareholders Agreement. Company and the stockholders named
therein shall have executed and delivered a Shareholders Agreement substantially
in the form of that which is attached hereto as Exhibit H (the "SHAREHOLDERS
AGREEMENT").
5.8 Opinion of Company's Counsel. Purchasers shall have
received from Poyner & Spruill, L.L.P., counsel to the Company, an opinion
letter addressed to Purchasers, dated the date of the Closing, substantially in
the form attached hereto as Exhibit I or such other form as may be approved by
counsel to Purchaser.
5.9 Noncompetition, Confidentiality and Inventions
Agreements.
<PAGE>
a. Each Key Employee and the chief executive officer,
president, chief operating officer, chief financial officer, vice
president of research and development, and vice president of marketing
and sales of Company (to the extent such positions are filled) shall
have executed and delivered to Company a Noncompetition, Inventions and
Confidentiality Agreement in form and substance satisfactory to
Purchasers.
b. Any patents, trademarks, know-how or similar
assets used in the conduct of Company's business and personally held by
any stockholder or Key Employee shall have been assigned to Company and
evidence thereof delivered at Closing.
5.10 Secretary's Certificate. There shall have been delivered
to Purchasers a certificate, dated as of the Closing, signed by Company's
Secretary or an Assistant Secretary and in form and substance satisfactory to
Purchasers, which shall certify (i) the names of its officers authorized to sign
this Agreement, the Debentures, the Warrants and the other documents,
instruments or certificates to be delivered pursuant to this Agreement by
Company or any of its officers, together with true signatures of such officers;
(ii) that the copy of the Bylaws attached thereto are true, correct and complete
in every respect; (iii) that the attached copy of resolutions of Company's Board
of Directors' and, if applicable, Stockholders, evidencing the approval of this
Agreement, the issuance of the purchased Debentures, the Investor Rights
Agreement, the Shareholders Agreement, the Warrants, and the other matters
contemplated hereby and thereby, were duly adopted or ratified by unanimous
written consent or at a duly called and held meeting in accordance with the
Bylaws and applicable law and are in full force and effect.
5.11 Certificate of Existence; Tax Clearance Letter. There
shall have been delivered to each Purchaser a Certificate of Existence for
Company from the Secretary of State of the State of North Carolina, and a tax
clearance letter from the Department of Revenue of the State of North Carolina.
5.12 Payment of Fees and Expenses. All fees, costs and
expenses specified in Section 7.12 hereof shall have been paid.
5.13 Insurance. Company shall have delivered copies of the
policies of insurance required by the Investor Rights Agreement accompanied by
evidence of payment of the premiums therefor.
5.14 Key Man Insurance. Company shall have delivered evidence
of life insurance required by the Investor Rights Agreement accompanied by
evidence of payment of the premiums therefor.
5.15 Debentures. Company shall have executed and delivered to
each Purchaser the Debentures to be purchased by each Purchaser as required by
Section 2.2 hereof.
5.16 Warrants. Company shall have executed and delivered to
each Purchaser the Warrants required to be executed and delivered by Company to
such Purchaser pursuant to Section 2.3 hereof.
<PAGE>
5.17 Exchangeable Note. Company shall have issued to
Centennial at the Closing the Debentures issuable to Centennial upon exchange of
the Exchangeable Note by Centennial in accordance with its terms.
5.18 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to Purchasers and their counsel,
and Purchasers and their counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
6. Conditions to Company's Obligations at Closing.
The obligations of Company to issue and sell the Debentures at
Closing are subject to the fulfillment on or before Closing of each of the
following conditions:
6.1 Representations and Warranties. The representations and
warranties made by each Purchaser in Section 4 shall be true on and as of the
Closing with the same force and effect as if they had been made at the Closing.
6.2 Performance. Purchasers shall have performed and complied
with all agreements and conditions contained in this Agreement required to be
performed or complied with by them on or before the Closing.
6.3 Qualifications. All authorizations, approvals or permits,
if any, to be obtained by Purchasers from any governmental authority or
regulatory body of the United States, any state, or any foreign jurisdiction
that are required prior to and in connection with the lawful issuance and sale
of the Debentures pursuant to this Agreement shall have been duly obtained and
shall be effective on and as of the Closing.
6.4 Legal Investment. At the time of the Closing, the purchase
of the Debentures by Purchasers hereunder shall be legally permitted by all laws
and regulations to which it or Company are subject.
6.5 Investor Rights Agreement. Purchasers at Closing shall
have executed and delivered the Investor Rights Agreement.
6.6 Shareholders Agreement. Purchasers at Closing shall have
executed and delivered the Shareholders Agreement.
7. Miscellaneous.
7.1 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement between the parties with
respect to the subject matter hereof, and no party shall be liable or bound to
any other party in any manner by, any warranties,
<PAGE>
representations or covenants with respect to such subject matter, except as
specifically set forth herein or therein. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
7.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of North Carolina as applied to agreements
among North Carolina residents made and to be performed entirely within the
State of North Carolina, and without regard to the conflicts of law principles
as may otherwise be applicable.
7.3 Jurisdiction and Venue. Each party to this Agreement
hereby irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereunder may be
brought in the courts of Wake County in the State of North Carolina or of the
United States of America for the Eastern District of North Carolina, and hereby
expressly submits to the personal jurisdiction and venue of such courts for the
purposes thereof and expressly waives any claim of improper venue and any claim
that such courts are an inconvenient forum. Each party hereby irrevocably
consents to the service of process of any of the aforementioned courts in any
such suit, action or proceeding, by the mailing of copies thereof by registered
or certified mail, postage prepaid, to its address set forth in this Agreement,
such service to become effective ten (10) days after such mailing.
7.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
7.6 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with a foreign address)
following mailing by registered or certified mail, return receipt requested,
postage prepaid, addressed: (a) if to a Purchaser or the Purchasers, at such
Purchaser's or Purchasers' address as set forth on Schedule 1.2 attached hereto,
or at such other address as such Purchaser or Purchasers shall have furnished to
the other parties hereto in writing, with copies to:
Kennedy Covington Lobdell & Hickman, L.L.P.
Attn: Robert B. Womble, Esq.
Two Hannover Square
Suite 1900
Post Office Box 1070
Raleigh, North Carolina 27602
Telephone: (919) 743-7300
Facsimile: (919) 743-7358
<PAGE>
(b) if to Company, at the address noted below, or at such other address as
Company shall have furnished to the other parties hereto in writing:
ID Technologies Corporation
Attn: J. Phillips L. Johnston
NCSU Centennial Campus
920 Main Campus Drive
Suite 400
Raleigh, North Carolina 27606
Telephone: (919) 424-3722
Facsimile: (919) 424-3723
with a copy to:
Poyner & Spruill, L.L.P.
Attn: James M. O'Brien III
3600 Glenwood Avenue
Post Office Box 10096
Raleigh, North Carolina 27605-0096
Telephone: (919) 783-6400
Facsimile: (919) 783-1075
or (c) if to Founder, at the address noted below, or at such other address as
Founder shall have furnished to the other parties hereto in writing:
William F. Lane
c/o ID Technologies Corporation
2506 West Nash Street, Suite C
Wilson, North Carolina 27896
Telephone: (252) 206-1089
Facsimile: (252) 206-4990
7.7 Attorneys' Fees. Should any litigation or arbitration be
commenced between the parties hereto concerning this Agreement, the party
prevailing in such litigation or arbitration shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum for attorneys' fees and
costs in such litigation or arbitration, which shall be determined by the court
or arbitrator, as the case may be.
7.8 Survival. The representations, warranties, covenants and
agreements made by Company, Founder or by any Purchaser herein shall survive any
investigation made by Company, Purchasers and the Closing. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of Company, Founder or any Purchaser pursuant hereto or in connection
with the transactions contemplated hereby shall be deemed to be representations
and warranties made by Company, Founder and such Purchaser, as applicable,
hereunder as of the date of such certificate or instrument. Notwithstanding the
foregoing, to the
<PAGE>
extent a party closes the purchase and sale of the Debentures with knowledge of
a breach of warranty by another party, such breach of warranty is waived as to
the party with knowledge thereof.
7.9 Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall to the extent practicable,
be modified so as to make it valid, legal and enforceable and to retain as
nearly as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.10 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to Company or Purchasers or any subsequent
holder of any Debentures upon any breach, default or noncompliance of Purchaser,
any subsequent holder of any Debentures or Company or Founder under this
Agreement or under the Articles, shall impair any such right, power or remedy,
nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of Company or
Purchasers of any breach, default or noncompliance under this Agreement or under
the Articles or any waiver on Company's or any Purchaser's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing and that all
remedies, either under this Agreement or the Articles, by law, or otherwise
afforded to Company and Purchaser, shall be cumulative and not alternative.
7.11 Finder's Fees.
a. Company (i) represents and warrants that it has
retained no finder or broker in connection with the transactions
contemplated by this Agreement and (ii) hereby agrees to indemnify and
to hold Purchasers harmless of and from any liability for any
commission or compensation in the nature of a finder's fee to any
broker or other person or firm (and the costs and expenses of defending
against such liability or asserted liability) for which Company or any
of its employees or representatives is responsible.
b. Purchasers (i) represent and warrant that none has
retained any finder or broker in connection with the transactions
contemplated for this Agreement, and (ii) hereby agree to indemnify and
to hold Company harmless of and from any liability for any commission
or compensation in the nature of a finder's fee to any broker or other
person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which any Purchaser or any of its
employees or representatives are responsible.
7.12 Fees and Expenses. Company shall pay at the Closing all
reasonable fees, costs and expenses of Purchasers relating to the negotiation
and execution of this Agreement, the Articles, the Investor Rights Agreement,
the Shareholders Agreement, the Debentures, the Warrants and the closing of the
transactions contemplated by such agreements, subject to maximum fees of counsel
to Purchasers of Eighteen Thousand Dollars ($18,000.00), plus
<PAGE>
expenses of counsel. In addition, Company shall pay at the Closing all expenses
incurred by Centennial Venture Partners, LLC in the conduct of its due diligence
investigation and completion of the investment described herein, subject to
maximum expenses of Five Thousand Dollars ($5,000.00).
7.13 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of Company and the holders of at least
fifty percent (50%) of the outstanding principal amount of all Debentures
(including, for such purposes, on a proportional basis, any shares of Series A
Stock into which any Debentures have been converted and any shares of Underlying
Common Stock into which any such shares of Series A Stock have been converted
that have not been disposed of by any Purchaser or its transferees pursuant to
one or more registration statements under the 1933 Act, or pursuant to Rule
144). Any amendment or waiver effected in accordance with this Section shall be
binding upon the holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and Company.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
SIGNATURE PAGE FOR
COMPANY
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the date first above written.
ID TECHNOLOGIES CORPORATION
ATTEST:
By: /s/ J. Phillips L. Johnston
----------------------------------
J. Phillips L. Johnston, President
/s/ Barbara D. Lane
- ---------------------
(Assistant) Secretary
[AFFIX CORPORATE SEAL]
<PAGE>
SIGNATURE PAGE FOR FOUNDER
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the date first above written.
FOUNDER:
By: /s/ William F. Lane (SEAL)
----------------------------
William F. Lane
<PAGE>
SIGNATURE PAGE FOR
CENTENNIAL VENTURE PARTNERS, LLC
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the date first above written.
CENTENNIAL VENTURE PARTNERS, LLC (SEAL)
By: Centennial Venture Management, LLC,
Manager (SEAL)
By: /s/ Glenn J. Kline
-------------------------------------
Glenn J. Kline, Managing Director and
Manager
<PAGE>
SIGNATURE PAGE FOR ADDITIONAL PURCHASER
IN WITNESS WHEREOF, the parties have executed this Agreement
under seal as of the date first above written.
[For entity purchasers]
------------------------------------------
Name of Purchaser
By:
Name:
Title:
[For individual purchasers]
------------------------------------------
Name:
Address and Facsimile Number of Purchaser:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Domicile and Principal Place of Business
of Purchaser:
------------------------------------------
Amount of Investment:
------------------------------------------
Original Principal Amount of Debentures:
------------------------------------------
<PAGE>
SCHEDULE 1.2
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
<S> <C>
=============================================== ================ ================ ================
NAME AND ADDRESS ORIGINAL PURCHASE PRICE PERCENTAGE OF
PRINCIPAL FOR DEBENTURES ORIGINAL
AMOUNT OF PRINCIPAL
DEBENTURES AMOUNT OF
DEBENTURES
=============================================== ================ ================ ================
Centennial Venture Partners, LLC
2 Davis Drive $300,000 $300,000 100%
Research Triangle Park, North Carolina 27701
Facsimile Number (919) 558-0156
Attn: Glenn J. Kline
=============================================== ================ ================ ================
Total $300,000 $300,000 100%
=============================================== ================ ================ ================
</TABLE>
Exhibit 6.07
ID TECHNOLOGIES CORPORATION
1999 STOCK OPTION PLAN
1. Purpose
ID Technologies Corporation (the "Company") hereby establishes the ID
Technologies Corporation 1999 Stock Option Plan (the "Plan") to advance the
interests of the Company's stockholders by creating an incentive for, and
enhancing the Company's ability to attract, retain and motivate key employees,
directors and consultants or advisors of ID Technologies Corporation and any
successor corporations thereto (collectively, the "Company") or future parent
and/or subsidiary corporations of such corporation (as defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code")) (all of whom, along with the
Company, sometimes being individually referred to as a "Participating Company"
and collectively referred to as the "Participating Company Group") by providing
such individuals with equity ownership opportunities and performance-based
incentives and thereby better aligning the interests of such individuals with
those of the Company's stockholders.
2. Eligibility
Individuals eligible to be granted Options (as hereinafter defined)
under the Plan include any Participating Company's employees and directors and
any other individual whom the Compensation Committee, as defined below,
determines is eligible under the Plan. Any individual who has been granted an
Option under the Plan shall be deemed a "Participant." The Compensation
Committee, in its sole discretion, shall determine which individuals shall be
granted Options under the Plan. A director of a Participating Company shall be
eligible to be granted an Incentive Stock Option (as hereinafter defined) only
if the director is also an employee of a Participating Company. A consultant or
advisor to a Participating Company or a non-employee director of a Participating
Company shall be eligible to be granted only Options other than Incentive Stock
Options.
3. Administration.
(A) COMPENSATION COMMITTEE. The Compensation Committee appointed by the
Company's Board of Directors (the "Compensation Committee") shall administer the
Plan. The Compensation Committee shall have the authority to grant Options and
to adopt, amend and repeal such administrative rules, guidelines and practices
relating to the Plan as it shall deem advisable from time to time. The
Compensation Committee may correct any defect, supply any omission or reconcile
any inconsistency in the Plan or any Option Agreement (as hereinafter defined)
in the manner and to the extent it shall deem expedient to carry the Plan into
effect, and it shall be the sole and final judge of such expediency. No member
of the Compensation Committee shall be liable for any action or determination
relating to the Plan. All decisions by the Compensation Committee shall be made
in the Compensation Committee's sole discretion and shall be final and binding
on all individuals having or claiming any interest in the Plan or in any Option.
No individual acting pursuant to authority delegated by the Compensation
Committee shall be liable for any action or determination under the Plan made in
good faith.
<PAGE>
(B) COMPANY. The President of the Company (or, in his absence, the
Board of Directors) shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation or election which is the
responsibility of or which is allocated to the Company herein.
4. Stock Available For Options
(A) NUMBER OF SHARES. Subject to adjustment under Section 4(b), Options
may be granted under the Plan for up to a maximum of One Million Three Hundred
Eighty-Three Thousand One Hundred Forty-Eight (1,383,148) shares of the
Company's common stock, no par value per share (the "Common Stock"). If any
Option expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Option shall
again be available for the grant of Options under the Plan, subject, however, in
the case of Incentive Stock Options, to any limitation required under the Code.
(B) ADJUSTMENTS TO COMMON STOCK. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, and (ii) the number and class of security and exercise price
per share subject to each outstanding Option shall be appropriately adjusted by
the Company (or substituted Options may be granted, if applicable) to the extent
the Compensation Committee determines, in good faith, that such an adjustment
(or substitution) is necessary and appropriate. If this Section 4(b) applies and
Section 7 also applies to any event, Section 7 shall be applicable to such
event, and this Section 4(b) shall not be applicable.
5. Stock Options
(A) GENERAL. The Compensation Committee may grant to eligible persons
options to purchase Common Stock (each, an "Option") and determine the number of
shares of Common Stock to be covered by each Option, the exercise price of each
Option and the conditions and limitations applicable to the exercise of each
Option, including conditions relating to applicable federal or state securities
laws, as it deems necessary or advisable. An Option that is not intended to be
an Incentive Stock Option shall be designated a "Non-Qualified Stock Option."
Each Option under the Plan shall be evidenced by a written instrument in such
form as the Compensation Committee shall determine (the "Option Agreement").
Each Option Agreement may contain terms and conditions in addition to but not
inconsistent with those set forth in the Plan, as may be determined by the
Compensation Committee.
(B) INCENTIVE STOCK OPTIONS. An Option that the Compensation Committee
intends to be an "incentive stock option" as defined in Code Section 422 (an
"Incentive Stock Option") shall only be granted to employees of Participating
Companies and shall be subject to and construed consistently with the
requirements of Code Section 422. The Company shall have no liability to a
Participant, or any other party, if an Option (or any part thereof) which is
intended to be an Incentive Stock Option is not an Incentive Stock Option.
<PAGE>
(C) EXERCISE PRICE. The Compensation Committee shall establish, in its
sole discretion, the exercise price at the time each Option is granted and
specify it in the applicable Option Agreement; provided, however, that (i) the
exercise price per share of Common Stock for an Incentive Stock Option shall be
not less than the fair market value of a share of Common Stock on the date of
grant of such Incentive Stock Option, as determined by the Compensation
Committee in good faith (the "Fair Market Value"), and (ii) the exercise price
per share of Common Stock for an Incentive Stock Option granted to a Participant
who at the time the Incentive Stock Option is granted owns stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of a Participating Company within the meaning of Code Section 422(b)(6) (a
"Ten Percent Owner Participant") shall be not less than one hundred ten percent
(110%) of the Fair Market Value. Notwithstanding the foregoing, an Incentive
Stock Option may be granted by the Compensation Committee in its discretion with
an exercise price lower than the minimum exercise price set forth above if such
Incentive Stock Option is granted pursuant to an assumption of or substitution
for another Option in a manner qualifying under the provisions of Code Section
424(a).
(D) $100,000 LIMITATION. The aggregate Fair Market Value, determined as
of the date on which an Incentive Stock Option is granted, of the shares of
Common Stock with respect to which Incentive Stock Options (determined without
regard to this Section 5(d)) are first exercisable during any calendar year
(under this Plan or under any other plan of the Participating Company Group) by
any Participant shall not exceed $100,000. If such limitation would be exceeded
with respect to a Participant for a calendar year, the Incentive Stock Option
shall be deemed a Non-Qualified Stock Option to the extent of such excess.
(E) TIME FOR GRANTING INCENTIVE STOCK OPTIONS. All Incentive Stock
Options must be granted, if at all, within ten years from the earlier of the
date the Plan is adopted by the Company's Board of Directors or the date the
stockholders of the Company duly approve the Plan.
(F) DURATION OF OPTIONS. Each Option shall be exercisable at such times
and subject to such terms and conditions as are specified in this Plan and in
the applicable Option Agreement; provided, however, that (i) no Option issued to
a Participant who is a Participating Company employee shall be exercisable after
the Participant voluntarily terminates his or her employment with the
Participating Company Group, unless the Participant terminates employment on
account of retirement after attainment of age sixty-five (65) or on account of
Participant's disability (within the meaning of Code Section 22(c)(3)); (ii) no
Incentive Stock Option shall be exercisable after the expiration of ten years
after the date such Incentive Stock Option is granted; (iii) no Incentive Stock
Option granted to a Ten Percent Owner Participant shall be exercisable after the
expiration of five years after the date such Incentive Stock Option is granted;
and (iv) no Incentive Stock Option shall be exercisable after the expiration of
three months after the date on which the Participant terminates employment with
the Participating Company Group, unless the Participant's employment with the
Participating Company Group shall have terminated as a result of the
Participant's death or disability (within the meaning of Code Section 22(c)(3)),
in which event the Option shall terminate, and cease to be exercisable no later
than twelve months from the date on which the Participant's employment
terminated. For this purpose, a Participant's employment shall be deemed to have
terminated on account of death if the Participant dies within three months
following the Participant's termination of employment.
<PAGE>
(G) VESTING SCHEDULE. Unless otherwise specified in the applicable
Option Agreement, each Option granted to an employee or director of the Company
or a Participating Company under this Plan shall become vested and first
exercisable by the Participant in accordance with the schedule set forth below:
Percentage of Shares with
Time of Vesting Respect to which Option is Vested
--------------- ---------------------------------
Date of Grant 33%
After 1 Year of Service 33%
After 2 Years of Service 33%
Unless otherwise provided in the applicable Option Agreement, an Option granted
to a person other than an employee or director of the Company or a Participating
Company under this Plan shall be fully vested when granted.
For vesting purposes, a "year of service" means a twelve consecutive month
period of continuous service by a Participant as an employee or director of a
Participating Company. The initial computation period in determining a
Participant's vesting percentage is the first twelve consecutive month period of
continuous service by the Participant measured from the date the Option is
granted, or from such other date specified in the applicable Option Agreement.
Except as otherwise provided in the applicable Option Agreement, service prior
to the Option grant date shall be disregarded. For vesting purposes, continuous
service with the Company shall include a leave of absence that is approved by
the Company as well as leave taken under the Family and Medical Leave Act of
1993.
(H) EXERCISE OF OPTIONS. Subject to the provisions of this Plan and the
applicable Option Agreement, vested Options may be exercised on the last
business day of any calendar quarter or on any other day specified in Section 7
hereof (the "Exercise Date") by delivery to the Company of at least thirty (30)
days prior written notice of exercise signed by the Participant. The Company in
its discretion and on a case by case basis may establish additional Exercise
Dates or waive in whole or in part the advance notice requirement. Unless
otherwise provided in the applicable Option Agreement, as a condition to the
exercise of any Option under this Plan the Participant shall be required to
execute (1) a shareholders' agreement (the "Shareholders' Agreement") providing,
INTER ALIA, that shares of Common Stock purchased under this Plan are subject to
the Company's repurchase, bring-along and other similar rights, and (2) in the
Company's discretion, a separate confidentiality and non-compete agreement in
the form specified by the Company.
(I) PAYMENT UPON EXERCISE. On the Exercise Date, the Participant shall
pay for Common Stock purchased upon the exercise of an Option granted under the
Plan as follows:
(1) by delivery to the Company of the exercise price in cash
or by certified check, payable to the order of the Company;
(2) to the extent permitted by the Company at the time of
exercise, by delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to
<PAGE>
the Company sufficient funds to pay the exercise price, or delivery by the
Participant to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company cash or
a certified check sufficient to pay the exercise price;
(3) to the extent expressly permitted in an Option Agreement,
by delivery of shares of Common Stock owned by the Participant with an aggregate
Fair Market Value equal to the exercise price, which Common Stock was owned by
the Participant at least six months prior to such delivery;
(4) to the extent permitted by the Company at the time of
exercise and further to the extent permitted by applicable law, by delivery of a
promissory note of the Participant to the Company with a face amount equal to
the exercise price, and secured by valuable collateral acceptable to the Company
and on such other terms as determined by the Company, or by payment of such
other lawful consideration as the Company may determine; or
(5) subject to the limitations expressed above, any
combination of the above-permitted forms of payment.
6. General Provisions Applicable to Options
(A) TRANSFERABILITY OF OPTIONS. Except as the Compensation Committee
may otherwise provide in an Option Agreement, Options shall not be sold,
assigned, transferred, pledged or otherwise encumbered by the individual to whom
they are granted, either voluntarily or by operation of law, except by will or
the laws of descent and distribution.
(B) COMPENSATION COMMITTEE AND COMPANY DISCRETION. Except as otherwise
provided by the Plan, each type of Option may be granted alone or in addition or
in relation to any other type of Option. The terms of each type of Option need
not be identical. In the exercise of any discretion provided to the Compensation
Committee or the Company under the terms of the Plan or an Option Agreement, the
Compensation Committee and the Company shall not be required to treat
Participants uniformly.
(C) TERMINATION OF STATUS. The Compensation Committee shall in its
discretion determine the effect on an Option of the disability, death,
retirement, authorized leave of absence or other change in the employment or
other status of a Participant and the extent to which, and the period during
which the Participant, the Participant's legal representative, conservator,
guardian or designated beneficiary may exercise rights under the Option.
(D) WITHHOLDING. Each Participant shall pay to the Company, or make
provision satisfactory to the Compensation Committee for payment of, any taxes
required by law to be withheld in connection with Options granted to such
Participant (including but not necessarily limited to federal, state or local
income and employment taxes) no later than the date of the event creating the
tax liability. The Company may allow Participants to satisfy such tax
obligations in whole or in part in shares of Common Stock, including shares
retained from the Option creating the tax obligation, valued at their Fair
Market Value. The Company may, to the extent permitted by law, deduct any such
tax obligations from any payment of any kind otherwise due to a Participant.
<PAGE>
(E) AMENDMENT OF OPTION. The Compensation Committee may amend, modify
or terminate any outstanding Option, including but not limited to, substituting
therefor another Option of the same or a different type, changing the Exercise
Date, and converting an Incentive Stock Option to a Non-Qualified Stock Option,
provided that the Participant's consent to such action shall be required unless
the Compensation Committee determines that the action, taking into account any
related action, would not materially and adversely affect the Participant.
Notwithstanding the foregoing, the Compensation Committee may amend an Option
without the Participant's consent to the extent the Compensation Committee
determines that the amendment is necessary to comply with applicable provisions
of state or federal securities laws or regulations.
(F) CONDITIONS ON DELIVERY OF STOCK. The Company shall not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Option have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable securities exchange
or stock market rules and regulations, and (iii) the Participant has executed
and delivered to the Company such representations or agreements as the Company
may consider appropriate to satisfy the requirements of any applicable laws,
rules or regulations.
7. Transfer of Control
A "Transfer of Control" shall be deemed to have occurred in the event
any of the following occurs with respect to the Company or another Participating
Company.
(a) the direct or indirect sale or exchange by the stockholders of
the Company of all or substantially all of the stock of the
Company where the stockholders of the Company before such sale
or exchange do not retain, directly or indirectly, at least a
majority of the beneficial interest in the voting stock of the
Company after such sale or exchange;
(b) a public offering of Company stock under the Securities Act of
1933, as amended (the "1933 Act") pursuant to which the
Company raises not less than $15,000,000;
(c) a merger or similar reorganization involving the Company in
which the Company is not the surviving corporation;
(d) a merger or similar reorganization involving the Company in
which the Company is the surviving corporation where the
stockholders of the Company before such merger do not retain,
directly or indirectly, at least a majority of the beneficial
interest in the voting stock of the Company after such merger;
(e) the sale, exchange or transfer of all or substantially all of
the Company's assets (other than a sale, exchange or transfer
to one or more Participating Companies that are subsidiary
corporations of the Company); or
<PAGE>
(f) a liquidation or dissolution of the Company.
Except as otherwise provided in the applicable Option Agreement, on the
effective date of a Transfer of Control any previously unexercisable and/or
unvested portion of outstanding Options shall become fully vested and such
Options shall be exercisable as of such effective date. The Compensation
Committee may in its sole discretion require Participants to provide reasonable
advance notice of intent to exercise Options upon a Transfer of Control. The
Compensation Committee may in its discretion provide that any Options which are
not exercised as of the effective date of a Transfer of Control described in
Section 7(a), (b), (d) or (e) shall terminate effective upon consummation of the
Transfer of Control; otherwise, the number and kind of shares of Common Stock
which thereafter are subject to Options granted under this Plan and the number,
kind and price of shares of Common Stock then subject to Options shall be
appropriately adjusted in such manner as the Compensation Committee may deem
equitable to prevent substantial dilution or enlargement of the rights available
or granted hereunder and, in the case of Incentive Stock Options, to comply with
Code Sections 422 and 424(a). Any Options which are not exercised as of the
effective date of a Transfer of Control described in Section 7(c) shall
automatically terminate upon consummation of the Transfer of Control unless the
surviving entity expressly assumes the Options in connection with the Transfer
of Control.
The Compensation Committee may grant Options under the Plan in
substitution for stock and stock-based awards held by employees of another
corporation who become employees of a Participating Company as a result of a
merger or consolidation of the employing corporation with the Participating
Company or the acquisition by the Participating Company of property or stock of
the employing corporation. The substitute Options shall be granted on such terms
and conditions as the Compensation Committee considers appropriate under the
circumstances.
8. Miscellaneous
(A) NO RIGHT TO EMPLOYMENT OR OTHER STATUS. No individual shall have
any claim or right to be granted an Option, and the grant of an Option shall not
be construed as giving a Participant the right to continued employment or any
other relationship with the Company or any Participating Company. The Company
and any Participating Company expressly reserve the right at any time to dismiss
or otherwise terminate its relationship with a Participant free from any
liability or claim under the Plan, except as expressly provided in the
applicable Option Agreement.
(B) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the
applicable Option Agreement, no Participant shall have any right as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Option until becoming the record holder of such shares. If the
transfer or redistribution of shares of Common Stock is restricted pursuant to
applicable securities laws or any agreement binding on a Participant,
certificates representing such shares of Common Stock may bear a legend
referring to such restrictions.
(C) NO RIGHTS. Except as hereinabove expressly provided in Sections 4
and 7, no Participant shall have any rights by reason of any subdivision or
consolidation of shares of the capital stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of shares of any
class or by reason of any dissolution, liquidation, merger or
<PAGE>
consolidation or spin-off of assets or stock of another corporation, and any
issue by the Company of shares of stock of any class or of securities
convertible into shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to any Option granted hereunder. The grant of
an Option pursuant to this Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or consolidate or to
dissolve, liquidate, sell, or transfer all or any part of its business or
assets.
(D) SUBJECT TO LAW. The Plan and the grant of Options hereunder shall
be subject to all applicable federal and state laws, rules, and regulations and
to such approvals by any United States government or regulatory agency,
including any securities exchange or similar entity, as may be required.
(E) SEVERABILITY. If any provision of this Plan or an Option Agreement
is or becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any agreement evidencing an Option
under any law deemed applicable by the Compensation Committee, such provision
shall be construed or deemed amended to conform to applicable laws or, if it
cannot be construed or deemed amended without, in the determination of the
Compensation Committee, materially altering the intent of the Plan or the
agreement, it shall be stricken and the remainder of the Plan or the agreement
shall remain in full force and effect.
(F) EFFECTIVE DATE AND TERM OF PLAN. The Plan shall become effective on
the date on which it is adopted by the Board of Directors of the Company, but no
Incentive Stock Option granted to a Participant shall be effective unless the
Plan has been approved by the Company's stockholders within 12 months of the
Plan's adoption date. No Options shall be granted under the Plan after the
completion of ten years from the earlier of (i) the date on which the Plan was
adopted by the Company's Board of Directors or (ii) the date the Plan was
approved by the Company's stockholders, but Options previously granted may
extend beyond that date.
(G) TERMINATION OR AMENDMENT OF PLAN. The Company may at any time
terminate this Plan or make such changes in or additions to the Plan as it deems
advisable without further action on the part of the stockholders of the Company,
provided that no such termination or amendment shall adversely affect or impair
any then outstanding Option without the consent of the person holding such
Option, and provided further that any increase in the number of shares of Common
Stock covered by the Plan (other than an increase pursuant to Section 4(b)
above) shall be subject to the approval of the Company's stockholders.
(H) RESERVATION OF COMMON STOCK. The Company, during the term of this
Plan, will at all times reserve and keep available such number of shares of
Common Stock as shall be sufficient to satisfy the requirements of the Plan.
(I) STOCKHOLDER APPROVAL. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Code Section 422.
<PAGE>
(J) GOVERNING LAW. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of North Carolina, without regard to any applicable conflicts of law.
Adopted by the Board of Directors
On ___________ ___, 1999.
Approved by the stockholders of the
Company on _________ ___, _____
Exhibit 6.08
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
-----------------------------------------------
ID TECHNOLOGIES CORPORATION INCENTIVE STOCK OPTION AGREEMENT
ID Technologies Corporation (the "Company") hereby grants to the
individual named below an option to purchase certain shares of common stock of
the Company (the "Option") pursuant to the ID Technologies Corporation 1999
Stock Option Plan, in the manner and subject to the provisions of this Option
Agreement.
1. Definitions:
(a) "Code" shall mean the Internal Revenue Code of 1986,
as amended. (All citations to sections of the Code
are to such sections as they may from time to time be
amended or renumbered.)
(b) "Company" shall mean ID Technologies Corporation, a
North Carolina corporation, and any successor
corporation thereto.
(c) "Date of Option Grant" shall mean _________ ____,
______.
(d) "Disability" shall mean disability within the meaning
of Code Section 22(e)(3), as determined by the
Compensation Committee in its discretion.
(e) "Exercise Date" shall mean ___________________ or any
other date as of which the Option may be exercised
pursuant to Sections 5 or 7 of the Plan. The Company
in its discretion and on a case by case basis may
establish additional Exercise Dates.
(f) "Exercise Price" shall mean _________ dollars
($_____) per share as adjusted from time to time
pursuant to Section 4(b) of the Plan.
(g) "Number of Option Shares" shall mean
_________________________(_______) shares of common
stock of the Company (the "Common Stock") as adjusted
from time to time pursuant to Section 4(b) of the
Plan.
(h) "Option Term Date" shall mean the date ten (10) years
after the Date of Option Grant.
(i) "Participant" shall mean __________________________.
<PAGE>
(j) "Plan" shall mean the ID Technologies Corporation
1999 Stock Option Plan.
Other capitalized terms used herein and without definition shall have
the meanings ascribed to such terms in the Plan.
2. Status of the Option. This Option is intended to be an incentive stock
option as described in Code Section 422, but the Company does not
represent or warrant that this Option qualifies as such. The
Participant should consult with the Participant's own tax advisors
regarding the tax effects of this Option and the requirements necessary
to obtain favorable income tax treatment under Code Section 422,
including, but not limited to, holding period requirements.
3. Exercise of the Option.
(a) Right to Exercise. The Option shall be subject to the vesting
provisions set forth in Section 5(g) of the Plan. In addition,
this Option shall become fully vested upon a Transfer of
Control of the Company. To the extent vested, the Option shall
be exercisable from time to time until termination as provided
in paragraph 5 below.
Notwithstanding paragraph 2 above, if the aggregate Fair
Market Value, determined as of the Date of Option Grant, of
the stock with respect to which the Participant may exercise
incentive stock options for the first time during any calendar
year (under this Plan or under any other plan of the
Participating Company Group), as determined in accordance with
Code Section 422(d), shall exceed one hundred thousand dollars
($100,000), the Option shall be deemed a nonqualified stock
option to the extent of such excess.
(b) Time and Method of Exercise. Subject to the provisions of the
Plan and this Option Agreement, vested Options may be
exercised on any Exercise Date by delivery to the Company of
at least thirty (30) days prior written notice of exercise
signed by the Participant (or if any other individual or
individuals are exercising this Option, such individual or
individuals). Such notice must state the election to exercise
the Option, the number of shares for which the Option is being
exercised and such other representations and agreements as to
the Participant's (or if any other individual or individuals
are exercising this Option, such individual's or individuals')
investment intent with respect to such shares as may be
required by the Compensation Committee in its discretion. The
written notice must be delivered in person or by certified or
registered mail, return receipt requested, to the Company, or
other authorized representative of the Participating Company
Group. Exercise of the Option shall be completed on the
Exercise Date by the Participant's (or if any other individual
or individuals are exercising this Option, such individual's
or individuals') full payment of the Exercise Price for the
number of shares being purchased, in accordance with the
provisions of paragraph 3(c) below. Upon receipt of such
payment, the Company will thereafter deliver or cause to be
delivered to the Participant (or if any other individual or
individuals are exercising this Option, to such individual or
<PAGE>
individuals) at the office of the Company, a certificate or
certificates for the number of shares with respect to which
this Option is being exercised, registered in the name or
names of the individual or individuals exercising this Option;
provided, however, that if any law or regulation or order of
the Securities and Exchange Commission or other body having
jurisdiction in the premises shall require the Company or the
Participant (or other individual or individuals exercising
this Option) to take any action in connection with the shares
being purchased, the delivery of the certificate or
certificates for such shares shall be delayed until such
action has been taken.
(c) Form of Payment of Option Price. On the Exercise Date, the
Participant shall pay for the Common Stock being purchased by
delivering to the Company the full purchase price in cash or
certified check payable to the order of the Company, or by
such other method as may be permitted pursuant to Section 5(i)
of the Plan.
(d) Withholding. The Participant shall pay to the Company, or make
provision satisfactory to the Company for payment of, any
taxes required by law to be withheld in connection with the
exercise of the Option no later than the date of the event
creating the tax liability.
(e) Certificate Registration. The certificate or certificates for
the shares as to which the Option shall be exercised shall be
registered in the name of the Participant, or, if applicable,
the heirs of the Participant.
(f) Restrictions on Grant of the Option and Issuance of Shares.
The grant of the Option and the issuance of the shares upon
exercise of the Option shall be subject to compliance with all
applicable requirements of federal and state law with respect
to such securities. The Option may not be exercised if the
issuance of shares upon such exercise would constitute a
violation of any applicable federal or state securities laws
or other laws or regulations. In addition, the Option may not
be exercised unless (i) a registration statement under the
Securities Act of 1933, as amended (the "1933 Act"), shall at
the time of exercise of the Option be in effect with respect
to the shares issuable upon exercise of the Option, or (ii) in
the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in
accordance with the terms of an applicable exemption from the
registration requirements of the 1933 Act.
THE PARTICIPANT IS CAUTIONED THAT THE OPTION MAY NOT
BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS ARE
SATISFIED. ACCORDINGLY, THE PARTICIPANT MAY NOT BE
ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH
THE OPTION IS VESTED.
As a condition to the exercise of the Option, the Company may
require the Participant to satisfy any qualifications that may
be necessary or appropriate to evidence compliance with any
applicable law or regulation (or exemption
<PAGE>
therefrom) and to make any representation or warranty with
respect thereto as may be requested by the Company.
(g) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
4. Non-Transferability of the Option. The Option may be exercised during
the Participant's lifetime only by the Participant (except as otherwise
provided in paragraph 6 below) and may not be assigned or transferred
in any manner except by will or by the laws of descent and
distribution.
5. Termination of the Option. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Term Date, (b) the
last date for exercising the Option following termination of employment
as described in paragraph 6 below, (c) termination of the Option by the
Compensation Committee on the effective date of a Transfer of Control;
or (d) termination of the Option by the Compensation Committee with the
Participant's consent.
6. Termination of Employment.
(a) Termination of the Option. Except as otherwise provided in
this paragraph, this Option shall terminate automatically if
the Participant ceases to be an employee of the Participating
Company Group for any reason other than death or Disability.
Notwithstanding the foregoing:
(i) If the Participating Company Group terminates
Participant's employment other than for "cause" (as
defined below), the Option may be exercised by the
Participant, to the extent unexercised and
exercisable by the Participant on the date on which
the Participant ceased to be an employee, within
thirty (30) days after the date on which the
Participant's employment terminates (subject to
earlier termination of the Option pursuant to
paragraph 5 above).
(ii) If the Participant voluntarily terminates his or her
employment with the Participating Company Group on
account of retirement after attainment of age
sixty-five (65), the Option may be exercised by the
Participant, to the extent unexercised and
exercisable by the Participant on the date on which
the Participant ceased to be an employee, within
three months after the date on which the
Participant's employment terminates (subject to
earlier termination of the Option pursuant to
paragraph 5 above).
(iii) If the Participant's employment with the
Participating Company Group is terminated because of
the death or Disability of the Participant, the
Option may be exercised by the Participant (or the
Participant's legal representative), to the extent
unexercised and exercisable by the Participant on the
date on which the Participant ceased to be an
employee, at any time prior to the expiration of
twelve months from the date the Participant's
employment terminated (subject to earlier termination
<PAGE>
pursuant to paragraph 5 above). The Participant's
employment shall be deemed to have terminated on
account of death if the Participant dies within three
months after the Participant voluntarily terminates
his or her employment with the Participating Company
Group on account of retirement after attainment of
age sixty-five (65) or within thirty (30) days after
the Participating Company Group terminates
Participant's employment other than for "cause."
"Cause" for termination of the Participant's employment shall
exist in the event of acts or omissions by the Participant
which constitute gross misconduct or gross negligence against
a Participating Company, dishonesty, inattention to the
business of the Participating Company Group (if such
inattention has a material adverse effect upon the
Participating Company Group), or the conviction of the
Participant for a crime involving moral turpitude. This Option
Agreement shall be interpreted such that the Option ceases to
vest on the date on which the Participant ceases to be an
employee of the Participating Company Group for any reason,
notwithstanding any period after such cessation of employment
during which the Option may remain exercisable as provided in
this paragraph 6.
(b) Termination of Employment Defined. For purposes of this
paragraph 6, the Participant's employment shall be deemed to
have terminated either upon an actual termination of
employment or upon the Participant's employer ceasing to be a
Participating Company (unless the Participant immediately
thereafter continues employment with another Participating
Company).
(c) Leave of Absence. For purposes hereof, the Participant's
employment with the Participating Company Group shall not be
deemed to terminate when the Participant takes any BONA FIDE
military leave, sick leave, or other leave of absence approved
by the Company as long as the leave does not extend beyond
ninety (90) days.
7. Purchase for Investment. This Option is granted on the condition that
the purchase of shares of Common Stock hereunder shall be for the
account of the Participant (or other individual or individuals
exercising this Option) for investment purposes and not with a view to
the resale or distribution thereof, except that such condition shall be
inoperative if the offering and sale of such shares of Common Stock
subject to this Option is registered under the 1933 Act, or if in the
opinion of the Company's counsel such shares of Common Stock may be
resold without registration. At the time of any exercise of the Option,
the Participant (or other individual or individuals exercising this
Option) will execute such further agreements as the Company may require
to implement the foregoing condition and to acknowledge the
Participant's (or other such individual's) familiarity with
restrictions on the resale of the shares of Common Stock under
applicable securities laws.
8. Confidentiality Agreement, Noncompetition Agreement and Shareholders'
Agreement. As a condition to the grant of the Option, the Participant
hereby agrees to execute and deliver to the Company concurrently with
the execution of this Option Agreement a
<PAGE>
confidentiality and noncompetition agreement in the form of Exhibit A
attached hereto (unless the Participant has previously executed and
delivered to the Company such a confidentiality and noncompetition
agreement). In connection with the exercise of this Option in whole or
in part, the Participant (or other individuals exercising this Option)
shall execute and deliver to the Company a shareholders' agreement in
the form of Exhibit B attached hereto (the "Shareholders' Agreement").
The Company shall be under no obligation to honor the exercise of this
Option unless and until the Participant or other individuals exercising
this Option have executed the Shareholders' Agreement.
9. Rights as a Stockholder or Employee.
(a) No Rights as Stockholder. The Participant (or other
individuals exercising this Option) shall have no rights as a
stockholder with respect to the shares of Common Stock subject
to this Option until the exercise of the Option in accordance
with this Option Agreement and the Plan.
(b) No Right to Employment or Other Status. The grant of this
Option shall not be construed as giving the Participant the
right to continued employment or any other relationship with
the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with
the Participant free from any liability or claim under this
Option Agreement or the Plan.
10. Notice of Sales Upon Disqualifying Disposition. The Participant (or
other individuals exercising this Option) shall dispose of the shares
acquired pursuant to the Option only in accordance with the provisions
of this Option Agreement, the Plan, and any applicable Shareholder's
Agreement or other agreement executed in connection with the grant or
exercise of the Option. In addition, if any of the shares of Common
Stock acquired pursuant to the exercise of the Option are disposed of
within one year from the date of exercise or within two years of the
Date of Option Grant, the holder of the Common Stock immediately prior
to the disposition shall promptly notify the Company in writing of the
date and terms of the disposition and shall provide such other
information regarding the disposition as the Company may reasonably
require. Until such time as the Participant disposes of such shares in
a manner consistent with the provisions of this Option Agreement, the
Participant shall hold all shares acquired pursuant to the Option in
the Participant's name (and not in the name of any nominee) for the
one-year period immediately after exercise of the Option and the
two-year period immediately after grant of the Option. At any time
during the one-year or two-year periods set forth above, the Company
may place a legend or legends on any certificate or certificates
representing shares acquired pursuant to the Option requesting the
transfer agent for the Company's stock to notify the Company of any
such transfers. The obligation of the Participant to notify the Company
of any such transfer shall continue notwithstanding that a legend has
been placed on the certificate or certificates pursuant to the
preceding sentence.
11. Legends. The Company may at any time place legends referencing
affiliate status or any applicable federal or state securities law
restrictions or applicable transfer or other restrictions under the
Shareholders' Agreement on all certificates representing shares of
stock subject to the provisions of this Option Agreement. The
Participant shall, at the
<PAGE>
request of the Company, promptly present to the Company any and all
certificates representing shares acquired pursuant to the Option in the
possession of the Participant in order to effectuate the provisions of
this paragraph 12. Unless otherwise specified by the Company, legends
placed on such certificates may include, but shall not be limited to,
the following:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 OR RULE 701 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
12. Initial Public Offering. The Participant (or other individuals
exercising this Option) hereby agrees that in the event of an initial
public offering of stock made by the Company under the Securities Act,
the Participant (or other individuals exercising this Option) shall not
offer, sell, contract to sell, pledge, hypothecate, grant any option to
purchase or make any short sale of, or otherwise dispose of any shares
of stock of the Company or any rights to acquire stock of the Company
for such period of time as may be established by the underwriter for
such initial public offering; provided, however, that such period of
time shall not exceed one hundred eighty days from the effective date
of the registration statement to be filed in connection with such
initial public offering. The foregoing limitation shall not apply to
shares registered under the 1933 Act.
13. Binding Effect. This Option Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
14. Amendment of Option. The Compensation Committee may amend or modify
this Option, including but not limited to, substituting therefor
another Option of the same or a different type, changing the date of
exercise, and converting the Option to a nonqualified stock option,
provided that the Participant's consent to such action shall be
required unless the Compensation Committee determines that the action,
taking into account any related action, would not materially and
adversely affect the Participant. Notwithstanding the foregoing, the
Compensation Committee may amend or modify this Option without the
Participant's consent to the extent the Compensation Committee
determines that the amendment is necessary to comply with applicable
provisions of state or federal securities laws or regulations.
<PAGE>
15. Integrated Agreement. This Option Agreement and the Plan constitute the
entire understanding and agreement of the Participant and the Company
with respect to the subject matter contained herein, and there are no
other agreements, understandings, restrictions, representations, or
warranties among the Participant and the Company with respect to the
subject matter contained herein other than those as set forth or
provided for herein. To the extent contemplated herein and in the Plan,
the provisions of this Option Agreement and the Plan shall survive any
exercise of the Option and shall remain in full force and effect.
16. Notices. All notices, requests, demands, payments, and other
communications hereunder shall be deemed to have been duly given if in
writing and sent by certified mail to the appropriate address indicated
below the parties' signatures to this Option Agreement or to such other
address as may be given in a notice sent to all parties hereto.
17. Waiver. The waiver of the Company or the Participant of any breach of a
provision of this Option Agreement shall not operate or be construed as
a waiver of any subsequent breach by the parties.
18. Terms and Conditions of Plan. The terms and conditions included in the
Plan are incorporated by reference herein, and to the extent that any
conflict may exist between any term or provision of this Option
Agreement and any term or provision of the Plan, the term or provision
of the Plan shall control.
19. Severability. If any provision of this Option Agreement is or becomes
or is deemed invalid, illegal or unenforceable in any jurisdiction, or
would disqualify the Option Agreement or the Plan under any law deemed
applicable by the Compensation Committee, such provision shall be
construed or deemed amended to conform to applicable laws or, if it
cannot be construed or deemed amended without, in the determination of
the Compensation Committee, materially altering the intent of the
Option Agreement or the Plan, it shall be stricken and the remainder of
the Plan or the agreement shall remain in full force and effect.
20. Counterparts. The Company and the Participant shall execute this Option
Agreement in any number of counterparts, each one of which shall be
deemed to be the original although the others shall not be produced.
21. Applicable Law. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina,
without regard to any applicable conflicts of law.
<PAGE>
IN WITNESS WHEREOF, the Company and the Participant have caused this
Option Agreement to be executed on the _____ day of ___________, _______
COMPANY:
ID TECHNOLOGIES CORPORATION
By:__________________________________
Title:_______________________________
Address:
------------------------------------
------------------------------------
------------------------------------
PARTICIPANT:
------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
The Participant represents that the Participant is familiar with the
terms and provisions of this Option Agreement, the Plan, the Shareholders'
Agreement and such other agreements executed in connection with the award of
this Option, and hereby accepts the Option subject to all of the terms and
provisions hereof and of the Plan. The Participant hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Compensation Committee or the Company, as appropriate, made in good faith upon
any questions arising under this Option Agreement or the Plan.
The undersigned hereby acknowledges receipt of a copy of the Plan.
Date:
-------------------------------- --------------------------------
Name:
--------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The following financial data schedule contains summary financial information
extracted from the financial statements contained in the Form 10-SB filed by ID
Technologies Corporation and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 151,715 8,254
<SECURITIES> 0 0
<RECEIVABLES> 3,270 13,270
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 154,985 21,524
<PP&E> 1,635 1,635
<DEPRECIATION> 829 461
<TOTAL-ASSETS> 174,488 44,385
<CURRENT-LIABILITIES> 399,400 104,362
<BONDS> 0 0
0 0
0 0
<COMMON> 282,953 282,953
<OTHER-SE> (785,865) (435,930)
<TOTAL-LIABILITY-AND-EQUITY> 174,488 44,385
<SALES> 0 0
<TOTAL-REVENUES> 0 50,000
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 322,488 1,415,198
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 28,448 659
<INCOME-PRETAX> (349,936) (1,365,499)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (349,936) (1,365,499)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (349,936) (1,365,499)
<EPS-BASIC> (.4) (.17)
<EPS-DILUTED> (.4) (.16)
</TABLE>
