<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 2000
REGISTRATION NO. 333-11540
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
ACTIVCARD S.A.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
THE REPUBLIC OF FRANCE 7372 NONE
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Identification Number)
Classification Code Number)
</TABLE>
------------------------
24-28 AVENUE DU GENERAL DE GAULLE
92156 SURESNES CEDEX
FRANCE
(33-1) 42-04-8400
------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JEAN-GERARD GALVEZ
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ACTIVCARD, INC.
6531 DUMBARTON CIRCLE
FREMONT, CALIFORNIA 94555
(510) 574-0100
------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
RICHARD B. VILSOET GERALD S. TANENBAUM
SHEARMAN & STERLING CAHILL GORDON & REINDEL
599 LEXINGTON AVENUE 80 PINE STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10005
(212) 848-4000 (212) 701-3224
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register addition securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
------------------------------
THE REGISTRATION HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION
DATED FEBRUARY 23, 2000
[LOGO]
4,000,000 AMERICAN DEPOSITARY SHARES,
EACH REPRESENTING ONE ORDINARY SHARE
ActivCard S.A. is offering 4,000,000 of its ordinary shares, in the form of
American Depositary Shares. Each ADS represents one of our ordinary shares. The
ADSs are evidenced by American Depositary Receipts.
Our ordinary shares are listed on Easdaq under the symbol "ACTV." On
February 18, 2000, the closing price on the Easdaq was $47.00 per share for our
ordinary shares.
We will apply to list the ADSs on the Nasdaq National Market under the symbol
"ACTI."
INVESTING IN THE ADSS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
- ------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT ACTIVCARD
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per ADS $ $ $
- ------------------------------------------------------------------------------------------------------------
Total $ $ $
- ------------------------------------------------------------------------------------------------------------
</TABLE>
To cover over-allotments the underwriters may purchase up to an additional
600,000 shares from certain stockholders at the initial public offering price
less the underwriting discount.
J.P. MORGAN & CO. SG COWEN
WIT SOUNDVIEW
, 2000
<PAGE>
[INSIDE FRONT COVER]
This inside front cover pictures two thirds of a map of the world on the
left-hand side of the page and a young man on the right-hand side of the page.
At the bottom right hand side of the page is a picture of an ActivCard chip
card. The words "Who are you?" are superimposed on the picture.
Below the picture is the following text:
Prove it.
ActivCard enables you to prove who you are. In the anytime, anywhere, virtual
world of the Internet, your identity is the key to e-business. By linking our
core technology into systems delivered by Axent, Baltimore Technologies,
Entrust, Hewlett Packard, Lucent, Novell, Schlumberger, Sun Microsystems, Visa,
VeriSign, and other market leaders, ActivCard makes verifying who you are on the
Internet as easy as using an ATM. Internet banking, e-commerce, access to
corporate resources, medical records, digital signature, electronic cash, and
loyalty programs all require that you prove your identity over the Internet.
e-Business comes down to a question of identity, from there--anything is
possible.
ActivCard. The Key to e-Business
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Enforceability of Civil Liabilities... ii
Exchange Rates........................ ii
Prospectus Summary.................... 1
Risk Factors.......................... 6
Special Note Regarding Forward-Looking
Statements.......................... 16
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Price Range of Shares................. 21
Selected Consolidated Historical
Financial Data...................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
</TABLE>
<TABLE>
Business.............................. 33
<CAPTION>
Page
----
<S> <C>
Management............................ 47
Certain Transactions with Related
Parties............................. 51
Principal and Selling Shareholders.... 52
Description of Share Capital.......... 53
Description of American Depositary
Shares.............................. 58
Shares Eligible for Future Sale....... 63
Taxation.............................. 64
Underwriting.......................... 69
Legal Matters......................... 71
Experts............................... 71
Where You Can Find Information........ 71
</TABLE>
------------------------
WE ARE NOT MAKING OFFERS TO, AND ARE NOT ACCEPTING OFFERS TO BUY FROM, HOLDERS
IN ANY JURISDICTION IN WHICH THIS OFFER WOULD NOT COMPLY WITH LOCAL SECURITIES
LAWS.
We have not authorized any person to give you any information or to make any
representation that is not contained in this prospectus in connection with this
offer to sell ADSs. If such information or representation is given or made to
you, you must not rely upon it as having been authorized by us. You should not
assume that the delivery of this prospectus or any sale made under it implies
that the information in this prospectus is correct as of any date subsequent to
the date of this prospectus, which is stated on the cover page.
Until , 2000 (25 days after the date of this prospectus), all dealers that
effect transactions in the ADSs, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
We intend to furnish to our stockholders annual reports containing audited
financial statements.
This prospectus has not been submitted for the approval of the French COMMISSION
DES OPERATIONS DE BOURSE and may not be used in connection with the offer or
sale of any ADSs to the public in France.
------------------------
ACTIVCARD-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF THE COMPANY AND
ACTIVCARD ACTIVATED-TM-, ACTIVATED-TM-, ACTIVCOUPLER-TM-, ACTIVPACK-TM-,
ACTIVREADER-TM-, CORPORATE WALLET-TM-, DIGITAL IDENTITY-TM-, DIGITAL IDENTITY
FRAMEWORK-TM-, AND SMARTREADER-TM- ARE TRADEMARKS OF THE COMPANY. THIS
PROSPECTUS ALSO CONTAINS TRADEMARKS OF OTHER COMPANIES.
i
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
We are a SOCIETE ANONYME, a corporation organized under the laws of France. A
substantial portion of our assets are located outside the United States and
certain experts named in this prospectus are residents of France. As a result,
it may not be possible for investors to effect service of process within the
United States upon our company or upon such persons with respect to matters
arising under the U.S. federal securities laws. It also may not be possible to
enforce against them in U.S. courts judgments predicated upon the civil
liability provisions of the U.S. federal securities laws. We have been advised
by Shearman & Sterling, Paris, our French counsel, that strict conditions apply
to, and therefore there is doubt as to whether French courts would apply, the
civil liability provisions of the U.S. federal securities laws in original
actions in French courts. We have also been advised that there is doubt as to
whether French courts would enforce a judgment of a U.S. court predicated solely
upon the civil liability provisions of the U.S. federal securities laws.
EXCHANGE RATES
We publish our financial statements in U.S. dollars. References to "dollars" or
"$" are to U.S. dollars and references to "francs" or "FF" are to French francs.
In 1998 and 1999, we recorded a majority of our revenue in U.S. dollars. Going
forward, we anticipate that an increasing proportion of our revenues will be
generated in U.S. dollars. Historically we recorded a significant portion of our
expenses in French francs and we expect that a significant portion of our
expenses will continue to be incurred in French francs. Fluctuations in the
value of the French franc and other currencies relative to the U.S. dollar have
caused and will continue to cause dollar-translated amounts to vary from one
period to another. Due to the constantly changing currency exposures and the
substantial volatility of currency exchange rates, we cannot predict the effect
of exchange rate fluctuations upon our future operating results.
On December 31, 1999, the Banque de France rate was FF6.53 per U.S. $1.00 (on
the basis of 1 Euro per U.S. $1.005). The table below sets forth, for the
periods indicated, the high, low, average and end of period rates expressed in
French francs per U.S. $1.00 issued by the Banque de France used by us in the
preparation of our consolidated financial statements. See Note 1.3 of the Notes
to our Consolidated Financial Statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
-----------------------------------------
AVERAGE END OF
YEAR ENDED DECEMBER 31, HIGH LOW RATE PERIOD
- --------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1994......................................... 5.98 5.11 5.55 5.35
1995......................................... 5.39 4.78 5.00 4.90
1996......................................... 5.29 4.90 5.18 5.24
1997......................................... 6.35 5.19 5.84 5.99
1998......................................... 6.21 5.39 5.92 5.60
1999......................................... 6.53 5.61 6.03 6.53
</TABLE>
As of January 1999, the French franc has been fixed at a conversion rate of euro
1.00=FF6.55957. The following table sets forth, for the dates and periods
indicated, certain information regarding the Noon Buying Rate for the euro
expressed in euro per U.S. $1.00.
<TABLE>
<CAPTION>
-----------------------------------------
AVERAGE END OF
YEAR ENDED DECEMBER 31, HIGH LOW RATE PERIOD
- --------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1999......................................... 1.1693 1.0045 1.0878 1.0045
2000 (January 4 through February 18)......... 1.0414 0.9668 1.001 0.9839
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
FINANCIAL DATA AND THE NOTES THERETO, AND THE RISKS OF INVESTING IN OUR SHARES
DISCUSSED UNDER THE "RISK FACTORS" SECTION BEFORE MAKING AN INVESTMENT DECISION.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT
4,000,000 SHARES, IN THE FORM OF AMERICAN DEPOSITARY SHARES, WILL BE SOLD IN
THIS OFFERING AND THAT THE UNDERWRITERS HAVE NOT EXERCISED THEIR RIGHT TO
PURCHASE AN ADDITIONAL 600,000 SHARES FOR SALE TO THE PUBLIC.
IN THIS PROSPECTUS, UNLESS THE CONTEXT INDICATES OTHERWISE, THE TERMS
"ACTIVCARD," THE "COMPANY," "WE" OR "US" REFER TO ACTIVCARD S.A., A CORPORATION
ORGANIZED UNDER THE LAWS OF THE REPUBLIC OF FRANCE, TOGETHER WITH ITS
SUBSIDIARIES.
OVERVIEW
We provide solutions for authenticating and managing the digital identities of
employees, suppliers, partners and customers accessing e-business resources. Our
secure user identification solutions allow companies to control access to their
information networks at the level appropriate for each particular user and are
designed to provide the authentication necessary to prevent online fraud and
other computer related crimes. Our products and technologies are designed to
manage digital identities by addressing the administrative, security and
usability concerns inherent in network computing.
Our range of products includes end-user authentication products, back-end server
software for digital identity administration and software development kits. Our
principal products include:
- ACTIVCARD GOLD, a smart card-based authentication and credential
management package,
- ACTIVREADER, a multi-purpose, secure smart card reader,
- ACTIVCARD ONE AND ACTIVCARD PLUS, token-based authentication products, and
- ACTIVPACK, integrated back-end server and management solutions for
Microsoft, Novell and IBM network systems.
Our products manage static passwords, generate one-time use passwords for secure
log-in, remote and Internet access, and enable digital signatures.
Authentication, which proves the identity of users and systems on the network,
is a critical component in network security solutions. Both our end-user and
server products are designed to ensure that users are properly authenticated and
cannot repudiate their transactions while allowing network managers to securely
administer the multiple systems that comprise their networks. Our software
development kits allow other software vendors to integrate our end-user products
and server software into their network applications.
Through our strategic relationships with companies such as AXENT Technologies,
Hewlett-Packard, Lucent Technologies, Novell, Schlumberger, SCM Microsystems,
Sun Microsystems and Visa International, our digital identity framework has been
embedded in several leading systems and components. In addition, our digital
identity framework is fully compatible with products and technologies produced
by companies such as Baltimore Technologies, Entrust, Microsoft, Mondex
International (a division of MasterCard), SCM Microsystems, Sun Microsystems and
VeriSign.
We sell our products principally through distribution partners, such as original
equipment manufacturers (OEMs), value-added resellers (VARs), system integrators
and distributors. Historically, our principal customers have been European
banking and financial services companies. We also market our products to
companies in the telecommunications, healthcare, networking technologies and
manufacturing sectors. We believe that there are more than one million people
using our products for secure banking, web access and remote access to corporate
networks.
INDUSTRY
Individuals and corporations increasingly rely upon computer networks, including
the Internet, to communicate, access information and conduct commerce. The
number of Internet users worldwide is expected to grow from 142 million in 1998
to 399 million in 2002, with electronic commerce growing from $50 billion to
$774 billion over
1
<PAGE>
the same period. The recent and dramatic development of electronic commerce,
coupled with the proliferation of extranet and intranet applications and
network-connected devices, has substantially increased network complexity for
all businesses. The risks of network fraud and the challenges of maintaining
online confidentiality have increased correspondingly. Transaction security is a
fundamental concern for companies migrating more of their business to the
Internet. Network administrators and participants are increasingly turning to
smart cards as a means to provide secure network access without sacrificing
ease-of-use. It is estimated that 800,000 network access smart cards were
deployed worldwide in 1999, and by 2003 that number is projected to grow to 125
million.
THE ACTIVCARD SOLUTION
We employ a combination of patented authentication methods, smart card and token
technology and management tools to provide companies and individual users with
an administratively efficient, easy to use, cost-effective and secure framework
for managing digital identity. Our digital identity framework:
- ENABLES PERSONALIZED SERVICES FROM ANY NETWORK-CONNECTED DEVICE;
- PROVIDES A COMBINATION OF HIGH LEVEL SECURITY AND EASE-OF-USE;
- SUPPORTS MULTIPLE CREDENTIALS (E.G., DIGITAL CERTIFICATES, DYNAMIC AND
STATIC PASSWORDS); AND
- OFFERS A UNIQUE, MODULAR AND HIGHLY SCALABLE DESIGN.
Our digital identity framework ensures that users are properly authenticated
while allowing network managers to securely administer the diverse systems that
comprise their network environment. Our solutions also provide non-repudiation
of online transactions. For example, we provide the authentication technology
necessary to enable ATM transactions to occur over the Internet, downloading
electronic cash directly onto a card, through a variety of terminals, such as
PCs, televisions and mobile telephones. Our recently introduced ActivGold
product incorporates multi-application smart cards to provide a platform to
consolidate various independent credentials, such as a corporate picture ID,
building access, network login, online digital signature and credit card,
thereby enabling a personalized online experience. These digital credentials
collectively define the digital identity of a user or system.
OUR BUSINESS STRATEGY
Our objective is to become the leading supplier of products and technologies
that enable information technology managers, product manufacturers, system
integrators and network service providers to integrate managed digital identity
services quickly and efficiently into their applications. Our strategy to
achieve this objective includes the following key elements:
- BUILD UPON OUR EXISTING CUSTOMER BASE
- EXPAND OUR BASE OF STRATEGIC PARTNERS, OEMS AND DISTRIBUTORS
- CUSTOMIZE FLEXIBLE PRICING MODELS TO ADDRESS OUR CUSTOMERS NEEDS
- INCREASE SALES THROUGH OUR STRATEGIC PARTNERSHIPS
- DEVELOP KEY TECHNOLOGY COMPONENTS FOCUSED ON THE CREATION, DISTRIBUTION,
PROTECTION AND CONTROL OF MULTIPLE CREDENTIALS
- MAKE DIGITAL IDENTITY THE ESSENTIAL COMPONENT ENABLING NEXT GENERATION
INTERNET-BASED BUSINESS
RECENT DEVELOPMENTS
As a result of our continuing efforts to develop relationships with business
partners, Schlumberger Systems, Business Brain Showa-Ota Inc., Sun Microsystems,
Inc. and SCM Microsystems, Inc. have subscribed to a total of 990,675 of our
ordinary shares at a subscription price of $17.16 per share. The subscription
price was determined at a board of directors meeting held on December 16, 1999
and is based on the average closing price of our shares between November 25 and
December 8, 1999. The sales of these shares were approved by our stockholders on
February 9, 2000 and closed on February 16, 2000. We received net proceeds of
approximately $16.5 million from the sale of these shares.
2
<PAGE>
The terms of our $6.0 million aggregate principal amount of bonds issued in
October 1999 require us to call them for redemption upon consummation of the
subscriptions referred to above. Upon call for redemption, the holders may elect
to convert all or a portion of the bonds into shares, for an aggregate of
300,000 shares if all are converted. If none of these bonds are converted, we
would be required to use approximately $6.2 million of the proceeds of the sale
of the subscribed shares to redeem the bonds.
OUR ADDRESS
Our principal European office is located at 24-28, avenue du General de Gaulle,
92156 Suresnes Cedex, France. Our principal U.S. office is located at 6531
Dumbarton Circle, Fremont, California 94555, our telephone number is (510)
574-0100 and our website is www.activcard.com. Information contained in our
website is not a part of this prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
SECURITIES WE ARE OFFERING................ 4,000,000 shares are being offered, in the form of ADSs,
to the public in the United States and to institutional
investors outside the United States.
ORDINARY SHARES TO BE OUTSTANDING
FOLLOWING THE OFFERING.................. 37,380,701 shares (including 990,675 shares issued
pursuant to the private placements that closed on
February 16, 2000 and assuming 300,000 shares to be
issued upon conversion of our $6.0 million non-
interest-bearing convertible bonds issued in
October 1999), excluding:
- 5,748,751 shares issuable upon exercise of
outstanding options, warrants and complementary
(share purchase) rights,
- 760,550 shares issuable upon conversion of our
convertible bonds issued in July and October 1997,
and
- 142,790 shares reserved for future issuance under
our stock option plans.
This information assumes no exercise of the
underwriter's over-allotment option.
OFFERING PRICE............................ $ per ADS
AMERICAN DEPOSITARY SHARES................ Each ADS represents the right to receive one ordinary
share.
UNDERWRITERS' OVER-ALLOTMENT OPTION....... The underwriters have the option to purchase 600,000
additional shares, in the form of ADSs, from certain
selling shareholders solely to cover over-allotments.
USE OF PROCEEDS........................... We intend to use the net proceeds to fund anticipated
operating losses, working capital, acquisitions and
other general corporate purposes.
NASDAQ NATIONAL MARKET SYMBOL............. "ACTI"
EASDAQ SYMBOL............................. "ACTV"
PAYMENT AND SETTLEMENT.................... We expect that the ADSs will be ready for delivery
through the facilities of The Depository Trust Company,
Euroclear and Clearstream, Luxembourg on or about
, 2000.
LOCK-UPS.................................. We, our executive officers and directors, and certain of
our shareholders, have agreed not to sell or agree to
sell, directly or indirectly, additional ADSs or shares
or securities convertible or exchangeable for shares for
a period of 150 days from the date hereof, except with
the prior written consent of J.P. Morgan Securities Inc.
See "Underwriting" for a more complete description of
these arrangements.
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
You should read the following information for each of the three years in the
period ended December 31, 1999 together with our consolidated financial
statements, including their notes, that are contained elsewhere in this
prospectus. These financial statements and their notes were prepared in
accordance with US GAAP and audited by Ernst & Young Audit, independent
auditors.
<TABLE>
<CAPTION>
------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenue:
Products............................................ $ 6,210 $ 7,624 $ 9,976
Engineering services................................ 1,357 642 286
------------ ------------ ------------
Total revenues........................................ $ 7,567 $ 8,266 $ 10,262
============ ============ ============
Gross profit.......................................... $ 2,741 $ 3,043 $ 4,925
Income (loss) from operations......................... (10,067) (10,391) (15,740)
Interest and other financial income (expenses), net... (181) (360) (187)
Income tax benefit.................................... 714 452 15
Minority interest..................................... 32 1 -
Net loss.............................................. (9,502) (10,298) (15,912)
Basic and diluted net loss per share.................. $ (0.61) $ (0.55) $ (0.55)
============ ============ ============
Number of shares used in computing basic and diluted
net loss per share.................................. 15,460,178 18,618,463 29,114,715
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------
DECEMBER 31,
-----------------------------------------------
1999
1997 1998 1999 AS ADJUSTED(1)
-------- -------- -------- --------------
IN THOUSANDS
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 5,291 $ 4,150 $ 8,790 $198,027
Total current assets.................................. 10,356 9,302 14,398 203,006
Total assets.......................................... 13,051 12,375 16,434 205,042
Total current liabilities............................. 5,263 5,902 5,953 5,324
Total long-term liabilities........................... 2,749 1,448 230 230
Convertible loan...................................... 8,030 8,030 9,259 3,500
Shareholders' equity (deficit)........................ (2,991) (3,005) 992 195,988
</TABLE>
- ------------------------
(1) Adjusted to reflect: (i) consummation of this offering assuming net proceeds
of $172,840,000 based on an assumed public offering price of $47.00 per ADS the
closing price for our ordinary shares on Easdaq on February 18, 2000;
(ii) consummation of the sale of 990,675 shares in February 2000 to four
strategic investors for net proceeds of approximately $16.5 million; and
(iii) the conversion of all of our $6.0 million non-interest bearing convertible
bonds issued in October 1999 into 300,000 shares. These bonds are required to be
redeemed by us with the proceeds of our private placements to strategic
investors which closed on February 16, 2000 unless, upon notice of redemption,
holders elect to convert all or a portion of such bonds into shares. If none of
the holders of these bonds elect to convert the bonds to shares, our cash and
cash equivalents, total current assets, total assets and shareholders' equity
would be reduced by $6.2 million. See "Description of Share Capital--Convertible
Bonds."
5
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE RISKS
DESCRIBED BELOW BEFORE DECIDING TO INVEST IN OUR ADSS. ANY OF THE RISK FACTORS
COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR
OPERATING RESULTS. IN THAT CASE, THE TRADING PRICE OF OUR ADSS COULD DECLINE,
AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE
PROFITABILITY
We have not achieved profitability and expect to continue to incur operating
losses for the foreseeable future. We incurred net losses of $15.9 million in
1999, $10.3 million in 1998 and $9.5 million in 1997. We expect to incur losses
for the year ended December 31, 2000. As of December 31, 1999, our accumulated
losses were $67.6 million, which represent our losses since we began our
operations. Even with the use of the proceeds of this offering, we may not
become profitable or able to significantly increase our revenue. We have
recently increased our operating expenses and capital expenditures and expect
further increases in operating expenses to facilitate the commercialization of
our technology over the next twelve months. Although our revenues have grown in
recent quarters, we will need to significantly increase revenues to achieve
profitability. Even if we do achieve profitability, we may be unable to sustain
profitability on a quarterly or annual basis in the future. It is possible that
our revenues will grow more slowly than we anticipate or that operating expenses
will exceed our expectations.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS AND TECHNOLOGY
MAY BECOME OBSOLETE
If we do not continually modify and adapt our products and improve the
performance features and reliability of our products in response to advances and
changes in technology and standards, our business could be adversely affected,
and our products and technology could become obsolete or less marketable. The
market for network security products is characterized by rapid technological
advances, changes in customer requirements, evolving industry standards and
frequent new product introductions and enhancements. Moreover, if new Internet,
networking or telecommunications technologies or standards become widely adopted
or if other technological changes occur, we may need to adapt our products. Our
future operating results will depend upon our ability on a timely basis to
enhance our current products and to develop and introduce new products that
address the increasingly sophisticated needs of the marketplace and that keep
pace with technological developments, new competitive product offerings and
emerging industry standards. The process of developing our products and services
is extremely complex and requires significant continuing development efforts.
OUR OPERATING RESULTS ARE UNCERTAIN AND MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD
NEGATIVELY AFFECT THE VALUE OF YOUR INVESTMENT
Our operating results are difficult to forecast and may continue to fluctuate.
As a result, period-to-period comparisons of our operating results are not
meaningful. Factors that could influence our operating results include:
- significant advances in techniques for attacking cryptographic systems;
- publicity regarding the successful circumvention of security features of
products similar to ours;
- government regulation limiting the use, scope and strength of the
cryptography used in our products;
- the size, timing and shipment of individual orders;
- market acceptance of our new products;
- customer order deferrals in anticipation of new products or changes in
their deployment plans;
- lengthy sales cycle of our products;
- foreign currency exchange rates; and
- changes in our distribution channels.
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Our expense levels are based, in part, on our expectations of future revenue,
and if such expectations are not met, our operating results will be adversely
affected.
THERE ARE SEASONAL FLUCTUATIONS IN OUR SALES, WHICH COULD AFFECT THE VALUE OF
YOUR INVESTMENT
We experience significant seasonality in our sales. We believe that revenue will
tend to be higher in the last quarter of each calendar year due to the budget
cycles of our customers and the tendency of certain of these customers to
implement changes in network systems prior to the end of the calendar year.
Additionally, we believe that revenues are also higher in the second quarter of
each year due to the greater number of purchasing decisions being made toward
the end of such period, which is immediately prior to the start of the summer
vacation season in Europe. As a result of these factors, we expect that revenue
will tend to be lower in the first quarter of each calendar year compared to the
previous quarter, and to be lower in the summer months, particularly in Europe,
when businesses tend to defer purchase decisions. Because our operating expenses
are fixed, a small variation in the timing of recognition of revenue can cause
significant variations in operating results from quarter to quarter.
WE DEPEND ON THE SALES OF OUR CURRENT TECHNOLOGY AND RELATED PRODUCTS AND DO NOT
EXPECT TO MATERIALLY DIVERSIFY OUR BUSINESS IN THE FORESEEABLE FUTURE
Substantially all of our revenue is derived from the sale of our user
identification technology and related products. We anticipate that substantially
all of the growth in our revenue, if any, will also be derived from these
sources. If for any reason our sales of this technology and these products are
impeded, and we have not diversified our product offerings, our business and
results of operations could be harmed.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM A SMALL NUMBER OF CUSTOMERS
AND, THEREFORE, THE LOSS OF EVEN ONE OF THESE CUSTOMERS COULD SIGNIFICANTLY AND
NEGATIVELY IMPACT OUR OPERATING RESULTS
We depend on a limited number of customers for a substantial portion of our
revenue and many of our contracts with our significant customers are short-term.
If any of these customers did not renew their contract upon expiration, or if
there was a substantial reduction in sales to any of our significant customers,
it would adversely affect our business and operating results, unless we were
able to replace the revenue we received from these customers. For the year ended
December 31, 1998, we derived approximately 46% of our revenue from sales to
Protect Data Sverige AB and 14% of our revenue from sales to Network Security
AS. Protect Data and Network Security are our two largest product distributors,
who sell our products to banks and financial institutions principally in
Scandinavia. For the year ended December 31, 1999, we derived approximately 40%
of our revenue from sales to Protect Data and 10% of our revenue from sales to
Network Security. Two distributor accounts, Sparbanken and Kreditkassen, final
buyers of our products, constituted 39% and 11%, respectively, of our total
revenues for the year ended December 31, 1998, and 36% and 5%, respectively, of
our total revenues for the year ended December 31, 1999. Additionally, sales to
Verifone represented 9% of revenue for the year ended December 31, 1999. We
expect to continue to depend upon a small number of large customers for a
substantial portion of our revenue.
THE SALES CYCLE FOR OUR PRODUCTS AND TECHNOLOGY IS LONG, AND WE MAY INCUR
SUBSTANTIAL EXPENSES FOR SALES THAT DO NOT OCCUR WHEN ANTICIPATED
The sale cycle for our products, which is the period of time between the
identification of a potential customer and completion of the sale, is typically
lengthy and subject to a number of significant risks over which we have little
control. Because our operating expenses are based on anticipated revenue levels,
a small fluctuation in the timing of sales can cause our operating results to
vary significantly from period to period. If revenue falls significantly below
anticipated levels, our business would be seriously harmed.
A typical sales cycle is often six to nine months in the case of the enterprise
customer, and more than twelve months in the case of the service operator
customer. Purchasing decisions for our products and systems may be subject to
delay due to many factors which are not within our control, such as:
- the time required for a prospective customer to recognize the need for our
products;
- the significant expense of many data security products and network
systems;
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- customers' internal budgeting process; and
- internal procedures customers may require for the approval of large
purchases.
Furthermore, the implementation process is subject to delays resulting from
administrative concerns associated with incorporating new technologies into
existing networks, deployment of a new network system and data migration to the
new system. Full deployment of our technology and products for such networks,
servers or other host systems is usually scheduled to occur over a two- to
three-year period and sales of tokens and related products would also occur over
this period.
OUR INDUSTRY IS YOUNG AND IN A CONSTANT STATE OF FLUX WHICH MAY RESULT IN THE
DEVELOPMENT OF DIFFERENT SECURITY PLATFORMS AND INDUSTRY STANDARDS THAT ARE NOT
COMPATIBLE WITH OUR CURRENT PRODUCTS OR TECHNOLOGY
We believe that smart cards are the ideal platform for network and electronic
commerce security and our business model is premised on the smart card becoming
the secure access platform standard of the future. However, should platforms
other than the smart card emerge as a preferred platform, our current focus
could put us at a disadvantage to competitors who have been focusing on
alternative platforms and our future growth and operating results could suffer.
In addition, we operate in markets for which industry-wide standards have not
yet emerged. While we are actively engaged in discussing with our industry peers
what those standards should be, it is possible that any standards eventually
adopted could prove disadvantageous to or incompatible with our business model
and product lines.
WE ENGAGE IN COMPETITIVE BIDDING PRACTICE FOR SOME OF OUR CONTRACTS, WHICH IS
EXPENSIVE AND COULD RESULT IN OUR COSTS EXCEEDING OUR REVENUES ON SOME CONTRACTS
We generate a portion of our revenue from contracts and purchase orders awarded
through a competitive bidding process. Our bids may not always be accepted or,
if accepted, awarded contracts may not generate enough revenue to be profitable.
The competitive bidding process is typically lengthy and often results in the
expenditure of financial and other resources in connection with bids that are
not accepted. Additionally, inherent in the competitive bidding process is the
risk that our costs may exceed projected costs upon which a submitted bid or
contract price is based.
OUR INTERNATIONAL OPERATIONS SUBJECT US TO RISKS ASSOCIATED WITH OPERATING IN
FOREIGN MARKETS, INCLUDING FLUCTUATIONS IN CURRENCY EXCHANGE RATES, WHICH COULD
ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL CONDITION
International sales are a substantial portion of our business. A severe economic
decline in one of our major foreign markets could make it difficult for
customers from those countries to pay us on a timely basis. Any such failure to
pay, or deferral of payment, could adversely affect our operations and financial
condition. In 1998 and in 1999, 90% and 82%, respectively, of our total sales
came from markets outside the United States.
We face a number of risks inherent in doing business in international markets,
including among others:
- unexpected changes in regulatory requirements;
- potentially adverse tax consequences;
- export controls relating to encryption technology;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- changing economic or political conditions;
- exposures to different legal standards;
- burdens of complying with a variety of foreign laws;
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- fluctuations in currency exchange rates; and
- seasonal reductions in business activity during the summer months in
Europe and other parts of the world.
We contract for the manufacture of our ActivCard tokens with RJP International
Limited (RJP), a Hong Kong-based manufacturer whose manufacturing facilities are
located in a "special economic zone" in Guandong Province in the People's
Republic of China (PRC) and with a second-source supplier in Singapore. With
respect to manufacturing in the PRC, the Chinese government has exercised, and
continues to exercise, substantial control over many sectors of the Chinese
economy. Consequently, changes in policy by the Chinese government could
adversely affect our ability to source our ActivCard tokens in China. The
preferential tax treatment granted to enterprises located in "special economic
zones" could also be withdrawn, which could adversely affect the cost of
manufacturing in China. In addition, changes in the political status and
economic policies of Hong Kong, in particular, changes that may result from the
recent return of Hong Kong from the United Kingdom to China, could adversely
affect our ability to source our ActivCard tokens from RJP.
While we prepare our financial statements in U.S. dollars, we have historically
recorded the substantial portion of our expenses in French francs. We expect
that a significant portion of our expenses will continue to be incurred in
French francs and, to a lesser extent, in other foreign currencies. Fluctuations
in the value of the French franc and other currencies relative to the U.S.
dollar have caused and will continue to cause dollar-translated amounts to vary
from one period to another. Due to the constantly changing currency exposures
and the substantial volatility of currency exchange rates, we cannot predict the
effect of exchange rate fluctuations upon future operating results.
THE LOSS OF THE SERVICES OF OUR EXECUTIVE OFFICERS OR KEY PERSONNEL WOULD LIKELY
CAUSE OUR BUSINESS TO SUFFER
Our future success depends largely on the efforts and abilities of our executive
officers and senior management, particularly Jean-Gerard Galvez, our Chairman,
President and Chief Executive Officer, Yves Audebert, our Founder, Vice Chairman
and Chief Technology Officer and other key employees, including our technical
and sales personnel. The loss of the services of any of these persons could harm
our business. We have employment agreements with only a few of our key personnel
but do not maintain any key-person insurance for any of our employees. In
addition, we believe that our future success will depend in large part upon our
ability to attract and retain additional key personnel. A failure to attract
additional personnel where necessary could significantly harm our business or
financial performance.
IF WE ARE UNABLE TO HIRE AND RETAIN QUALIFIED TECHNICAL PERSONNEL OUR BUSINESS
WILL SUFFER
Our future success depends in part on the availability of qualified technical
personnel, including personnel trained in software and hardware applications
within specialized fields. As a result, we may not be able to successfully
attract or retain skilled technical employees, which may impede our ability to
develop, install, implement and otherwise service our software and hardware
systems and to efficiently conduct our operations. The information technology
and network security industries are characterized by a high level of employee
mobility, and the market for such individuals in certain regions is extremely
competitive. This competition means there are fewer highly qualified employees
available to hire, the costs of hiring and retaining such individuals are high
and such personnel may not remain with our company once hired. Furthermore,
there is increasing pressure to provide technical employees with stock options
and other equity interests in our company, which may dilute our earnings per
share.
WE MAY HAVE DIFFICULTIES MANAGING OUR FUTURE GROWTH
We plan to continue to grow, particularly in the United States, and to continue
to increase the number of our sales, support, service, marketing and product
development personnel significantly. This planned expansion, if achieved, would
place a strain on our resources and increase operating costs. Our ability to
manage our staff and growth effectively will require us to continue to improve
our operations, financial and management controls, reporting systems and
procedures; to train, motivate and manage our employees; and, as required, to
install new management information systems. There can be no assurance that
existing management or any new members of management will
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be able to augment or improve existing systems and controls or implement new
systems and controls in response to anticipated future growth. Furthermore, in
1995, we commenced operations in North America, which included the establishment
of a U.S. management team. As a result, we have a limited operating history
under our current U.S. management. If we are successful in achieving growth
plans, such growth is likely to place a significant burden on our operating and
financial systems, resulting in increased responsibility for senior management
and other personnel within our company.
OUR SUCCESS DEPENDS ON ESTABLISHING AND MAINTAINING STRATEGIC RELATIONSHIPS WITH
OTHER COMPANIES TO DEVELOP, MARKET AND DISTRIBUTE OUR TECHNOLOGY AND PRODUCTS
AND, IN SOME CASES, TO INCORPORATE OUR TECHNOLOGY INTO THEIR PRODUCTS
Part of our business strategy has been to enter into strategic alliances and
other cooperative arrangements with other companies in our industry. We
currently are involved in cooperative efforts with respect to incorporation of
our products into products of others, research and development efforts,
marketing efforts and reseller arrangements. None of these relationships are
exclusive, and some of our strategic partners also have cooperative
relationships with certain of our competitors. If we are unable to enter
cooperative arrangements in the future or if we lose any of our current
strategic or cooperative relationships, our business could be harmed. We do not
control the time and resources devoted to such activities by parties with whom
we have relationships. In addition, we may not have the resources available to
satisfy our commitments, which may adversely affect these relationships. These
relationships may not continue, may not be commercially successful, or may
require our expenditure of significant financial, personnel and administrative
resources from time to time. Further, certain of our products and services
compete with the products and services of our strategic partners. For example,
Schlumberger distributes software for logical security applications using smart
cards in addition to the smart card products that they license from us. VeriFone
offers a family of smart card readers in addition to the smart card readers that
they purchase from us. This competition may adversely affect our relationships
with our strategic partners, which could adversely affect our business.
RISKS RELATED TO OUR INDUSTRY
IF THE USE OF THE INTERNET AND OTHER COMMUNICATIONS NETWORKS DOES NOT CONTINUE
TO GROW, DEMAND FOR OUR PRODUCTS MAY NOT INCREASE
Successful implementation of our strategy depends in large part on the continued
growth in the use of the Internet and other communications networks based on
Internet protocols. If the use of these networks does not continue to grow, or
if it grows more slowly than we expect, the demand for our products may not
increase. Because electronic commerce and communications over these networks is
evolving, we cannot predict the size of the market and its sustainable growth
rate. To date, many businesses and consumers have been deterred from using these
networks for a number of reasons, including, but not limited to:
- potentially inadequate development of network infrastructure;
- security concerns including the potential for user impersonation and fraud
or theft of stored data and information communicated over networks;
- inconsistent quality of service;
- lack of availability of cost-effective, high-speed service;
- limited numbers of local access points for corporate users;
- inability to integrate business applications on the networks;
- the need to operate with multiple and frequently incompatible products;
- limitations on networks due to increased users and lack of sufficient
infrastructure to support increased levels of use;
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- increased governmental regulation and delays in development or adoption of
new standards and protocols to handle increased levels of activity; and
- lack of tools to simplify access to and use of networks.
The adoption of the Internet and other communication networks based on Internet
protocols will require a broad acceptance of new methods of conducting business
and exchanging information. Companies and government agencies that already have
invested substantial resources in other methods of conducting business may be
reluctant to adopt new methods. Also, persons with established patterns of
purchasing goods and services and effecting payments may be reluctant to change.
WE FACE INTENSE COMPETITION FROM OTHER NETWORK SECURITY COMPANIES AND MAY BE
UNABLE TO COMPETE SUCCESSFULLY IN AN EVOLVING MARKET
Our industry is highly competitive and evolving, and we may be unable to compete
successfully in the future, which may harm our business. We compete in numerous
markets, including
- data security;
- access control;
- smart card-based security applications and token authentication;
- electronic commerce applications; and
- systems integration.
These markets are characterized by rapidly changing technology and industry
standards, evolving user needs and the frequent introduction of new products. We
believe that the principal factors affecting competition in our markets include
product functionality, performance, flexibility and features of products, use of
open standards technology, quality of service and support, reputation and price.
Based on our current plans, we believe that the net proceeds from the offering
and cash flows generated by operations will be adequate to satisfy our research
and development requirements at least through 2000. However, if our research and
development plans change due to unforseen circumstances, we may need additional
funding before 2001 to maintain our focus on research and development which
could adversely affect the competitiveness of our products.
Many of our competitors are more established, have greater name recognition and
have substantially greater financial, technical and marketing resources than we
have. In addition, there are several smaller and start-up companies with which
we compete from time to time. We also expect that competition will increase as a
result of consolidation in the information technology and network security
industries. Furthermore, our current and potential competitors have established
or may in the future establish collaborative relationships among themselves or
with third parties, including third parties with whom we have strategic
relationships, to increase the functionalities of their products. Accordingly,
it is possible that new competitors or alliances may emerge and rapidly acquire
significant market share, which could materially and adversely affect our
financial condition and results of operations.
GOVERNMENT REGULATION OF TECHNOLOGY EXPORTS COULD LIMIT OUR ABILITY TO MARKET
OUR PRODUCTS ABROAD AND TO COMPETE EFFECTIVELY
- Our international sales and operations may be subject to the following
risks:
- imposition of government controls;
- new or changed export license requirements;
- restrictions on the export of critical technology;
- import or trade restrictions; and
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- changes in tariffs.
While we believe our technology and products are designed to meet the regulatory
standards of many foreign markets, any inability to obtain foreign regulatory
approvals on a timely basis could have a material adverse effect on our
financial condition or results of operations. Certain of our products are
subject to export controls under U.S. and French laws, and we believe that we
have obtained all necessary export approvals when required. However, the list of
products and countries for which export approval is required, and the regulatory
policies with respect thereto, may be revised from time to time. Our failure to
obtain required approvals under these regulations could adversely affect our
ability to make international sales. For example, because of the U.S.
governmental controls on the exportation of encryption technology, we have been
unable to export some of our products with the most robust information security
encryption technology and will be required to provide for recovery of encryption
keys for access by governmental authorities in order to export products
containing those robust encryption algorithms. As a result, foreign competitors
facing less stringent controls on their products may be able to compete more
effectively than us in the global information security market. These factors may
have a material adverse effect on our financial condition or results of
operations.
Due to the increasing popularity of the Internet and Internet protocol-based
communication networks, it is possible that laws and regulations may be enacted
covering issues such as user privacy, pricing, content and quality of products
and services. The increased attention focused upon these issues as a result of
the adoption of additional laws and regulations may reduce the rate of growth of
these networks, which in turn could result in decreased demand for our
technology.
RISKS RELATING TO OUR PRODUCTS
WE DEPEND UPON A LIMITED NUMBER OF MANUFACTURERS AND SUPPLIERS, WHICH MAKES US
VULNERABLE IF WE LOSE ACCESS TO THEM
We depend upon a small number of companies for the manufacture of our products,
and the loss of any one of them could materially harm our business. We contract
with RJP International, Ltd., a Hong Kong company, and with Omni Electronics Pte
Ltd., located in Singapore, for the manufacture and assembly of our ActivCard
tokens. The assembly of certain components used in our products is performed in
France by Selem. The assembly of the ActivCard Gold is performed in the United
States and Netherlands by Metatec. These are currently our sole sources for the
manufacture and assembly of these products. A reduction or interruption in
supply and the failure to identify and establish relationships with additional
manufacturers and assemblers would adversely affect our results of operations
and could impact customer relations.
Although most of the parts and components used in the manufacture of our
products are readily available from a number of suppliers, certain components
are currently available only from a single source or from limited sources. Our
inability to obtain sufficient source components, or to obtain or develop
alternative sources at competitive prices and quality, could result in delays in
product shipments or increase our material costs, either of which would
adversely affect our financial condition or results of operations. In
particular, the microcontroller chips contained in our older ActivCard Plus
tokens are currently purchased from a sole source supplier, Samsung
Semiconductor Europe GmbH, which produces the chips in South Korea. We cannot
assure you Samsung will be able to furnish enough chips to meet our demands or
that we will be able to continue to purchase chips of acceptable quality from
Samsung at commercially acceptable prices. We believe that, if Samsung were to
discontinue the manufacture of the chips or to become unwilling or unable to
meet our future requirements, we would be able to procure chips of acceptable
quality from another supplier, and our contractual relationship with Samsung
would not restrict our ability to do so. We could also redesign our ActivCard
Plus tokens for a different microprocessor. However, delay or failure to
identify additional suppliers at commercially acceptable prices or redesign the
circuits could adversely affect our results of operations.
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WE EMPLOY CRYPTOGRAPHIC TECHNOLOGY IN OUR AUTHENTICATION PRODUCTS THAT USES
COMPLEX MATHEMATICAL FORMULATIONS TO ESTABLISH NETWORK SECURITY SYSTEMS
Many of our products are based on cryptographic technology. With cryptographic
technology, a user is given a key which is required to encrypt and decode
messages. The security afforded by this technology depends on the integrity of a
user's key and in part on the application of algorithms, which are advanced
mathematical factoring equations. These codes may eventually be broken or become
subject to government regulation regarding their use, which would render our
technology and products less effective. The occurrence of any one of the
following could result in a decline in demand for our technology and products:
- any significant advance in techniques for attacking cryptographic systems,
including the development of an easy factoring method or faster, more
powerful computers;
- publicity of the successful decoding of cryptographic messages or the
misappropriation of keys; and
- increased government regulation limiting the use, scope or strength of
cryptography.
WE COULD FACE LIABILITY FOR DEFECTS IN OUR PRODUCTS
Products as complex as those we offer may contain undetected errors or "bugs" or
result in failures when first introduced or when new versions are released. The
occurrence of these errors could result in adverse publicity, delay in product
introduction, diversion of resources to remedy defects, loss of or a delay in
market acceptance or claims by customers against our company, or could cause us
to incur additional costs, any of which could adversely affect our business.
Despite our product testing efforts and testing by current and potential
customers, it is possible that errors will be found in products or enhancements
after commencement of commercial shipments. We do not maintain insurance to
guard against losses caused by product defects.
WE COULD FACE POTENTIAL LIABILITY FOR ACTUAL OR PERCEIVED FAILURE OF OUR
PRODUCTS AND TECHNOLOGY AND OTHER RISKS ASSOCIATED WITH THE DELIVERY OF PROJECTS
TO OUR CUSTOMERS
Our network security products are used to prevent unauthorized access to and
attacks on critical enterprise information. Because our customers rely on our
products for critical security applications, we may be exposed to potential
liability claims for damage caused to an enterprise as a result of an actual or
perceived failure of our products. An actual or perceived breach of enterprise
network or data security systems of one of our customers, regardless of whether
the breach is attributable to our products or solutions, could adversely affect
the market's perception of our company, products and solutions and therefore our
business. Furthermore, the nature of many of our professional services exposes
us to a variety of risks. Many of our professional service engagements involve
projects that are critical to the operations of our customers' businesses. Our
failure or inability to meet a customer's expectations in the performance of our
services or products, or to do so in the time frame required by the customer,
regardless of our responsibility for the failure, could:
- result in a claim for substantial damages against us by the customers;
- discourage customers from engaging us for such services; and
- damage our business reputation.
In addition, as a professional service provider, a portion of our business
involves employing people and placing them in the workplace of other businesses.
Therefore, we are also exposed to liability with respect to actions taken by our
employees while on assignment, such as damages caused by employee errors and
omissions, misuse of customer proprietary information, misappropriation of
funds, discrimination and harassment, theft of customer property, other criminal
activity or torts and other claims.
We currently carry general liability insurance, errors and omissions insurance
and insurance to guard against losses caused by employee dishonesty. We believe
that this insurance is comparable to other similar companies in our industry.
However, that insurance may not continue to be available to us on reasonable
terms or in sufficient amounts to cover one or more large claims, or the insurer
may disclaim coverage as to any future claim. We do not
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maintain insurance coverage for employee errors or security breaches, nor do we
maintain specific insurance coverage for any interruptions in our business
operations. The successful assertion of one or more large claims against us that
exceed available insurance coverage, or changes in our insurance policies,
including premium increases or the imposition of large deductibles or
co-insurance requirements, could adversely affect our business.
OUR OPERATIONS MAY SUFFER IF WE ARE UNABLE TO PROTECT THE INTELLECTUAL AND
PROPRIETARY RIGHTS NECESSARY TO PRODUCE OUR PRODUCTS
We depend substantially on our proprietary information and technologies. We rely
on a combination of trademark, patent, copyright and trade secret laws and
license agreements to establish and protect our rights in software products and
other proprietary technology. Although we believe that our intellectual property
is not susceptible to compromise during the manufacturing process because our
software is embedded, through a masking process, in the microcontroller before
delivery to the manufacturer occurs and is not made independently available to
the manufacturer, we do manufacture and sell products in countries that offer
less protection for intellectual property than the United States or France. We
enter into confidentiality or license agreements with our employees and
distributors, as well as with our customers and potential customers seeking
proprietary information, and limit access to and distribution of our software,
documentation and other proprietary information. We cannot assure that the steps
taken by us in this regard will be adequate to deter misappropriation or
independent third-party development of our technology. In particular, it may be
possible for unauthorized parties to copy certain portions of our products or
obtain and use information that we regard as proprietary. Any inability to
protect our proprietary technologies could adversely affect our business.
We have filed and been granted nine patents in the United States, which expire
at various dates ranging from 2008 to 2011. In addition to the patents granted
in the United States, we have been granted patents in Europe, Australia, Canada,
Mexico and Taiwan. In general, patent rights are of similar duration
(approximately 20 years) in all countries where patents have been issued. Upon
expiration of such patents, competitors may develop and sell products based on
technologies similar or equivalent to those currently covered by our patents.
The nature of the process for obtaining patents and the extent of protection
provided by patent laws varies from country to country. We have filed a number
of patent applications which are presently pending. We cannot assure you that
patents will be issued with respect to pending or future patent applications, or
that our issued patents will not be challenged, invalidated or circumvented, or
that the patents that have been issued to us will prevent the development of
competitive products. In addition, we cannot always be certain that we were the
first creator of inventions covered by pending patent applications or the first
to file patent applications on certain inventions.
WE MAY FACE CLAIMS OF INFRINGEMENT ON PROPRIETARY RIGHTS OF OTHERS, WHICH COULD
SUBJECT US TO COSTLY LITIGATION AND THE POSSIBLE RESTRICTION ON THE USE OF SUCH
PROPRIETARY RIGHTS
There is a risk that our products infringe on the proprietary rights of third
parties. While we do not believe that our products infringe on proprietary
rights of third parties, infringement or invalidity claims may nevertheless be
asserted or prosecuted against us and our products may be found to have
infringed the rights of third parties. Such claims are costly to defend and
could subject us to substantial litigation costs. If any claims or actions are
asserted against us, we may be required to modify our products or may be forced
to obtain a license for such intellectual property rights in a timely manner. We
may not be able to modify our products or obtain a license on commercially
reasonable terms, or at all. Our failure to do so could adversely affect our
business. See "Business--Intellectual Property."
WE MAY FACE SYSTEM FAILURES AND OTHER COSTS RESULTING FROM YEAR 2000 RISKS
Although we have not experienced Y2K problems with respect to any of our
products, it is still possible that, even after January 1, 2000, Y2K-related
issues may cause problems or disruptions. While we believe that all of our
systems are Y2K compliant, we cannot assure you that we will not discover a
problem during the year 2000 and still experience unanticipated material costs
due to undetected errors or defects in the technology used on our systems. Also,
failure of other systems used by our customers may adversely affect the
performance of our products, which may in turn adversely affect our business.
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Should any such problem arise, it is possible that customers or third parties
might seek indemnification or damages from us as a result of Y2K issue-related
errors caused by or not prevented by our products or services. We cannot predict
the extent to which we might be liable for such costs but it is still
conceivable, in general, that Y2K errors could result in substantial judgments
against providers of information technology such as our company.
RISKS RELATING TO THIS OFFERING
IT IS POSSIBLE THAT THE PRICE OF OUR SECURITIES WILL BE VOLATILE, WHICH MAY
EXPOSE US TO CLAIMS BY OUR SHAREHOLDERS
In general, the market prices of equity securities of high technology companies
are often highly volatile and subject to movements in price that may be
unrelated to the operating performance of the particular company. The trading
price of our ADSs and our shares may be highly volatile as a result of factors
specific to our company or applicable to the market and industry in general,
including the following:
- variations in our annual or quarterly financial results or those of our
competitors;
- changes by financial research analysts in their recommendations or
estimates of our earnings;
- conditions in the economy in general or in the information technology
service sector in particular;
- announcements of technological innovations or new products or services by
us or our competitors; and
- unfavorable publicity or changes in applicable laws and regulations (or
judicial or administrative interpretations thereof) affecting us or the
information technology service sectors.
In addition, the stock market has recently been subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies. In the past, following periods of
volatility in the market price of a company's securities, some companies have
been sued by their stockholders. If we were sued, it could result in substantial
costs and a diversion of management's attention and resources, which could
adversely affect our business. Since September 1, 1999, the price of our shares
on Easdaq has increased from $4.50 to $47.00 on February 18, 2000, near its all
time high of $48.50 during the same period. Traditionally, shares traded
exclusively on Easdaq are less liquid than those traded on recognized North
American stock exchanges. Consequently, our Easdaq trading history cannot be
considered to be representative of the future performance of the price of our
ADSs on Nasdaq.
THIS OFFERING WILL RESULT IN AN IMMEDIATE AND SUBSTANTIAL DILUTION OF OUR SHARES
This offering involves an immediate and substantial dilution of $41.76 per share
(89%) between the adjusted net tangible book value per share of our shares after
this offering and the public offering price based on an assumed price of $47.00
per share. In addition, should a significant percentage of our convertible bond
holders convert their bonds into ordinary shares in lieu of redeeming them, our
current shareholders will suffer further dilution of their equity interests in
our company. See "Use of Proceeds" and "Dilution."
EXISTING SHAREHOLDERS WILL BE ABLE TO EXERCISE CONTROL OF OUR COMPANY AND MAY
MAKE DECISIONS THAT ARE NOT IN THE BEST INTERESTS OF ALL SHAREHOLDERS
Insider control of a large amount of our shares could have an adverse effect on
the market price of our ADSs. At the completion of this offering,
Messrs. Galvez and Audebert will beneficially own or control 8.7% of our shares,
and our executive officers and directors, including Messrs. Galvez and Audebert,
will beneficially own or control 12.1% of our shares. Although they are under no
obligation to do so, if our officers, directors and their affiliates were to
vote together they would have the ability to control the election of our board
of directors and the outcome of corporate actions requiring shareholder
approval, including mergers and other changes of corporate control, going
private transactions and other extraordinary transactions. Additionally entities
controlled by Singapore Technologies Pte. Ltd. will beneficially own or control
14.0% of our shares upon completion of the offering. This concentration of
ownership
15
<PAGE>
may have the effect of delaying or preventing a change of control of ActivCard,
even if this change of control benefits our shareholders generally.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 37,380,701 ordinary shares
(37,473,701 ordinary shares if the underwriters' over-allotment option is
exercised in full) issued and outstanding (including the issuance of 990,675
shares in the private placements which closed on February 16, 2000 and the
issuance of 300,000 shares upon the conversion of our October 1999 bonds). Of
these shares, 32,963,516 (33,056,516 if the underwriters' over-allotment option
is exercised in full) will be freely tradable in the public market, including
the 300,000 shares to be issued upon conversion of our October 1999 bonds,
without restrictions or further registration under the Securities Act, unless
the shares are held by "affiliates," as that term is defined in
Rule 144(a) under the Securities Act. Shares held by affiliates will be subject
to the resale limitations of Rule 144. The remaining 4,417,185 shares
outstanding will be "restricted securities" under the Securities Act and may not
be sold in the absence of registration under the Securities Act or an exemption
therefrom, including pursuant to Rule 144 or an offshore transaction pursuant to
Regulation S. In addition, at December 31, 1999, (i) 3,491,420 shares were
reserved for issuance upon exercise of outstanding stock options pursuant to our
equity incentive plan at prices ranging from $1.67 to $19.75 per share,
(ii) 1,495,894 shares were reserved for issuance upon exercise of outstanding
warrants at exercise prices ranging from $3.80 to $8.93 per share,
(iii) 760,550 shares were reserved for issuance upon conversion of our
convertible notes at a price of $4.60 per share, (iv) 761,437 shares were
reserved for issuance upon exercise of share purchase rights at prices ranging
from $1.25 to $3.91 per share and (v) 142,790 shares were reserved for future
issuance under our various stock option plans.
Our company, together with our executive officers and directors, and certain
shareholders, have entered into lock-up agreements in connection with this
offering generally providing that they will not offer, sell, contract to sell or
grant any option to purchase or otherwise dispose of our ADSs or shares or any
securities exchangeable for or convertible into our ADSs or shares for a period
of 150 days after the date of this prospectus without the prior written consent
of J.P. Morgan Securities Inc.
Sales of large numbers of our ordinary shares could cause the price of our
shares to decline.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and other materials we have filed or may file with the
Securities and Exchange Commission, as well as information included in oral
statements or other written statements made, or to be made, by us, contain,
disclosures which are "forward-looking statements." Forward-looking statements
include all statements that do not relate solely to historical or current facts,
and can be identified by the use of words such as "may," "believe," "will,"
"expect," "project," "estimate," "anticipate," "plan" or "continue." These
forward-looking statements address, among other things, strategic objectives and
the anticipated effects of the sale of the shares and ADSs. See "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." These forward-looking statements are based on the
current plans and expectations of our management and are subject to a number of
uncertainties and risks that could significantly affect our current plans and
expectations and future financial condition and results. These factors include,
but are not limited to:
- the highly competitive nature of our industry;
- estimates regarding the growth of Internet use and electronic commerce;
- changes in federal, state, local or foreign regulation affecting our
industry;
- the departure of key members of our management;
- our international operations;
- changes in our strategic relationships;
16
<PAGE>
- our ability to implement successfully our development strategy;
- fluctuations in the market value of our shares;
- changes in general economic conditions;
- the complexity and the success of integrated computer systems, and
- other risk factors described in this prospectus.
As a consequence, current plans, anticipated actions and future financial
conditions and results may differ from those expressed in any forward-looking
statements made by or on behalf of our company. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. You are cautioned not to unduly
rely on such forward-looking statements when evaluating the information
presented herein.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the offering are estimated to be approximately
$172.8 million. This estimate is based on an assumed public offering price of
$47.00 per ADS, which is the closing price of our shares on Easdaq on
February 18, 2000, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses. We will not receive any of the
proceeds from the sale of ADS's by the selling shareholders if the underwriters
exercise their over-allotment option.
The principal purposes of this offering are to fund our anticipated operating
losses, increase our working capital, complete anticipated acquisitions and fund
other general corporate purposes.
Additionally, we may use a portion of the net proceeds to acquire businesses,
products and technologies that are complementary to ours. We are continuing to
identify and prioritize additional security technologies which we may wish to
develop, either internally or through the licensing or acquisition of products
from third parties. While we engage from time to time in discussions with
respect to potential acquisitions, we do not have any plans, commitments or
agreements with respect to any such acquisitions as of the date of this
prospectus, and there can be no assurances that any such acquisitions will be
made.
Pending the uses mentioned above, we intend to invest the net proceeds from this
offering in short-term, investment grade, interest-bearing instruments.
DIVIDEND POLICY
We have never declared or paid cash dividends on our share capital. We currently
intend to retain all future earnings to finance future growth and therefore do
not anticipate paying any dividends in the foreseeable future.
Dividends are subject to shareholders' approval at an ordinary shareholders'
meeting and the provisions of any loan or other agreements to which we may in
the future become a party. Under French law, dividends approved at an ordinary
shareholders' meeting are required to be paid by us within nine months of the
end of our fiscal year unless otherwise authorized by a court order.
The amount of dividends available for distribution during a given financial year
is divided between all our shareholders, in proportion to such shareholders'
holdings. Dividends are paid in cash, or in the form of new ordinary shares.
Pursuant to our STATUTS the decision to offer the shareholders the choice
between the payment of a dividend in cash or in ordinary shares is subject to
shareholders' approval at an ordinary shareholders' meeting. If no such decision
is made, payment of the dividend is automatically made in cash.
18
<PAGE>
CAPITALIZATION
The following table describes our capitalization as of December 31, 1999 on:
- a historical basis, and
- an as adjusted basis to reflect (i) our receipt of the net proceeds from
the offering at an assumed public offering price of $47.00 per ADS, based
on the closing price of our shares on Easdaq of $47.00 per share on
February 18, 2000, net of underwriting discounts and offering expenses,
(ii) our receipt of the net proceeds of $16.5 million from the private
placement of 990,675 shares in February 2000 and (iii) the application of
$6.2 million of the proceeds from the private placement to redeem all of
our $6 million non-interest bearing convertible bonds issued in
October 1999 and due October 15, 2001 (assuming such bonds are not
converted to shares by the holders thereof).
<TABLE>
<CAPTION>
-------------------------
AS OF DECEMBER 31,
1999
-------------------------
HISTORICAL AS ADJUSTED
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term debt....... $ 1,419 $ 1,419
Long-term debt, excluding current portion................... 198 198
Convertible loan............................................ 9,259 3,500
Shareholders' equity:
Ordinary shares, FRF 6.25 nominal value; 32,090,026 shares
issued and outstanding at December 31, 1999............... 36,339 41,305
Additional paid-in capital................................ 34,483 224,513
Accumulated deficit....................................... (67,640) (67,640)
Deferred stock compensation............................... (124) (124)
Cumulative translation adjustment......................... (2,066) (2,066)
-------- --------
Total shareholders' equity.............................. 992 195,988
-------- --------
Total capitalization........................................ $ 11,868 $201,105
======== ========
</TABLE>
In addition to the shares to be outstanding after the offering, at December 31,
1999, we could issue additional shares under the following plans and
arrangements:
- 3,491,420 shares issuable upon exercise of options outstanding at a
weighted average price of $5.10 per share,
- 1,495,894 shares issuable upon the exercise of warrants outstanding at a
weighted average price of $5.07 per share,
- 760,550 shares issuable upon conversion of our convertible bonds at a
price of $4.60 per share (excluding the 300,000 shares issuable upon the
conversion of our convertible bonds issued in October 1999),
- 761,437 shares issuable upon exercise of share purchase rights at a
weighted average price of $1.52 per share as of, and
- 142,790 shares available for future issuance under our various stock
plans.
The share amounts above reflect a conversion, for the options and warrants
exercisable in French francs, at the exchange rate of FF6.5295 to $1.00 in
effect as of December 31, 1999.
19
<PAGE>
DILUTION
As of December 31, 1999, our net tangible book value, after giving effect to the
issuance of 990,675 shares in the private placements which closed on
February 16, 2000 and the issuance of 300,000 shares upon the conversion of our
October 1999 bonds, was $23,148,000, or $0.69 per share. Net tangible book value
per share represents the amount of our total tangible assets reduced by the
amount of our total liabilities, divided by the number of shares outstanding. As
of December 31, 1999, our net tangible book value, as further adjusted for the
sale of 4,000,000 ADSs in the offering at an assumed public offering price at
$47.00 per ADS based on the closing price of our shares on Easdaq of $47.00 per
share on February 18, 2000, and after deducting the underwriting discounts and
commissions and other estimated expenses, would have been approximately $5.24
per share. This represents an immediate increase of $4.55 per share to existing
stockholders and an immediate dilution of $41.76 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial offering price per ADS...................... $47.00
Net tangible book value per share before the offering..... .69
Increase in net tangible book value per share attributable
to new investors........................................ 4.55
------
Pro forma net tangible book value per share after this
offering.................................................. 5.24
------
Dilution per share to new investors......................... $41.76
======
</TABLE>
The foregoing table summarizes, on a pro forma basis to give effect as of
December 31, 1999 to the offering, the differences between the existing
shareholders and the new investors with respect to the number of shares
purchased from us, the total consideration paid to us and the average price per
share paid, before deducting underwriting commissions and estimated offering
expenses payable by us, at an assumed public offering price of $47.00 per ADS:
<TABLE>
----------------------------------------------
AVERAGE
PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
--------------------- ----------------------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... 33,380,701 89.3% $ 95,874,000 33.8% $ 2.87
New investors.............................. 4,000,000 10.7 188,000,000 66.2 47.00
---------- ----- ------------ -----
Total.................................... 37,380,701 100.0% $283,874,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables are based upon the number of shares actually
issued and outstanding on December 31, 1999 plus the assumed issuance of 990,675
shares issued pursuant to the private placements of our shares which closed on
February 16, 2000, the 300,000 shares issuable upon the conversion of our
October 1999 convertible bonds, and assumes no exercise of options or warrants
outstanding as of December 31, 1999. As of that date, there were:
- 3,491,420 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $5.10 per share,
- 1,495,894 shares of issuable upon exercise of warrants outstanding at a
weighted average exercise price of $5.07 per share,
- 760,550 shares issuable upon conversion of our convertible notes at a
price of $4.60 per share (excluding the 300,000 shares issuable upon the
conversion of our convertible bonds issued in October 1999),
- 761,437 shares issuable upon exercise of complementary (share purchase)
rights at a weighted average price of $1.52 per share, and
- 142,790 shares available for future issuance under our various stock
plans.
To the extent these options and warrants are exercised, there will be further
dilution to new investors.
20
<PAGE>
PRICE RANGE OF SHARES
Our initial public offering was consummated in December 1996. Our shares are
listed on Easdaq under the symbol "ACTV."
The following table sets forth, for the periods indicated, the high and low sale
prices for our shares as reported on the Easdaq.
<TABLE>
<CAPTION>
-----------------------------------
SHARES AVERAGE DAILY
------------------- TRADING
HIGH LOW VOLUME
-------- -------- -------------
<S> <C> <C> <C>
1997
First Quarter............................................... $ 8.25 $ 8.00 7,788
Second Quarter.............................................. $ 8.12 $ 3.31 47,828
Third Quarter............................................... $ 3.50 $ 2.88 15,402
Fourth Quarter.............................................. $ 3.13 $ 2.44 38,399
1998
First Quarter............................................... $ 3.63 $ 2.13 22,044
Second Quarter.............................................. $ 6.25 $ 2.25 46,900
Third Quarter............................................... $ 4.75 $ 3.00 12,528
Fourth Quarter.............................................. $ 2.85 $ 1.66 13,612
1999
First Quarter............................................... $ 4.69 $ 1.60 167,254
Second Quarter.............................................. $ 5.92 $ 3.69 66,689
Third Quarter............................................... $ 5.83 $ 4.07 49,222
Fourth Quarter.............................................. $25.00 $ 4.65 296,973
2000
First Quarter (through February 18, 2000)................... $48.50 $22.50 404,965
</TABLE>
Our price at the close of trading on February 18, 2000 was $47.00 per share. As
of February 18, 2000, we estimate that there were approximately 88 registered
holders.
21
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
Our selected historical consolidated financial data for the years ended
December 31, 1995, 1996, 1997, 1998 and 1999 have been derived from, and should
be read in conjunction with, our audited consolidated financial statements and
the related notes thereto included elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Products....................... $ 443 $ 5,686 $ 6,210 $ 7,624 $ 9,976
Engineering services........... 2,609 2,627 1,357 642 286
---------- ----------- ----------- ----------- -----------
Total revenues................... 3,052 8,313 7,567 8,266 10,262
---------- ----------- ----------- ----------- -----------
Cost of revenue:
Products....................... 345 3,521 3,470 4,564 5,099
Engineering services........... 2,255 1,599 1,356 659 238
---------- ----------- ----------- ----------- -----------
Total cost of revenue............ 2,600 5,120 4,826 5,223 5,337
---------- ----------- ----------- ----------- -----------
Gross profit (loss).............. 452 3,193 2,741 3,043 4,925
Costs and expenses:
Research and development....... 1,550 3,070 3,281 3,888 5,233
Marketing and selling.......... 2,156 6,790 7,210 7,042 9,829
General and
administrative(1)............ 3,766 4,313 2,317 2,504 5,603
---------- ----------- ----------- ----------- -----------
Total costs and expenses......... 7,472 14,173 12,808 13,434 20,665
---------- ----------- ----------- ----------- -----------
Income (loss) from operations.... (7,020) (10,980) (10,067) (10,391) (15,740)
Interest and other financial
income (expenses), net......... (389) (225) (181) (360) (187)
Income tax benefit (loss)........ 53 68 714 452 15
Loss from discontinued
operations..................... -- -- -- -- --
Minority interest................ -- 97 32 1 --
---------- ----------- ----------- ----------- -----------
Net loss......................... $ (7,356) $ (11,040) $ (9,502) $ (10,298) $ (15,912)
========== =========== =========== =========== ===========
Basic and diluted net loss per
share.......................... $ (1.37) $ (0.92) $ (0.61) $ (0.55) $ (0.55)
========== =========== =========== =========== ===========
Number of shares used in
computing basic and diluted net
loss per share................. 5,384,078 12,006,618 15,460,178 18,618,463 29,114,715
</TABLE>
- ------------------------
(1) General and administrative expense for the year ended December 31, 1999
includes $3.04 million resulting from the settlement of a two-year old legal
action, including a cash payment of $637,500 for legal expenses and a grant
of 480,000 new shares valued at $2,400,000.
22
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AT DECEMBER 31,
-------------------------------------------------------------------
1999
1995 1996 1997 1998 1999 AS ADJUSTED
-------- -------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 2,652 $ 9,593 $ 5,291 $ 4,150 $ 8,790 $198,027
Total current assets.................. 6,529 15,779 10,356 9,302 14,398 203,006
Total assets.......................... 7,640 17,495 13,051 12,375 16,434 205,042
Total current liabilities............. 7,602 8,568 5,263 5,902 5,953 5,324
Total long-term liabilities........... 2,718 2,160 2,749 1,448 230 230
Convertible bonds..................... -- -- 8,030 8,030 9,259 3,500
Shareholders' equity (deficit)........ (2,680) 6,767 (2,991) (3,005) 992 195,988
</TABLE>
- ------------------------
(1) Adjusted to reflect: (i) the consummation of this offering assuming net
proceeds of $172,840,000 based on an assumed public offering price of $47.00
per ADS; (ii) consummation of the sale of 990,675 shares in February 2000 to
four strategic investors for net proceeds of approximately $16.5 million;
and (iii) the conversion of all of our $6 million non-interest bearing
convertible bonds due 2001 issued in October 1999 into 300,000 shares. These
bonds are required to be redeemed by us with the proceeds of our private
placements to strategic investors that closed on February 16, 2000 unless,
upon notice of redemption, holders elect to convert all or a portion of such
bonds into shares. If none of the holders of these bonds elect to convert
the bonds to shares, our cash and cash equivalents, total current assets and
total assets would be reduced by $6.2 million. See "Description of Share
Capital--Convertible Bonds."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS THAT APPEAR ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
REFLECT OUR PLANS, ESTIMATES AND BELIEFS. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS, PARTICULARLY IN "RISK
FACTORS."
OVERVIEW
We develop, market and support software and related hardware products that
provide or enable authentication, electronic certification and digital
signatures for use on the Internet or in network systems, services and
applications. Our secure user identification solutions allow companies to
control access to their information networks at the level appropriate for
employees, partners and customers and provide the authentication necessary to
prevent online fraud and other computer-related crimes. Our products and
technologies are designed to manage digital identities by addressing the
administrative, security and usability concerns inherent in network computing.
From our founding in 1985 until 1994, we (i) provided software and hardware
engineering services for defense-related companies, government agencies and
multilateral institutions and (ii) developed, manufactured and sold customized
portable products, similar in form to tokens, for large-scale applications, such
as interactive television. In December 1993, as a result of management's
assessment that it would take a significant period of time for the interactive
television market to develop, we decided to discontinue the direct marketing and
sales activities related to interactive television and began to devote our
resources principally to the development of computer and communications network
security products and contract engineering services. We first developed
management software for our data security solution in 1996. The first ActivCard
token solutions were introduced in 1995. In early 1997, we chose to focus our
efforts as a provider of products, rather than engineering services, to enhance
our gross margins and leverage our engineering investments. In January 1999, we
introduced ActivCard Gold, a smart card-based solution for network security.
A substantial majority of revenues for 1995 and preceding years was derived from
providing contracted engineering services to third parties and the manufacture
and sale of products other than ActivCard tokens and related products. In fiscal
1996 through to 1998, the majority of our revenue was generated by the sale of
token-based products. Until 1999, these revenues were mainly derived from
ActivCard One and ActivCard Plus. In January 1999, we began to focus our efforts
on smart card related products, which represented approximately 28% of revenues
in 1999. The majority of our revenues continue to be derived from sales of
security token implementations, sold mainly to European banks for network
security and online banking applications. We believe most of our revenue growth
will be from our smart card related products and we will be focusing much of our
efforts on promoting these products.
Our consolidated financial statements are prepared in accordance with U.S. GAAP.
We recognize revenue from the sale of hardware and software products upon
shipment of the products and acceptance from the customer, provided no
significant obligations remain and collection of the receivable is considered
probable. Product revenue consists of hardware platform sales and license fees
associated with embedded and server-based software. Sales to Original Equipment
Manufacturers (OEMs) are recognized as revenue unless there is a specific
acceptance period in the order. Revenue from engineering services is recognized
in accordance with the percentage-of-completion method and to the extent such
revenue is derived from services provided pursuant to a signed contact. As of
December 31, 1999, we had not capitalized any software development costs and all
research and development costs have been expensed as incurred. See Note 1.11 of
Notes to Consolidated Financial Statements and the notes thereto included
elsewhere in this prospectus.
If a software sale to an OEM contains support requirements, its value is
determined and deferred. This deferred revenue is recognized over the estimated
effective lifetime of that software version. Sales to Value Added Resellers
(VARs) are recognized as revenue when shipped. VARs do not stock our inventory
for resale. Our product is shipped
24
<PAGE>
to the VAR for immediate reshipment to the end customer on an on-order basis or
directly to the end customer. Sales to distributors are not recognized as
revenue. If full right of return exists, we defer revenue on shipments to
distributors and recognize revenue on distributor sales to end-users from a
point-of-sale report or equivalent. Revenue is recognized, however, on direct
shipments made to distributor end-customer accounts.
Most of our product sales through 1999 were in Europe, although sales in the
United States increased in 1999. Sales in Europe in 1998 accounted for 84% of
total company sales, compared to 78% in 1999. U.S. sales increased from 10% in
1998 to 18% of total sales in 1999. Sales of smart card related software and
hardware products increased from approximately 8% of total sales in 1998 to
approximately 28% of total sales in 1999. The increase in smart card related
products sales in 1999 has been about evenly split between Europe and the United
States.
RECENT DEVELOPMENTS
Schlumberger Systems, Business Brain Showa-Ota Inc., Sun Microsystems, Inc. and
SCM Microsystems, Inc. have subscribed to 174,825, 116,550, 582,750 and 116,550,
respectively, of our ordinary shares at a subscription price of $17.16 per
share. The subscription price was determined at a board of directors meeting
held on December 16, 1999 and is based on the average closing price of our share
between November 25 and December 8, 1999. The sales of these shares was approved
by our stockholders on February 9, 2000 and closed on February 16, 2000. We
received net proceeds of approximately $16.5 million.
The terms of our $6.0 million aggregate principal amount of bonds issued in
October 1999 require us to call them for redemption upon consummation of the
subscriptions referred to above. Upon call for redemption, the holders may elect
to convert all or a portion of the bonds into shares, for an aggregate of
300,000 shares if all are converted. If none of the bonds are converted, we
would be required to use approximately $6.2 million of the proceeds of the sale
of the subscribed shares to redeem the bonds.
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
REVENUE
Revenue totaled $10.3 million in 1999, $8.3 million in 1998 and $7.6 million in
1997. Total revenue in 1999 increased by 24% due to increased security product
sales which more than offset lower engineering service revenue. This increase is
primarily attributable to increased global sales of smart card related products
which represented 28% of our total revenue in 1999 compared to less than 8% in
1998. Revenue from the sale of products totaled $10.0 million in 1999, $7.6
million in 1998 and $6.2 million in 1997. Product revenue in 1999 increased by
31%, primarily from an annual increase in sales of 21% in Europe and of 120% in
the United States. Consistent with our strategy to shift from a lower margin
engineering services business to a higher margin product sales based company,
engineering services revenue decreased in 1999 by 55%, from $642,000 in 1998 to
$286,000 in 1999. Most of our sales through 1999 have been in Europe.
<TABLE>
<CAPTION>
------------------------------
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
THOUSANDS
<S> <C> <C> <C>
Revenue:
Smart card-related products......................... $ 460 $ 634 $ 2,916
Token-related products.............................. 5,750 6,990 7,060
Engineering services................................ 1,357 642 286
------ ------ -------
Total revenue..................................... $7,567 $8,266 $10,262
====== ====== =======
</TABLE>
COST OF REVENUE
The cost of revenue totaled $5.3 million in 1999, $5.2 million in 1998 and $4.8
million in 1997. The cost of sales of products revenue, consisting mainly of
labor, manufacturing, delivery and other production costs, totaled $5.1 million
25
<PAGE>
in 1999, $4.6 million in 1998 and $3.5 million in 1997, representing 51%, 60%
and 56%, respectively, of the total products revenue generated in each year. In
1998, the cost of sales of product revenue increased as a result of the
introduction of new network security products and relatively high manufacturing
and labor costs related to low quantities sold. The cost of engineering services
revenue, consisting mainly of employee salaries and a related portion of our
overhead totaled $238,000 in 1999, $659,000 in 1998 and $1.4 million in 1997,
representing 83%, 103%, and 100% respectively, of total engineering services
revenue in each year. Costs in these years were affected by (i) costs associated
with downsizing the engineering department, (ii) a relatively steady amount of
indirect costs despite the reduction in engineering services revenue and
(iii) for 1997 and 1998, higher than anticipated costs on certain long-term
projects. We expect to reduce significantly our engineering service business and
related expenses as our focus shifts to the product business.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses, consisting
primarily of salaries, costs of components used in such activities and related
overhead costs, totaled $5.2 million in 1999, $3.9 million in 1998 and $3.3
million in 1997. The substantial majority of the research and development
expenses incurred in 1999 and 1998 related to the introduction of the new
ActivCard Gold products and OEM integration projects. Research and development
expenses incurred in 1997 related primarily to the development of ActivReader
and efforts to further the integration of our products with those of its
distributors and partners.
MARKETING AND SELLING. Marketing and selling expenses consist primarily of
salaries and other payroll expenses such as commissions, travel expenses of
sales and marketing personnel, and costs associated with marketing programs and
promotions. Marketing and selling expenses totaled $9.8 million in 1999, $7.0
million in 1998 and $7.2 million in 1997. This 40% increase in marketing and
selling spending in 1999 and 1998 was primarily associated with increasing our
number of salesmen and systems engineers, implementing a more aggressive
commission program and opening new sales offices.
GENERAL AND ADMINISTRATIVE. General and administrative expenses totaled $5.6
million in 1999, $2.5 million in 1998 and $2.3 million in 1997. These expenses
consist primarily of personnel costs for administration, accounting and finance,
human resources and general management as well as consulting, legal and
accounting fees and stock compensation expenses. The primary cause of the
increase in 1999 was a settlement agreement signed in July between the Company
and a former officer in our original U.S. subsidiary that resolved a lawsuit
filed in 1997. The agreement called for a payment of $637,500 for legal expenses
and a grant of 480,000 new shares valued at $2,400,000 at a price per share of
$5.00 as of June 30, 1999. This grant was voted upon by shareholders and issued
on July 27, 1999. See "Business--Legal Proceedings."
INTEREST AND FINANCIAL EXPENSES
Net interest and other financial expenses totaled $187,000 in 1999, $360,000 in
1998 and $181,000 in 1997. The increase in net financial expenses from 1997 to
1998 was due primarily to the increase in net interest expense. Net interest
expense totaled $523,000 in 1998 compared to $159,000 in 1997 as a result of the
increase in outstanding indebtedness (mainly convertible loans which began on
July 1, 1997, which increased interest expense to $344,000) and lower interest
income on short-term investments. The increase in net interest expenses was
partially offset by a foreign exchange gain of $163,000 in 1998 compared to a
foreign exchange loss of $22,000 in 1997. The decrease in net financial expenses
from 1998 to 1999 was mainly attributed to greater interest income and currency
translation gains. Net interest expenses totaled $449,000 in 1999 compared to
$523,000 in 1998 as a result of the increase in interest income earned on
available-for-sales securities from the proceeds of the rights issue and bonds
issue in February 1999 and October 1999, respectively. Moreover, the foreign
exchange gain totaled $262,000 in 1999 compared to a foreign exchange gain of
$163,000 in 1998.
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INCOME TAX BENEFIT
The income tax benefit attributable to continuing operations totaled $15,000 in
1999, $452,000 in 1998 and $714,000 in 1997, primarily arising from research and
development and training tax credits. The research and development tax credit is
equal to 50% of the difference between (i) specifically defined and codified
research and development expenditure incurred during each fiscal year and
(ii) the average of the research and development expenditures during the
preceding two years, as adjusted by a coefficient based on a consumer index. The
credit is capped at FF40 million. The credit may be discounted with a bank or
used to pay corporate income tax due in France at the standard rate of 33.33%
during the three years following calculation. The Company incurs the research
and development costs primarily in France. The income tax benefits in 1999 were
insignificant compared to 1998 and 1997 due to the flat level of research and
development expenditures incurred in 1999 and during the preceding two years. In
1997, the Company implemented a research and development project tracking
system, which identifies and supports research and development expenditures for
new product development. The lack of such system prior to 1997 explains the high
level of research and development tax credits calculated in 1997 and 1998.
As of December 31, 1999, we had French net operating loss carryforwards of
approximately $29.2 million. Approximately $19.7 million of these net operating
loss carryforwards will expire in the years 2000 through 2004, if not utilized,
with the remaining having no expiration date. As of December 31, 1999, our U.S.
subsidiary, ActivCard, Inc. also had net operating loss carryforwards of
approximately $20.4 million in the U.S., which expire in the years 2011 through
2014, and net operating loss carryforwards in Singapore of approximately $2.7
million with no expiration date. The utilization of these net operating loss
carryforwards is limited to our future operations in the tax jurisdiction in
which such carryforwards arose. Due to our history of losses, we have provided
valuation allowances covering 100% of net deferred tax assets. See Note 6 of the
Notes to our Consolidated Financial Statements.
QUARTERLY INFORMATION
GENERAL
The following tables set forth our statement of operations data for the
three-month periods indicated. This unaudited quarterly information has been
prepared on the same basis as the audited information presented elsewhere herein
and, in management's opinion, includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented. Our three-month results have, in the
past, been
27
<PAGE>
subject to fluctuations and thus the operating results for any quarter presented
here not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
THOUSANDS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Products............... $ 1,376 $ 2,322 $ 1,597 $ 2,329 $ 1,702 $ 2,938 $ 2,338 $ 2,998
Engineering Services... 241 193 116 92 45 69 104 68
------- ------- ------- ------- ------- ------- ------- -------
Total revenues........... 1,617 2,515 1,713 2,421 1,747 3,007 2,442 3,066
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Products............... 786 1,227 1,034 1,517 955 1,633 1,179 1,332
Engineering Services... 298 196 70 95 28 55 80 75
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue.... 1,084 1,423 1,104 1,612 983 1,688 1,259 1,407
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)...... 533 1,092 609 809 764 1,319 1,183 1,659
Costs and expenses:
Research and
development.......... 922 913 1,000 1,053 1,184 1,212 1,228 1,609
Marketing and
selling.............. 1,753 1,621 1,685 1,983 1,920 2,359 2,443 3,107
General and
administrative(1).... 656 678 546 624 620 3,684 619 680
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............... 3,331 3,212 3,231 3,660 3,724 7,255 4,290 5,396
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (2,798) (2,120) (2,622) (2,851) (2,960) (5,936) (3,107) (3,737)
Interest and other
financial income
(expenses), net........ (101) (25) (138) (96) (223) 38 (174) 172
------- ------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations before
income taxes........... (2,899) (2,145) (2,760) (2,947) (3,183) (5,898) (3,281) (3,565)
------- ------- ------- ------- ------- ------- ------- -------
Income tax benefit....... - 133 68 251 - - - 15
Net loss before minority
interest............... (2,899) (2,012) (2,692) (2,696) (3,183) (5,898) (3,281) (3,550)
Minority interest........ - - 4 (3) - - - -
------- ------- ------- ------- ------- ------- ------- -------
Net loss................. $(2,899) $(2,012) $(2,688) $(2,699) $(3,183) $(5,898) $(3,281) $(3,550)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenues:
Revenue:
Products............... 85.1% 92.3% 93.2% 96.2% 97.4% 97.7% 95.7% 97.8%
Engineering services... 14.9 7.7 6.8 3.8 2.6 2.3 4.3 2.2
------- ------- ------- ------- ------- ------- ------- -------
Total revenues........... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue.... 67.0 56.6 64.4 66.6 56.3 56.1 51.6 45.9
Gross profit (loss)...... 33.0 43.4 35.6 33.4 43.7 43.9 48.4 54.1
Costs and expenses:
Research and
development.......... 57.0 36.3 58.4 43.5 67.8 40.3 50.3 52.5
Marketing and
selling.............. 108.4 64.5 98.4 81.9 109.9 78.5 100.1 101.3
General and
administrative (1).... 40.6 27.0 31.9 25.8 35.5 122.5 25.3 22.2
------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............... 206.0 127.7 188.6 151.2 213.2 241.3 175.7 176.0
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (173.0) (84.3) (153.1) (117.8) (169.4) (197.4) (127.2) (121.9)
Interest and other
financial income
(expenses), net........ (6.2) (1.0) (8.1) (4.0) (12.8) 1.3 (7.1) 5.6
------- ------- ------- ------- ------- ------- ------- -------
Loss from continuing
operations before
income taxes........... (179.3) (85.3) (161.1) (121.7) (182.2) (196.1) (134.4) (116.3)
------- ------- ------- ------- ------- ------- ------- -------
Income tax benefit....... - 5.3 4.0 10.4 - - - 0.5
Net loss before minority
interest............... (179.3) (80.0) (157.1) (111.4) (182.2) (196.1) (134.4) (115.8)
Minority interest........ - - 0.2 (0.1) - - - -
------- ------- ------- ------- ------- ------- ------- -------
Net loss................. (179.3)% (80.0)% (156.9)% (111.5)% (182.2)% (196.1)% (134.4)% (115.8)%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------------------
(1) General and administrative expense for the year ended December 31, 1999
includes $3.04 million resulting from the settlement of a two-year old legal
action, including a cash payment of $637,500 for legal expenses and a grant
of 480,000 new shares valued at $2,400,000.
We believe that revenue will tend to be higher in the second and fourth quarters
due to the budget cycles of our customers and the tendency of certain of these
customers to implement changes in computer or network security prior to
traditional summer holidays and toward the end of the calendar year. In
addition, revenue will tend to be lower in the first quarter of the year
compared to the previous quarter and lower in the summer months, particularly in
Europe, when businesses often defer purchase decisions. Because our operating
expenses are based on anticipated revenue levels and a significant percentage of
our expenses are fixed, a small variation in the time of recognition of revenue
can cause significant variations in operating results from quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations and investments in capital
equipment through the sale of equity and convertible debt securities, French
franc-denominated interest-free loans provided by agencies of the French
government, bank indebtedness and loans from our shareholders. We do not
anticipate that interest-free loans from agencies of the French government or
loans from our shareholders will be made in the future and our financing plans
do not contemplate the further receipt of such loans.
29
<PAGE>
As of December 31, 1999, we had cash and cash equivalents of $8.8 million
compared to $4.2 million at December 31, 1998 and $5.3 million at December 31,
1997. Operations used cash totaling $12.9 million in 1999, $9.6 million in 1998,
$9.8 million in 1997 and $11.4 million in 1996. Accounts receivable days' sales
outstanding decreased from 140 days at December 31, 1996 to 90 days at
December 31, 1997, increased modestly to 94 days at December 31, 1998, and
decreased to 76 days at December 31, 1999 due to increased management focus. The
credit terms extended to our customers, which is typically 30 days, have not
changed during these periods. The decrease of $1.0 million in accounts payable
from December 31, 1996 to December 31, 1997 reflected our efforts to reduce
spending in 1997, with payables remaining at this same level on December 31,
1998 and December 31, 1999.
Investment activity consists primarily of purchases and sales of property and
equipment. In 1999, investments resulted in a net use of cash of $255,000; in
1998 of $589,000; and in 1997 of $62,000.
In 1999, our financing activities provided net funds of $18.2 million, primarily
from capital increases of $9.7 million from an issue of ordinary shares in
February, $6 million from an issue of convertible bonds with detachable warrants
in October and $3.5 million from the exercise of warrants, reserved rights and
stock options during the year, partially offset by repayments of loans and
principal payments of capital leases totaling $1.1 million. In 1998, our
financing activities provided net funds of $9.2 million, primarily the cash
proceeds from the sale of ordinary shares and the exercise of warrants, reserved
rights and stock options of $10.3 million, offset by the repayment of loans from
third parties of $737,000 and the payment of capital lease obligations of
$296,000. In 1997, our financing activities provided net funds of $6.4 million,
primarily from the issuance of $8.0 million of convertible subordinated debt.
At December 31, 1999, we had long-term debt of $10.9 million, composed of $3.6
million convertible debt (including short-term accrued interest), $5.8 million
of convertible bonds (including short-term accrued interest), $661,000 in French
franc-denominated interest-free loans, $350,000 in debt related to license
agreements, $464,000 in capital lease obligations and $7,000 in French
franc-denominated bank loans. At December 31, 1998, we had long-term debt of
$10.8 million, composed of $8.3 million of convertible debt, $1.2 million in
French franc-denominated interest-free loans, $650,000 in debt related to
license agreements, $462,000 in capital lease obligations and $90,000 in French
franc-denominated bank loans. At December 31, 1997, we had long-term debt of
$11.7 million, composed of $8.3 million of convertible debt, $1.4 million in
French franc-denominated interest-free loans, $850,000 in debt related to
license agreements, $737,000 in capital lease obligations and $336,000 in French
franc-denominated bank loans.
In October 1999, we issued units consisting of an aggregate of $6.0 million
principal amount of non-interest bearing convertible bonds due October 15, 2001
and warrants to purchase an aggregate of 1,200,000 shares at an exercise price
of $5.00 per share. The bonds are convertible into 300,000 shares at any time on
or after the earlier of April 15, 2000 and the consummation of this offering,
and can be redeemed by us prior to maturity at redemption prices ranging from
103% to 112% of their principal amount. The terms of these bonds require us to
call them for redemption upon consummation of the private placement of our
shares expected to close on or about February 16, 2000. Upon such call for
redemption, the holders may elect to convert all or a portion of the bonds into
shares, for an aggregate of 300,000 shares if all are converted. We will use up
to approximately $6.2 million of the proceeds of the private placements to
redeem bonds that are not converted, if any.
We have no material commitments for capital expenditures during 2000. Our future
capital requirements, the timing and amount of expenditures, and the adequacy of
funds available to us will depend on our success in developing and selling new
and existing products. Based on our current plans, we believe that the net
proceeds from the offering and cash flows generated by operations will be
adequate to satisfy our capital requirements at least through 2000. However, if
our research and development plans change, we may need additional funding before
2001. Additionally, our management may also from time to time consider the
acquisition of complementary businesses or technologies which may require
additional financing, although it has no present understandings, commitments or
agreements, nor is it engaged in any discussions or negotiations, with respect
to any such transaction.
30
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. We do not expect SFAS No. 133 to have a significant impact on our
consolidated financial statements.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET AND INTEREST RATE RISK
We are exposed to minimal market risks. We do not hold or issue derivative,
derivative commodity instruments or other financial instruments for trading
purposes. We are exposed to currency exchange fluctuations, as we sell our
products internationally. We manage the sensitivity of our international sales
by denominating substantially all transactions in U.S. dollars.
In 1997, 1998 and 1999, nearly 100% of our revenues were billed and recorded in
dollars. Although we purchase many of our components for dollars, approximately
50% of our cost of revenues and operating expenses are in French francs.
In 1997, we incurred a net foreign exchange loss of $22,000 composed of a
realized foreign exchange gain of $42,000, mainly attributable to transactions
with customers and a net unrealized foreign exchange loss of $64,000. The
strengthening of the U.S. dollar against the French franc at 5.99 French francs
per U.S. dollar on December 31, 1997 caused this net unrealized foreign exchange
loss primarily from exchange losses on revaluation of convertible bonds and debt
of $189,000 and $101,000 respectively, partially offset by an exchange gain of
$152,000 of dollar-denominated bank accounts. In 1998, the net foreign exchange
gain amounted to $163,000 which mainly consisted in a net unrealized gain of
$177,000 partially offset by a realized foreign exchange loss of $14,000. As the
U.S. dollar weakened against the French franc, closing at 5.60 French francs per
U.S. dollar on December 31, 1998, the net unrealized gain of $177,000 was mainly
composed of a foreign exchange gain of $522,000 on the revaluation of the
convertible bonds partially offset by foreign exchange losses on U.S.
dollar-denominated bank accounts and intercompany accounts of $246,000 and
$108,000, respectively. In 1999, the net foreign exchange gain amounted to
$262,000, which mainly consisted of a net unrealized gain of $563,000 partially
offset by a realized foreign exchange loss of $301,000. As the U.S. dollar
strengthened against the French franc closing at 6.53 French francs per U.S.
dollar on December 31, 1999, the net unrealized gain of $563,000 was mainly
composed of foreign exchange gains on the revaluation of the intercompany
accounts and U.S. dollar-denominated bank accounts of $1,021,000 and $512,000,
respectively, partially offset by a foreign exchange loss of $1,050,000 on the
revaluation of the convertible bonds.
We are exposed to interest rate risk, as we use additional financing
periodically to fund capital expenditures. The interest rate risk that we may be
able to obtain on financings will depend on market conditions at that time and
may differ from the rates we have secured in the past. Sensitivity of results of
operations to market and interest rate risks is managed by maintaining a
conservative investment portfolio.
We have not previously engaged in, and do not now contemplate entering into,
currency and interest rate hedging transactions. We may enter into such
transactions on a non-speculative basis to the extent that we may in the future
have substantial foreign currency exposure.
YEAR 2000 CONSIDERATIONS
Although we have not experienced Y2K problems, it is still possible that, even
after January 1, 2000, Y2K-related issues may cause problems or disruptions.
While we believe that all of our systems are Y2K compliant, we cannot assure you
that we will not discover a problem during the year 2000 and still experience
unanticipated material costs
31
<PAGE>
due to undetected errors or defects in the technology used on our systems. Also,
failure of other systems used by our customers may adversely affect the
performance of our products, which may in turn adversely affect our business.
Should any such problem arise, it is possible that customers or third parties
might seek indemnification or damages from us as a result of Y2K issue-related
errors caused by or not prevented by our products or services. We cannot predict
the extent to which we might be liable for such costs but it is still
conceivable, in general, that Y2K errors could result in substantial judgments
against providers of information technology such as our company.
INFLATION
Inflation has not had a material impact on our revenues, operating income and
net income during any of our three most recent fiscal years. However, to the
extent inflationary pressures affect short-term interest rates, a significant
portion of our debt service costs may be affected, as may be the interest rates
we charge to our customers.
32
<PAGE>
BUSINESS
OVERVIEW
We provide solutions for authenticating and managing the digital identities of
employees, suppliers, partners and customers accessing e-business resources. Our
products and technologies are designed to manage digital identities. Our secure
user identification solutions allow companies to control access to their
information networks at the level appropriate for each particular user and are
designed to provide the authentication necessary to prevent online fraud and
other computer related crimes. Our solutions provide businesses, service
providers and consumers the confidence to do business online by addressing the
administrative, security and usability concerns inherent in network computing.
Our digital identity framework ensures that users are properly authenticated
while allowing network managers to securely administer the diverse systems that
comprise their network environment. Our solutions also provide non-repudiation
of online transactions. For example, we provide the authentication technology
necessary to enable ATM transactions to occur over the Internet, downloading
electronic cash directly onto a card through a variety of terminals, such as
PCs, televisions and mobile telephones. Our ActivCard Gold product incorporates
multi-application smart cards to provide a platform to consolidate various
independent credentials, such as a corporate picture ID, building access,
network login, online digital signature and credit card, thereby enabling a
personalized online experience. These digital credentials collectively define
the digital identity of a user or system.
Through our strategic relationships with companies such as AXENT Technologies,
Hewlett-Packard, Lucent Technologies, Novell, Schlumberger, SCM Microsystems,
Sun Microsystems and Visa International, our digital identity framework has been
embedded in several leading systems and components. In addition, our digital
identity framework is compatible with the products and technologies of Baltimore
Technologies, Entrust, Microsoft, Mondex International, a division of
MasterCard, SCM Microsystems and other reader manufacturers, Sun Microsystems,
and Verisign. We also sell our products through distribution partners, such as
original equipment manufacturers (OEMs), value-added resellers (VARs), system
integrators and distributors.
Historically, our principal customers have been European banking and financial
services companies. These financial and other institutions use our products for
advanced remote and Internet banking as well as Internet access, secure access
to data and increased efficiency in corporate network connectivity. We also
market our products to companies in the telecommunications, healthcare,
networking technologies and manufacturing sectors. Based on the number of our
products sold, we believe that there are more than one million people using our
products for secure banking, web access and remote access to corporate networks.
INDUSTRY
Individuals and corporations increasingly rely upon computer networks, including
the Internet, to communicate, access information and conduct commerce. Modern
businesses frequently employ one or more local area networks to connect computer
users located in a single facility and wide area networks to connect users in
disparate facilities. The Internet and other direct links provide users access
to information and provide customers, suppliers and others with access to an
enterprise's computing resources and information.
This online business environment has different security requirements than
traditional commerce environments. Enterprise networks are no longer defined by
the physical boundaries of a single company location but often encompass remote
sites and include mobile users and telecommuters around the world. All these
changes introduce numerous additional security concerns because of the increased
use of remote access and extranets and the reliance on shared public networks
such as the Internet rather than private leased lines for e-mail and electronic
commerce. Security requirements therefore are becoming much more complex.
The Internet significantly impacts our professional and personal lives, from the
distribution of information to business logistics, from consumer retailing to
entertainment, and from banking to customer service. The migration of many
companies towards Internet-based business models is occurring at a rapid pace
and is changing the nature of how
33
<PAGE>
companies conduct their businesses. Disparate systems are coming together and
becoming more accessible and less expensive to use. As a result, businesses are
developing strategies to capitalize on the opportunities and economies made
possible by the Internet.
The evolution of Internet technology has resulted in the desire for service
providers to personalize what people experience when interacting with network
connected systems and services. This could include the creation of personalized
remotely accessed electronic desktops or "webtops" that follow the user
regardless of how or where the user is connected to the network, such as at
home, in a hotel room, in a car, on an airplane, or in a shopping mall. Such
connections already exist through PCs, personal digital assistants (PDAs),
televisions and other terminals.
ENTERPRISE DATA SECURITY
In the past, network security was primarily the concern of companies engaged in
security sensitive industries. For example, banks and financial institutions
have generally used some form of security technology, such as encryption, to
protect customer transactions, such as interbank transfers. Increasingly,
however, these financial institutions are extending the reach of their services
across the Internet and, as a result, are being forced to implement additional
data security measures adapted to this public infrastructure. Historically,
healthcare and insurance companies have ensured the confidentiality of their
data and patient records by limiting the amount of information online and
relying on paper-based systems. Increasingly, these institutions are attempting
to share more information online with healthcare providers and patients, which
is requiring enhanced data security to protect confidentiality.
The recent and dramatic development of electronic commerce, coupled with the
proliferation of extranet and intranet applications, has substantially increased
network complexity for all businesses. The risks of network fraud and the
challenges of maintaining online confidentially have increased correspondingly.
Unauthorized intrusions, falsifications and damage on corporate computer
networks are costly to companies. Transaction security is a fundamental concern
for companies migrating more of their business to the Internet. A growing market
for Internet security software products has emerged as a result, estimated by
International Data Corporation (IDC) at $4.2 billion in 1999 and forecasted to
grow to $7.4 billion by 2002.
E-COMMERCE
Computer networks provide an efficient medium for communications and commerce
because of their global reach, accessibility, use of open standards, and ability
to enable real-time interaction. Until recently, computer networks have been
used primarily for informal messaging, general information browsing and the
exchange of non-sensitive data. Organizations are now using computer networks
for increasingly sensitive tasks, such as attracting new customers, accessing
new markets, improving customer service and satisfaction and lowering support
and distribution costs.
The use of computer networks is extending to a number of more valuable and
sensitive activities, including business-to-business transactions,
Internet-based electronic data interchange (EDI) and online retail purchases and
payments. IDC estimates that the number of Internet users worldwide will grow
from 142 million in 1998 to 399 million in 2002, with electronic commerce
growing from $50 billion to $774 billion over the same period. Online companies
have enjoyed dramatic growth in their customer base and revenue as consumers
execute an increasing number of transactions over the Internet. The Internet's
ease of use, 24-hour availability, speed of delivery, global reach, and ability
to facilitate research and product and vendor comparisons are helping to fuel
this growth in e-commerce. The growth in the use of the Internet for
communications and transactions, however, has raised serious concerns on the
part of businesses and consumers regarding authentication and non-repudiation.
AUTHENTICATION AS THE KEYSTONE TO DATA SECURITY
Implementing network security today requires a special set of skills and
products that are generally lacking in corporate information technology
departments. Experts from government and industry organizations have
standardized the classification of data security as follows:
34
<PAGE>
- ACCESS CONTROL manages access rights to sensitive information (e.g.,
firewalls) and is implemented as a basic feature of operating system
platforms and file systems;
- CONFIDENTIALITY involves the encryption of data transmissions so that only
the intended recipient can access the information (e.g., Data Link
Encryption and Virtual Private Networks (VPN), including the Secure
Sockets Layer (SSL));
- DATA INTEGRITY ensures that data is not compromised or manipulated (e.g.,
products incorporating Digital Signature or Message Authentication Code
(MAC) technology);
- NON-REPUDIATION provides undeniable proof that transactions, once
committed, are valid, binding and irrevocable; and
- AUTHENTICATION proves the identity of users and systems on the network.
Authentication, in particular, is a critical component of access control,
confidentiality, data integrity and non-repudiation. For instance, to provide
access to the network or to sensitive information, the network must be able to
identify the user accurately. Network systems, services and applications
currently authenticate online users with a variety of digital credentials,
including static passwords, dynamic passwords and digital signatures.
STATIC PASSWORDS. Primarily because of their widespread availability and
ease-of-use, nearly all processing systems in use today employ simple passwords
for authentication purposes, which are only periodically changed. However, a
password cannot be relied upon for absolute proof of identity because any
individual possessing it can gain access. Static passwords are susceptible to
various forms of interception and replay which further serve to diminish their
security.
DYNAMIC PASSWORDS. A more advanced form of authentication involves the use of
dynamic passwords that change with each use, making their interception useless.
Dynamic passwords are often based on a combination of different variables or
codes, one of which is typically a secret code, and others which are objective
variables such as event or time based codes. Because the variables change on
every log-in, combining the secret code or "key" with these variables produces a
password that is valid for only one particular session. This system is referred
to as symmetric key infrastructure because of the use of the same secret code or
"key" at both ends of the communication channel.
DIGITAL SIGNATURE. Public Key Infrastructure (PKI) is an authentication
technology that relies on a public-private key pair rather than solely secret
keys to encrypt and decrypt data and to generate digital signatures and
certificates. Digital certificates are secure data files containing a user's
public key along with other information identifying that user. The public key is
made available to anyone who wants it, but the corresponding private key is held
only by its owner. Senders use the public key to encrypt data to be sent to a
user, and the user decrypts the data by employing the corresponding private key.
A trusted third party (a Certification Authority, also known as a CA) takes
responsibility for issuing public/private keys, signing certificates and
vouching for the binding of a particular key to a user, much like a government
agency might vouch for its citizens by issuing passports. PKI is emerging as a
leading technology for future application and network security, including access
control to information resources from web browsers, secure e-mail, signing
digital forms, firewalls, routers supporting VPNs, directories, and single
sign-on to corporate applications.
TWO-FACTOR AUTHENTICATION. Two-factor authentication is the combination of
something the user has and something the user knows. The use of an automated
teller machine (ATM) is a familiar application of two-factor authentication,
with its bank card (SOMETHING THE USER HAS) and personal identification number
(PIN) (SOMETHING THE USER KNOWS) components. With network applications, because
credentials that are written down or stored on a PC are vulnerable to disclosure
and subsequent use by unauthorized persons, the industry is adopting two-factor
authentication. In this case, the SOMETHING THE USER HAS is very often a small
handheld device, known in the industry as a token, which is used to create a
physical connection or to generate dynamic passwords, while the SOMETHING THE
USER KNOWS is a PIN. Tokens can take the form of a connector to the PC, a device
similar to a pocket calculator, a ring or a credit card. Several million people
are using tokens worldwide for applications ranging from remote access to
corporate resources to secure Internet banking. Two-factor authentication is a
superior security solution to static passwords as users are
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unlikely to part with the physical component of a two-factor authentication
solution because doing so would block the user's own access. Static passwords,
by comparison, can be divulged to third parties without in any way impeding the
legitimate user's access.
SMART CARDS AS THE ENABLING PLATFORM
The smart card, also known as the chip card, is another area of technology
development that is increasingly used for both e-commerce and enterprise data
security applications. The smart card is a plastic card, the size of a credit
card, with its own embedded processor chip and operating system. Smart cards are
the most recent step in card evolution, improving upon the traditional magnetic
stripe currently in use on many plastic cards. The smart card acts like a
miniature PC with its own processor/memory architecture, using an operating
system on which applications are executed. Smart cards, like PCs, are capable of
supporting multiple user applications simultaneously and can be updated as new
information or applications become available, rather than requiring a
replacement card. Smart cards provide an ideal platform to consolidate a user's
various independent credentials, such as a corporate picture ID, building
access, network login, online digital signature and corporate credit card, among
other things. Multi-application smart card operating systems are being developed
by Sun Microsystems (JavaCard), Maosco (Multos) and Microsoft (Windows SC).
Banks in Europe and Asia have deployed smart cards for several years and already
have millions of users. Smart cards are being used by banks and financial
institutions as credit and debit cards, and also for electronic cash. American
Express has recently announced its Blue, a next-generation credit card which
combines smart card technology with existing magnetic stripes. In the United
States, smart cards are currently in use in self-contained communities, such as
college campuses and offices. The U.S. government recently made use of smart
card technology to re-engineer the logistics surrounding the deployment of
troops.
The wide-scale deployment of multi-application smart cards is most likely to be
driven by current credit card issuers. It is these institutions that possess the
necessary infrastructure and experience to widely implement multi-application
smart cards. Financial service providers will start by integrating customer
identification capabilities, which Visa International and Mondex International
are currently doing, and by continuing to move into other value-added
applications. Smart cards support multiple applications (e.g., credit, debit,
e-cash, loyalty, building access, network login) and can be updated while in the
customer's possession. Financial service providers that adopt this platform will
be able to sell additional services to customers without having to update or
modify the software application. Doing so on other platforms would generally
require the financial service provider to replace cards already shipped to
customers. This model is also available to other industries currently using card
platforms for customer loyalty/account control. Dataquest estimates that 800,000
network access smart cards were deployed globally in 1999 and that by 2003 that
number is expected to increase to 125 million.
THE INDUSTRY CHALLENGE
Security products currently employed in the market place generally involve a
trade-off among administrative, security and usability features. The currently
available security products are rarely able to offer a high degree of security
functionality and ease-of-use without significantly increasing the total cost of
network ownership. According to a recent Forrester Research survey of the
"global 2,500 firms," password maintenance, password security, and managing
multiple tokens are identified as the most significant authentication issues
faced today.
ADMINISTRATION. Networks are heterogeneous by design and each system, service or
application typically requires its own set of user credentials. The
administrative complexity of a network is typically compounded by the variety of
security systems in place for each of its services and applications. This
variety of security systems require multiple passwords which are often lost or
forgotten by the user. According to a recent survey by Forrester Research, more
than 40% of help desk calls involve resetting passwords for employees. In many
situations, the approach to network security involves the addition of one or
more dedicated servers to facilitate the security solution, thereby adding
significantly to the administrative burden of maintaining the network. Further
exacerbating network administration is
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the lack of scalability in most security systems: as the network expands, the
security system is often outgrown and needs to be duplicated or replaced.
SECURITY. Static passwords historically have been used to solve network security
issues. However, static passwords are often written down, readily divulged to
third parties and often obvious. Users also typically select the same password
for all their applications and services, thereby allowing the third party who
obtains one password to enjoy the entire range of access. Dynamic passwords
successfully address some of the problems of static passwords. In isolation,
however, dynamic passwords generally require a pre-existing relationship between
the user and the network service and do not provide non-repudiation services.
Many dynamic password implementations generate the password directly on the PC,
rather than within a token, and are therefore vulnerable to unauthorized access.
Similarly, most PKI implementations either store the keys directly on a PC hard
drive or generate the signature directly on the PC, thereby making the security
system similarly vulnerable. In addition, while PKI is emerging as a leading
security technology and provides non-repudiation, it is often too costly and
administratively burdensome to be implemented in existing network environments.
USABILITY. Networks often employ different security systems to access various
parts of a network to enable certain transactions. Users must possess the
hardware and codes necessary for each system in place as well as the knowledge
to operate that system. This is becoming increasingly complex as the number of
security systems a user faces proliferates. In some cases users are now required
to remember numerous passwords which identify the user to the corporate network
systems and online suppliers. In addition, security solutions which share user
credentials on a computer's hard drive restrict the user to that specific
computer.
THE ACTIVCARD SOLUTION
Our software products and technologies are designed to securely create,
distribute, protect and control digital credentials online to validate the
identity of various users. We employ a combination of patented authentication
and smart card technology and management tools to provide companies and
individual users with an administratively efficient, easy to use, cost-effective
and secure method of managing digital identities. Our solution provides a
digital identity framework that offers secure and transparent interactions
between users and services. Our digital identity framework offers a seamless
transition from the existing multiple authentication methods to one which
incorporates a single digital identity. Our digital identity framework provides
a lower total cost of ownership and a higher level of security, usability and
efficiency than other electronic security and authentication methods.
Our digital identity framework:
- ENABLES PERSONALIZED SERVICES FROM ANY NETWORK-CONNECTED DEVICE. The
proliferation of the Internet and enhancements to the telecommunications
infrastructure have resulted in a wide range of standards-based
Internet-connected devices, including PCs, televisions, PDAs and mobile
phones. Our digital identity technology allows users to securely access
personalized Internet-based services through a variety of network-
connected devices. By combining mobility, through device independence,
with a higher level of convenience and security, our solutions enable
improved business processes and increased user satisfaction.
- PROVIDES AN OPTIMAL COMBINATION OF SECURITY AND EASE-OF-USE. Our digital
identity framework brings the simple ATM experience -PIN, enter- to
network users. This feature of our digital identity framework ensures that
the agreed upon security is in place without overburdening the user with
its complexity. In addition to simplifying the network login, our digital
identity framework also enables other applications requiring user
identification, such as building access.
- FACILITATES SECURE ELECTRONIC COMMERCE TRANSACTIONS. We believe that many
large scale deployments of multi-application smart cards will be driven by
current credit card issuers. Our digital identity framework adds logical
security services to the multi-application smart card platforms being
developed by leading financial service providers Visa International (Visa
Open Platform) and MasterCard/Mondex (Multos) for electronic commerce
transactions. Our digital identity framework ensures a high level of
security for on-line commerce by enabling digital signatures and encrypted
e-mail.
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- SUPPORTS MULTIPLE CREDENTIALS (E.G., DIGITAL CERTIFICATES, DYNAMIC AND
STATIC PASSWORDS). Our digital identity framework bridges the gap between
existing infrastructures and new technologies, by incorporating existing
and emerging authentication technologies in a single product. By
supporting multiple credential types, our digital identity framework
offers a seamless migration from existing authentication methods to
emerging technologies while hiding the system complexities from the user.
- OFFERS A UNIQUE, MODULAR AND HIGHLY SCALABLE DESIGN. Unlike many of our
competitors' products, which often require a separate dedicated network
server, our technology can be integrated into existing servers with only
minimal disruption. Our digital identity framework has been specifically
designed to support industry standard smart card platforms, drivers and
application programming interfaces (APIs) so as to be easily embedded into
or integrated with leading network systems, applications and services
delivered by companies such as AXENT Technologies, Hewlett-Packard, Lucent
Technologies, Microsoft, Novell, Schlumberger, SCM Microsystems and Sun
Microsystems. Because of our relationships with integration partners, our
digital identity framework is already preinstalled on many different
network server platforms being sold today. Our solution is able to utilize
customers' servers without requiring either additional servers or
substantial overhauls to existing servers. Our patented technology for
password synchronization allows solutions incorporating our digital
identity framework to scale for much larger implementations.
Existing systems have independent methods of identifying their users. As these
systems shift to the Internet, users will want to consolidate the various
credentials used to identify them on-line. This consolidation of credentials is
then stored on a smart card and becomes a personalized digital identity. Our
digital identity framework has the ability to consolidate the various
credentials and methods of authentication. A token or smart card coupled with
the appropriate PIN is all that is required for the user to successfully access
the services sought. Inserting a card and entering the valid PIN enables an
individual user's smart card to generate the credentials required to establish a
secure, trusted path between the user and the service requested.
We believe that our digital identity framework, when embedded into network
systems, services and applications currently being delivered by market leaders,
has the potential to change the way that individuals and corporations conduct
business and interact with Internet-based services. For example, in the future
it may be possible that the smart card used by a business traveler in checking
out of his hotel will simultaneously generate and file an expense report with
that traveler's employer. Personalized "webtops" offer a new level of
interaction between users and corporate, government and consumer services.
Combined with network services designed to support remote users, our digital
identity framework allows users to access personalized "webtops" through a
variety of hardware platforms, including remote PCs, kiosks and set-top boxes.
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[LOGO]
OUR BUSINESS STRATEGY
Our objective is to become the leading supplier of products and technologies
enabling information technology managers, product manufacturers, system
integrators and network service providers to integrate digital identity services
quickly and efficiently into their applications. Our strategy to achieve this
objective encompasses the following key elements:
- LEVERAGE OUR EXISTING CUSTOMER BASE. We intend to leverage our existing
customer base, which has deployed our token-based authentication solutions
to more than one million users. We will seek to migrate these customers to
our new product offerings, including ActivCard Gold. We also intend to
market our product offerings to new customers by referencing our existing
customer base.
- EXPAND OUR BASE OF STRATEGIC PARTNERS, OEMS AND DISTRIBUTORS. We are
committed to expanding our base of strategic partners, original equipment
manufacturers and distributors to ensure that our technology is available
on as many servers and software platforms as possible. We have integrated
our authentication technology into the network management systems and
Internet security suites of industry leaders such as AXENT, Lucent and
Novell. We expect these and our other strategic relationships to provide
significant market leverage as the need for managing digital identity
solutions develops in step with the increase in electronic commerce.
- CUSTOMIZE FLEXIBLE PRICING MODELS TO ADDRESS OUR CUSTOMERS' NEEDS. We are
exploring pricing alternatives with customers based on their individual
needs. Our products are generally offered with up-front license fees.
However, we are developing flexible pricing alternatives, applicable to
service providers, designed around recurring per-user license fees. We
believe that increased pricing flexibility will better serve to align the
interests of our customers with our own and could lead to steadier revenue
streams in the future.
- INCREASE SALES THROUGH OUR STRATEGIC PARTNERSHIPS. We intend to increase
sales by enhancing our relationships with strategic partners who, by
embedding our technology in their products, promote our products while
serving their own interests. We frequently participate in sales calls with
our partners to potential purchasers in order to help market products in
which our solutions play a principal part.
- DEVELOP ADDITIONAL KEY TECHNOLOGY COMPONENTS FOCUSED ON MANAGING MULTIPLE
CREDENTIALS. We will continue to research and develop products and
technologies that are focused on the creation, distribution, protection
and control of multiple credentials. We are providing the market with
toolkits so that our technology can be easily
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embedded or integrated with solutions from the leaders in network systems,
services and applications, and complement the capabilities provided by
industry leaders in enterprise computing.
- MAKE DIGITAL IDENTITY THE ESSENTIAL COMPONENT ENABLING NEXT GENERATION
INTERNET-BASED BUSINESS. We are establishing ourselves as a leader in
digital identity technology that links card providers, financial services
providers and network system providers, thus allowing the smart card to be
deployed in large-scale system implementations. We believe smart cards
will be a dominant platform on which digital credentials are securely
stored or generated. The digital identity framework has the potential to
take computing to a personal level, with the existing PC serving as a
generic terminal and the personal identity being provided by the smart
card or other personal security device.
PRINCIPAL PRODUCTS AND TECHNOLOGY
Our principal products and technology are built upon our digital identity
framework and software development kits. Our digital identity framework is
designed to be scalable and permit the authentication process to be performed
with a comparatively higher throughput than our competitors. The level of
security in our products is also higher because we are able to combine three
variables in generating a dynamic password. Our range of products includes
end-user products and back-end server solutions.
Our digital identity framework includes client, back-end and administrative
software modules and application programming interfaces. The client services
support standards based interfaces, encryption standards and smart card
operating systems, including but not limited to Microsoft PC/SC and CAPI/CSP,
PKCS#7, 10 and 11, DES, ANSI X9.9, JavaCard, Visa Open Platform and Multos. It
offers support for our patented synchronous authentication algorithms for user,
host and message authentication services and offers many ease-of-use features
such as password drag-n-drop, remote initialization and other smart card aware
services. Our back-end and administrative services include symmetric
authentication services, PIN policy management, local and remote initialization
services, import and export services, "pull" services and agents, including
random, timestamp, x9.17 derivation, key pair generator and certificate
requestor (CA integration), "push" services and agents to ActivCard personnel
security devices, the post issuance server and the static password manager.
We provide our partners with software development kits that allow them to
integrate our digital identity framework into their network applications,
systems and services, and include both client and administration feature sets.
Our software development kits are the foundation for our packaged products, as
well as partner integrations and software licensing arrangements.
END-USER PRODUCTS
We have a variety of end-user smart-card products which generate one-time use
passwords for secure log-in, remote and Internet access and digital signatures.
These products are both delivered by us to customers and packaged and sold by
OEMs and integration partners.
- ACTIVCARD GOLD. ActivCard Gold is an easy-to-use, software and hardware,
smart card-based authentication package used to access multiple
applications, systems and services. It stores and processes user data and
identification that can then be used for various forms of authentication,
including physical access and network access using the same smart card
token. It supports advanced applications and security concepts and can be
expanded for future applications. For corporate environments, ActivCard
Gold provides a high level of security to the desktop environment, either
for local access or when users are at remote locations. ActivCard Gold
provides the following advantages:
- local login to the Microsoft Windows NT domain;
- remote access to the corporate network (through a firewall or network
access server using RADIUS);
- secure access to the corporate web server or only to specific pages;
and
- e-mail digital signature and encryption.
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- ActivCard Gold also allows companies to extend secure access to customers,
dealers and suppliers for extranet applications, web-hosted services and
electronic commerce (e.g., home banking and Internet retail). Coupled with
ActivCard back-end authentication software, ActivCard Gold provides the
familiarity of the ATM interface (PIN, enter) with advanced authentication
and administration services.
- ACTIVREADER. Our ActivReader smart card reader uses a design we have
developed and refined over the past ten years. The ActivReader is the
first reader designed for the newest multipurpose smart card applications.
ActivReader provides a secure, portable, hand-held smart card terminal
equipped with a liquid crystal display and a keypad that can work
off-line, or when connected to a personal computer via a serial link or to
a server through a phone line. ActivReader provides security in excess of
that generally required by today's financial services industry for their
electronic transactions. It has been certified compliant with the standard
secure electronic transmission protocol used by Europay, MasterCard and
Visa International (EMV).
- ACTIVCARD ONE. ActivCard One is a token-based, end-user product for use by
customers requiring fewer security features than those offered by our more
complex products. ActivCard One is a device that is integrated into
numerous market leading products and scalable back-end server solutions.
- ACTIVCARD PLUS. ActivCard Plus is a token-based, end-user product that can
be programmed to perform user, host and message authentication and can
authenticate with up to four different servers from the same token. This
product can verify that the server is legitimate, offer message
authentication, remember prior transactions and has dual tone,
multi-frequency capability.
- SCHLUMBERGER CRYPTOFLEX SECURITY KIT. A PKI-only implementation of
ActivCard Gold that is licensed to Schlumberger for distribution with its
smart cards.
BACK-END SERVER SOLUTIONS
We have integrated our server software with a number of common industry hardware
and server-side operating system platforms. Our software is designed to ensure
that our end-user, token-based security solutions run smoothly and securely
while minimizing the administrative burden on information technology
professionals charged with managing network security.
Some examples of our back-end server solutions are:
- ACTIVPACK FOR WINDOWS NT. ActivPack for Windows NT provides secure remote
access, secure Internet website access and secure domain login for Windows
NT environments. ActivPack for Windows NT extends the standard security
mechanism with ActivCard dynamic passwords.
- ACTIVPACK FOR MVS/RACF. ActivPack for MVS/RACF adds dynamic password
authentication to leading access control products for IBM S/390, replacing
the RACF static password.
- ACTIVPACK FOR NOVELL DIRECTORY SERVICES. ActivPack for Novell Directory
Services is a secure, server-based solution that links users to a network
through Novell Directory Services (NDS). NDS provides authentication,
authorization, and accounting services for users by connecting them to
services running anywhere in the network.
- AXENT TECHNOLOGIES DEFENDER SECURITY SERVER (DSS). DSS provides two-factor
authentication for leading operating systems, communication servers, and
firewalls. The DSS is a central point of dynamic password authentication
for both remote and local access to critical resources. The
challenge/response authentication process along with the user's unique
token ensures only authorized users gain access.
CUSTOMERS
Historically, the final buyers of our products have been in European banking and
financial services. These customers are generally sophisticated and
knowledgeable purchasers of security systems and work with highly confidential
information. We believe that as corporate networks proliferate and become more
complex, the number of industries
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concerned with system security and access to information will grow. In the year
ended December 31, 1999, Sparbanken and Kreditkassen each accounted for more
than 10% of our total revenue.
Our customer base includes the following entities:
<TABLE>
<S> <C>
AIB Komercni Banka
Alpha Media Kreditkassen
Axent Logos
Barclays Protect Data Slovaquie
Blue Cross/Blue Shield Provinsbankerna
Cyber-COMM Risk Management
Eika Gurppen Sparbanken
Expandia Banka Telenor Novit
Internet Security Hewlett Packard
Ion Networks Visa
</TABLE>
SALES, BUSINESS DEVELOPMENT AND MARKETING
SALES
We market and sell our products and technologies through a network of
distribution partners such as systems integrators, value-added resellers,
original equipment manufacturers and international distributors supported by our
direct sales force. Our sales force is responsible for soliciting prospective
customers and providing technical advice and support with respect to our
products and technologies.
As of December 31, 1999, we employed a direct sales and marketing force of
forty-eight individuals located in offices in France, Germany, Singapore,
Sweden, United Kingdom and the United States to market our products and
technology to industry and vertical market segments, including electronic
commerce, financial, telecommunications, healthcare and information service
companies.
Our distribution partners typically incorporate products from a variety of
suppliers to address a broader set of final buyer requirements. We currently
have over 50 distribution partners in over 30 countries worldwide, including
Alphamedia (France), Icon Systems (Germany), Ingram Micro (Worldwide), Intercede
(UK), NCL Communications (Japan), Protect Data (Sweden), Risk Management (US)
and Zaslon (Slovenia).
We provide technical support with personnel located in our offices in: Suresnes,
France; Fremont, California; Watchung, New Jersey; and Singapore. These offices
provide technical support to our integration and distribution partners, who in
turn, provide first level service to final buyers. We offer formalized product
training programs and have established "ActivCard Authorized" reseller programs
in the marketplace.
In addition, we provide telephone and online services to answer inquiries
related to implementation, integration and operation of our products and
technologies. We are increasing the resources we dedicate to technical service
and support in line with the increased distribution of our products, including a
technical service web site with controlled access through the Internet. We offer
a maintenance program for the software products covering updates and minor
releases. Our standard practice is to provide a warranty on all our products for
one year after shipment for hardware products and three months after shipment
for software products.
BUSINESS DEVELOPMENT
Our business development efforts are focused on establishing and managing
collaborative relationships with strategic industry participants. Key to the
success of this effort is the coordination of resources across different
functional organizations and regional operations throughout our company.
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Our strategic relationships assist us in expanding our sales, marketing and
technical capabilities and increase the distribution and market acceptance of
our digital identity products and technologies. Integration partners embed our
technology in their own products, which are then sold to the final buyer. We
believe that our relationships with these integration partners allow us to
cost-effectively leverage third-party products and thereby provide our final
buyers with customized digital identity technology solutions. We have developed
significant strategic relationships with integration partners in an effort to:
- incorporate our products into third-parties' products;
- conduct joint research and development efforts; and
- develop joint proposals and presentations for products and services and
reseller arrangements.
Our strategic relationships currently include the following:
- AXENT TECHNOLOGIES. AXENT has embedded our digital identity framework into
its OmniGuard Defender enterprise security server and network security
systems.
- HEWLETT PACKARD / VERIFONE. Hewlett Packard is delivering our ActivReader,
portable trusted smart card reader, as its next generation Personal ATM.
- MONDEX INTERNATIONAL. We have contracted with Mondex International, a
subsidiary of MasterCard, to deliver logical security services for Multos
smart cards, making Multos cards compatible with our digital identity
framework.
- NOVELL. Novell has embedded our digital identity framework into its core
product lines through Novell Directory Services.
- SCHLUMBERGER. Schlumberger, one of the world's largest smart card
manufacturers, will deliver products to the market based on our digital
identity framework.
- VISA INTERNATIONAL. We have contracted with Visa to deliver logical
security services for Visa Open Platform (VOP) smart cards, making the VOP
cards utilized by member banks compatible with our digital identity
framework.
MARKETING
We utilize a variety of marketing initiatives to support our business
strategies, including the following:
PRODUCT MARKETING. The product marketing process has been key in our transition
from an engineering consulting services company to a network products company.
Our product marketing effort supports our strategy by defining products that
meet market needs and are deliverable via selected channels. We focus our
product marketing efforts on market requirements and delivery of products to
market. Additionally, our solutions marketing efforts focus on close
coordination with the product strategies of our strategic partners insuring the
market viability and acceptance of their products and solutions. Our recent
sales proposals to customers include flexible price modeling that can be
tailored to the individual customer's needs. We believe that such price
flexibility will better serve to align the interests of our customers with our
own and may lead to revenue streams in the future having a more significant
recurring revenue component.
MARKETING COMMUNICATIONS. Our marketing communications strategy combines
different programs and mediums to increase brand and product awareness. We use
direct marketing and leverage our strategic partners in order to maximize our
market exposure, while at the same time controlling our marketing costs. These
efforts include an emphasis on press and analyst communications, advertising,
public relations, World Wide Web, telemarketing, trade shows and seminars. Our
marketing programs are designed to target information technology managers,
service operators, and industry-leading integration partners.
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RESEARCH AND DEVELOPMENT
We develop technology-oriented solutions for advanced credential management
capabilities, which are based on customer requirements but with broad market
applicability. The focus of our research and development organization is to
implement advanced technology rapidly and in a manner that can be integrated
into large-scale systems. Specific areas in which we are investing research and
development resources include the support of multi-application operating systems
for smart card platforms, embedded systems and trusted devices, as well as
evaluation and implementation of specifications defined by international
standards organizations.
Our research and development organization possesses a broad range of industry
expertise, including hardware and software design, cryptographic technology,
network application, Java and smart cards. Additionally, we have experience in
delivering products and technology for various market segments such as banking,
healthcare, defense, enterprise computing and telecommunications.
We have increased the resources assigned to the technical direction function
that is focused on designing the architecture of our software and hardware
technology. These additions have made our company capable of supporting the
requirements of the advanced integration solutions necessary for success in the
broader networking market.
INTELLECTUAL PROPERTY
We rely on a combination of patents, trade secrets, copyright and trademark law,
nondisclosure agreements and technical measures to protect our intellectual
property and proprietary rights. We have entered into confidentiality and
licensing agreements with our employees and distributors, as well as with our
customers and potential customers seeking proprietary information. We also limit
access to and distribution of our software, documentation and other proprietary
information.
We currently have three major patents directly applicable to our current product
offerings issued in the United States. These patents cover various aspects of
security technology. In addition to the patents granted in the United States, we
have been granted patents in Europe, Australia, Canada, Mexico, Taiwan,
Singapore and Hong Kong. The three major patents are briefly described as
follows:
- three-variable synchronous algorithm for generating dynamic password,
which provides a higher level of security than alternative implementations
using a single variable;
- methodology used for the resynchronization of the variables utilized in
the generation of dynamic passwords, which provides a significant increase
in system performance, throughput and scalability; and
- generation of a synchronous dynamic password on a smart card processor
using a time-based variable as input, which provides a higher level of
security than alternative implementations that generate a password by
removing secrets from the card.
In addition to these three patents, we have been granted four additional patents
for the use of handheld portable devices in the interactive television and
loyalty application fields. Our patents and applications expire at various dates
ranging from 2008 to 2016. In general, patent rights are of similar duration
(approximately 20 years) in all countries where patents have been issued. The
nature of the process for obtaining patents and the extent of protection
provided by patent laws varies from country to country.
MANUFACTURING, SOURCE OF SUPPLY AND QUALITY CONTROL
We have established relationships with hardware assemblers and multinational
software reproducers. Existing relationships include Omni (Singapore), Sharp Win
(Hong Kong) and Kidder (Hong Kong) for hardware assembly; and Metatec (U.S. and
The Netherlands) for software reproduction. Additionally, we have outsourcing
arrangements for product warehousing and fulfillment services. Our global
production and distribution capacity supports our current requirements and can
easily be increased by augmenting existing production lines with current
suppliers. We maintain ownership of all manufacturing tools, molds and software,
supply all critical components and define all manufacturing
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<PAGE>
processes and quality control plans, thereby granting us the ability to relocate
the manufacturing process should any unforeseen interruption occur.
HARDWARE. ActivCard hardware, including tokens, smart card readers, and the
ActivReader trusted terminal/smart card reader are assembled by our Hong Kong-
and Singapore-based manufacturers at facilities that are either ISO9000 and
ISO9002 or in the process of becoming certified. ISO9000 refers to the
international guidelines on quality management and system elements established
by ISO (International Organization for International Standardization), an
international body of normalization organizations. ISO9002 is a quality
assurance model used by companies that design, produce, install, inspect and
test service items. Our hardware products are shipped directly to distribution
partners or to corporate warehouses in Fremont, California and Suresnes, France
for subsequent distribution.
SOFTWARE. Our software products, such as ActivCard Gold and ActivPack for
Windows NT, are produced and packaged in Fremont, California and Breda, The
Netherlands. High capacity CD-ROM replication, full-service kit assembly,
warehousing, and direct-to-user product fulfillment is provided by Metatec (U.S.
and Netherlands).
SUPPLIERS. Our products are designed and built with high quality standard parts
and components. Our current suppliers include Samsung, OKI, Maxim and Siemens
AG. We generally maintain a three-month supply of critical components, including
microcontrollers, LCDs and transistors. The relationships with our suppliers of
critical components have existed for over two years and we have not suffered any
material breaks in supply during that period. We currently purchase smart cards
from Schlumberger and PCMCIA smart card readers from SCM Microsystems.
QUALITY CONTROL. We maintain strict internal and external quality control
processes, which are performed during product design, production and acceptance.
We contract with Societe Generale de Surveillance (Switzerland) to assure that
our quality control specifications are adequately met at various levels from
inventory audits to final product inspections. During 1999, we have implemented
a computer-assisted production and inventory management system to increase
quality as production volumes advance.
COMPETITION
The authentication market is highly competitive. The markets for our products
and services are intensely competitive and are characterized by rapidly changing
technology and industry standards, evolving user needs and the frequent
introduction of new products. We believe that the principal factors affecting
competition in our markets include product functionality, performance,
flexibility and features, use of open standards technology, quality of service
and support, company reputation and price.
We face significant competition from a number of different sources. Many of our
competitors are larger and more established, benefit from greater name
recognition and have substantially greater financial, technical and marketing
resources than we have.
Our competitors include, among others, Datakey, Inc., a maker of proprietary
smarts cards and token solutions, Gemplus S.C.A., a smart card manufacturer, RSA
Security, Inc., a token and network security manufacturer and cryptographic
technology supplier, and Vasco Data Security, Inc., a token manufacturer and
supplier.
In addition, there are several smaller or start-up companies which we compete
with from time to time. We also expect that competition will increase as a
result of consolidation in the information security technology and product
reseller industries. We may be unable to compete successfully in the future with
our competitors, which may adversely affect our business.
EMPLOYEES
As of December 31, 1999, we had 113 full-time employees worldwide. Of these, 37
were involved in research and development, 10 were involved in manufacturing
engineering and quality control, 48 in sales and marketing and 15 in general
administration. As of December 31, 1999, 41 of our employees, including our
executive officers, were based in the United States, 69 were based in Europe and
3 were based in Asia. As required by French law, we hold
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periodic meetings with representatives of our employees. We consider our
relationships with our employees to be satisfactory and we are not a party to
any collective bargaining agreement.
PROPERTIES
Our principal administrative, research and development, sales, marketing and
support facilities consist of 12,000 square feet of office space leased in
Suresnes, France. We occupy these premises under a lease expiring on June 30,
2006. We may, however, terminate the lease on June 30, 2000 or June 30, 2003
without any penalty. We also lease 10,700 square feet of office space in
Fremont, California, which houses our North and South American sales, marketing,
development, and support activities. This lease expires on February 28, 2008. We
also lease, pursuant to short-term leases, facilities in Singapore and New
Jersey, primarily as offices for our sales force and technical support
personnel. We believe that our facilities are adequate for our current
operations.
LEGAL PROCEEDINGS
From time to time, we have been parties to or targets of lawsuits, claims,
investigations and proceedings. Generally, such incidents are handled and
defended in the ordinary course of our business. Other than as described below,
we do not expect any liabilities, which may arise from any such proceedings
currently pending or anticipated to have a material effect on our consolidated
results of operations or financial condition.
On October 25, 1996, Fintel S.A., a company that develops and markets electronic
systems, named us in an unfair competition action against Nomad Systems S.A. We
have requested the dismissal of the claim and believe that this litigation
between Fintel and Nomad Systems S.A. will not have any material adverse impact
on our operations or financial condition. A judgment of Tribunal de Commerce de
Paris dated on May 27, 1998 has agreed to a dismissal of the claims requested by
us.
On October 31, 1997, an action was filed in the United States District Court for
the Northern District of California against us, our current U.S. subsidiary,
ActivCard, Inc., and three individuals who are either former or current officers
of ours. The plaintiff is a former shareholder in our original U.S. subsidiary
ActivCard Networks, Inc. In June of 1996, ActivCard Networks, Inc. was merged
into ActivCard, Inc., and the lawsuit alleged violations of U.S. securities
laws, breach of contract, breach of fiduciary duty, fraud and conspiracy arising
out of this merger. The plaintiff sought compensatory damages alleged to exceed
$7.5 million as well as punitive damages. Late in 1998, we agreed with the
plaintiff to engage in a mediation before a judge to explore the possibility of
an amicable settlement of all the claims. A settlement agreement was signed in
July 1999, and the impact of the agreement is included in the 1999 accounts. The
settlement agreement was composed of a $637,500 cash payment for legal expenses
and a grant of 480,000 new shares. The suit was dismissed in August 1999.
The plaintiff has agreed to waive certain rights with respect to the shares
granted under the settlement agreement in exchange for a payment equal to the
product of the number of shares owned by the plaintiff on August 11, 2000 (not
to exceed 105,000 shares) and the amount, if any, by which the average of the
five highest day's prices for the ADSs on the Nasdaq National Market exceeds the
average of the five highest day's prices on Easdaq during the period beginning
on the first day that the ADSs are traded on Nasdaq and ending August 11, 2000.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
We currently have authorized eight directors. Each director is appointed for a
one-year period at our annual general meeting of shareholders and serves until
the next annual general meeting or until his successor is duly appointed and
qualified. Our executive officers serve at the discretion of the board.
The table below provides the names, ages and positions with ActivCard of our
executive officers and directors:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
NAME AGE POSITION
- ---------------------------------- -------- ---------------------------------------------------------------
<S> <C> <C>
Jean-Gerard Galvez................ 46 Chairman, President and Chief Executive Officer
Yves Audebert..................... 43 Founder, Vice Chairman and Chief Technology Officer
George Wikle...................... 53 Chief Financial Officer and Secretary
Thomas A. Arthur.................. 37 Senior Vice President, Worldwide Sales and Business Development
Douglas M. Kernan................. 40 Vice President, Corporate Marketing
Marc Hudavert..................... 39 Vice President and General Manager, ActivCard Europe
James E. Ousley (1)(2)............ 53 Director and Chairman, ActivCard, Inc.
Sergio Cellini (1)................ 43 Director
Clifford Gundle (2)............... 63 Director
Montague Koppel (2)............... 71 Director
Lee Kheng Nam..................... 51 Director
Antoine R. Spillmann (1).......... 36 Director
</TABLE>
- ------------------------
(1) Member of audit committee.
(2) Member of compensation committee.
In conjunction with the private placements of our shares expected to close on or
about February 16, 2000, our board of directors has agreed, if requested by
Schlumberger Systems or Sun Microsystems, Inc., as the case may be, to recommend
to our shareholders the election to our board a director nominated by
Schlumberger Systemes and a director nominated by Sun Microsystems, Inc. Any
such nomination will be subject to the approval of our shareholders at the next
shareholders' meeting following nomination.
JEAN-GERARD GALVEZ has been President and Chief Executive Officer and a Director
since November 1995, and Chairman of our board of directors since July 1996.
From June 1994 to October 1995, Mr. Galvez served as Vice President of
International Operations for Banctec Corp., a U.S. provider of turnkey image
processing systems for banking and financial service firms and
telecommunications companies. From 1989 to 1994, Mr. Galvez was the European
Area Executive for Control Data Corp., a Minneapolis-based computer system
integrator for the manufacturing industry. Prior to joining Control Data Corp.,
Mr. Galvez served in various capacities for Imprimis Technology, a disk drive
manufacturer and for Dupont de Nemours Corporation. Mr. Galvez holds a Master's
degree in Business Administration and a Bachelor's degree in Chemical
Engineering from the Institut National Polytechnique de Nancy, France.
YVES AUDEBERT co-founded our company in 1985 and, from 1985 to present, has
served as Chief Technology Officer and as Vice Chairman of the board of
directors. Mr. Audebert served as Chairman of the board of directors from
May 1996 until July 1996. From our inception in 1985, Mr. Audebert served
alternately with Achille Delahay, a co-founder, as Chairman, President and Chief
Executive Officer. From 1980 to 1985, Mr. Audebert was responsible for
developing shipboard fiber optic systems at Thomson-CSF, a French defense
company. Mr. Audebert holds an engineering diploma from the Ecole Polytechnique
de Paris and an advanced diploma from the Ecole Superieure des
Telecommunications.
GEORGE WIKLE has served as our Chief Financial Officer since October 1997. From
April 1996 to September 1997 Mr. Wikle was Executive Vice President of
Operations and Finance of Brio Technology, Inc., a desktop data warehouse
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software company. He had previously held the position of Vice President of
Corporate Solutions for Brio Technology. From October 1992 to September 1994,
Mr. Wikle was President and Chief Executive Officer of ASCNET, Inc., an
emergency cellular phone service provider. From October 1984 to September 1991,
Mr. Wikle was Vice President of Finance at Performance Semiconductor Corporation
and also Chairman of its UK subsidiary. From April 1976 to September 1984, he
was Chief Operating Officer or Chief Financial Officer of Sorcim, makers of
SuperCalc software; Friden Alcatel, a subsidiary of Companie Generale
d'Electricite, France; and the Communication Equipment Products Group of Memorex
Corporation. Mr. Wikle earned his B.S. degree in accounting and German and MBA
degree in Finance and International Business from the University of California,
Berkeley.
THOMAS A. ARTHUR has served as the Vice President and General Manager of
ActivCard, Inc., our United States subsidiary since April 1997. In
January 1999, he was appointed our Senior Vice President, Worldwide Sales and
Business Development. From 1987 to April 1997 Mr. Arthur held various executive
level positions at Novell, Inc., including most recently as General Manager,
Internet Business Infrastructure. Prior to joining Novell, Mr. Arthur was
Western Regional Sales Representative for Excelan, Inc., a computer network
company subsequently acquired by Novell. Mr. Arthur holds a degree in Economics
from the University of California, Davis.
DOUGLAS M. KERNAN has served as Vice President, Corporate Marketing since
June 1997. From June 1996 to June 1997, Mr. Kernan was Vice President of
Marketing for Semaphore Communications, Inc., a network communications security
startup. From May 1987 to June 1996, Mr. Kernan held various executive level
positions at Novell, Inc., most recently as the Director of Marketing for
Novell's Communications Products Division. Prior to Novell, he held engineering
and support roles with Dialogic Systems and Lockheed Missile and Space Company.
Mr. Kernan holds a B.S. degree in Computer Science and Economics from Union
College in Schenectady, N.Y.
MARC HUDAVERT has served as Vice President and General Manager, ActivCard Europe
since September 1996. From 1994 until September 1996, Mr. Hudavert was
Commercial Director of Telis TSC, a France Telecom Group subsidiary specializing
in systems integration for corporate computer and communications networks. From
1991 to the end of 1993, he served in various general management capacities for
SDRC, a U.S. software publisher; from the beginning of 1989 to the end of 1991,
for Ferranti, a U.K. computer services provider; and from mid-1987 to the
beginning of 1989 for Prime Computer, a U.S. computer manufacturer.
Mr. Hudavert received his BS degree in Engineering and MBA degree from the Ecole
Centrale de Lyon.
JAMES E. OUSLEY has been a member of our board of directors since
September 1996, and Chairman of ActivCard, Inc. since May 1999. Mr. Ousley is
currently President and Chief Executive Officer of Syntegra (USA), a global
internet business solutions provider and division of British Telecommunications.
From 1991 to 1999 he served as President and Chief Executive Officer of Control
Data Systems which was acquired by British Telecommunications. From 1968 to 1991
Mr. Ousley served in various sales and executive management positions for
Control Data Corporation. Mr. Ousley serves on the Board of Datalink, Inc. and
Bell Micro, Inc. and holds a BS degree from the University of Nebraska.
SERGIO CELLINI has been a member of our board of directors since March 1998.
Mr. Cellini is currently serving as General Manager of Excite Italia, a Dutch
portal company. From April 1997 to April 1999, Mr. Cellini served as the
Director of Venture Capital for Telecom Italia. Mr. Cellini was employed with
Editoriale L'Expresso, a publishing company, in various positions, most recently
as Managing Director of Newspaper Publishing, publisher of "The Independent" in
London. From March 1981 to March 1986, Mr. Cellini was a Senior Associate with
Booz, Allen & Hamilton, a U.S. firm, in Paris, Madrid and Milan. Mr. Cellini
holds a Master's degree in Management from the Sloan School of MIT.
CLIFFORD GUNDLE has been a Director of our company since May 1999. Mr. Gundle
has over 40 years of international experience in business ownership and
executive positions. He founded and ran numerous manufacturing and investment
companies in South Africa, the U.S. and United Kingdom which are listed on the
Johannesburg, America, London and Irish stock exchanges. He is a member of the
Dean's Council of Harvard University.
MONTAGUE KOPPEL has been a member of our board of directors since March 1998.
Since 1986, Mr. Koppel has been a director of Flextech plc, a media company.
Since 1982, Mr. Koppel has worked as an international legal
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consultant. Previously, Mr. Koppel was a trial and commercial lawyer in South
Africa and served on the board of directors of various companies.
LEE KHENG NAM has been a member of our board of directors since September 1999.
Since March 1995 Mr. Lee has served as President of Vertex Investment (II) Pte
Ltd., the venture capital arm of Singapore Technologies Group and a 15.9%
shareholder in the Company. Mr. Lee also currently serves on the board of
directors of several companies in the Singapore Technologies Group, including
Vickers Ballas Holdings Ltd. and Vickers Capital Limited. He is also currently a
board member of investee companies such as Creative Technology Ltd. and
Centillium Technology Inc. From January 1981 to September 1983, Mr. Lee served
as Senior Manager of the Project Development Department of NatSteel Group, a
company listed on the Singapore Stock Exchange. From January 1979 to
January 1981, Mr. Lee was the Deputy Director of Planning for the Singapore
Ministry of National Development. Mr. Lee holds a Bachelor of Science in
Mechanical Engineering (First Class Honors) from Queen's University, Canada, a
Master of Science in Operations Research & Systems Analysis from the US Naval
Postgraduate School and a Diploma in Business Administration from the University
of Singapore.
ANTOINE R. SPILLMANN has been a member of our board of directors since
March 1998. He is currently the Managing Director of the investment bank of
Bryan Garnier & Co. Limited and has served in that capacity since founding it in
mid-1996. From 1995 to 1996, Mr. Spillmann was global account coordinator for
equity sales for Switzerland for ABN Amro Hoare Govett. From 1992 to 1995,
Mr. Spillmann was Director of European and UK equity sales to Swiss institutions
for Lehman Brothers. Mr. Spillmann was educated at the St. Galen University and
HBC Lausanne, and earned a diploma in Investment Management and Corporate
Finance from the London Business School.
BOARD COMMITTEES
Our board currently has two committees, an audit committee and the compensation
committee. The audit committee reviews the results and scope of the audit and
other services provided by our independent public accountants. The audit
committee currently consists of Messrs. Ousley, Spillmann and Cellini. The
compensation committee makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company and administers and
allocates stock options pursuant to our stock option plans. The compensation
committee currently consists of Messrs. Ousley, Gundle and Koppel.
No interlocking relationships exist between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has such interlocking relationship existed in the past.
DIRECTOR COMPENSATION
In May 1999 our shareholders approved annual directors compensation of $90,000,
which was allocated by the board of directors to its members during 1999.
In June 1998 our shareholders approved annual directors compensation (jetons de
presence) of $98,000 for 1998, which was allocated by the board of directors to
its members. The board allocated $78,000 to the directors in 1998.
EXECUTIVE COMPENSATION
For the year ended December 31, 1999, the aggregate amount of compensation paid
to all of our executive officers and key managers as a group (six persons
including Messrs. Galvez, Audebert, Arthur, Hudavert, Kernan and Wikle) paid and
accrued for services in all capacities was $1,860,000. See "Employee Stock Plans
and Directors' Warrants" for information regarding stock options held by our
executive officers.
Executive and key management compensation for the year ended December 31, 1999
(in U.S. dollars) was as follows:
<TABLE>
<CAPTION>
BASIC SALARY BENEFITS BONUSES LONG-TERM
------------ -------- -------- ---------
<S> <C> <C> <C> <C>
Executives and key management....................... $1,099,000 $238,000 $581,300 --
</TABLE>
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We have not paid our officers and directors any pension, retirement or other
similar benefits during the year ended December 31, 1999, nor during the year
ended December 31, 1998.
EMPLOYMENT AND CONSULTING AGREEMENTS
Each of Jean-Gerard Galvez and Marc Hudavert is party to an employment agreement
with us. Mr. Galvez's employment agreement is terminable by either party on six
months' notice. Mr. Hudavert's employment agreement is terminable by either
party on three months' notice. The agreements contain non-competition covenants
for a period of two years after their termination. Each employment agreement
also contains an express confidentiality obligation. According to French law and
as explicitly stated in the employment agreements, we own any intellectual
property rights created by the executives in the course of their employment.
EMPLOYEE STOCK PLANS AND WARRANTS
At December 31, 1999, options and warrants to subscribe for an aggregate of
4,987,314 shares were issued and outstanding at an average exercise price of
$5.09 per share (reflecting a conversion, for the options and warrants
exercisable in French francs, at the exchange rate of FF6.5295 to $1.00 in
effect on December 31, 1999). Such options and warrants to subscribe for shares
expire at various dates on or prior to December 2006. Of such options and
warrants to subscribe for shares, options and warrants to subscribe for 218,010
shares not including complementary rights, exercisable at an average exercise
price of $4.447 and which expire at various dates through 2005, were held by two
of our executive officers. Warrants to subscribe for 236,000 shares not
including complementary rights, exercisable at an average exercise price of
$5.67 and which expire between 2001 and 2004, were held by members of our board
of directors. Under French law, we cannot grant options to members of our board
of directors who do not work for us or who do not hold a management position
with us or our affiliates.
On February 9, 2000, our shareholders approved the issuance to Lee Kheng Nam of
warrants to subscribe to 30,000 new shares having a par value of FF6.25 and
issued by a capital increase of a maximum aggregate amount of FF187,500.
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CERTAIN TRANSACTIONS WITH RELATED PARTIES
In June 1996, we entered into an agreement with Vertex II, a 15.7% shareholder
of our company, pursuant to which Vertex II acquired, directly and through its
affiliate, Vertex Asia, 20% of the share capital of ActivCard Asia for an
aggregate purchase price of Singapore $200,000.
Antoine R. Spillmann, currently a member of our board of directors, is the
Managing Director of the investment banking firm of Bryan Garnier & Company,
which has served as a placement agent for our securities in Europe, including
two rights issues, our convertible bonds issued in 1997 and our convertible
bonds issued in October 1999. Bryan Garnier received commission payments of 3%
($279,526), 6.5% ($674,633), 5% ($401,500) and 6% ($360,000), respectively, on
the gross proceeds of these offerings. Additionally, in connection with the
placement of convertible bonds in 1997, Bryan Garnier received warrants
exercisable at $4.60 per share for 52,152 shares. See "Description of Share
Capital Convertible--Bonds."
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table provides information concerning the beneficial ownership of
our shares as of January 31, 2000 and as adjusted to reflect the sale of ADSs in
the offering by:
- each shareholder known by us who owns more than 10% of our outstanding
ordinary shares
- all of our directors and officers as a group and
- the selling shareholders that will sell an aggregate of 600,000 shares in
the form of ADSs, if the underwriters over-allotment option is exercised
in full
The number of shares beneficially owned by each stockholder is determined under
rules issued by the Securities and Exchange Commission. The information is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and any shares as
to which the individual or entity has the right to acquire beneficial ownership
within 60 days after January 31, 2000 through the exercise of any stock option
or other right.
<TABLE>
<CAPTION>
--------------------------------------------
PERCENT OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING(1) OFFERING(1)
- ------------------------------------ ---------------- ----------- -----------
<S> <C> <C> <C>
Vertex (2).................................................. 5,122,743 15.8% 14.0%
Vertex Management Pte. Ltd.
77 Science Park Drive
#02-15 Cintech III
Singapore Science Park
Singapore 118256
George Wikle(3)............................................. 136,972 0.4% 0.2%
Thomas Arthur(4)............................................ 149,461 0.5% 0.4%
Douglas Kernan(5)........................................... 95,723 0.3% 0.2%
Directors and officers as a group (12 persons)(6)........... 4,495,846 13.6% 12.1%
</TABLE>
- ------------------------------
(1) Based on 32,376,390 shares issued at January 31, 2000 without adjustments to
reflect the exercise of all options, warrants and convertible bonds to
subscribe for ordinary shares as of such date. Excludes 990,675 shares to be
issued pursuant to our private placements of shares which closed on
February 16, 2000 and 300,000 shares to be issued upon conversion of our
bonds issued in October 1999.
(2) 2,452,831 shares (including 34,550 shares issuable upon conversion of 1,382
bonds within 60 days of January 31, 2000) owned by Vertex Investment Int
(III) Inc., a British Virgin Island corporation ("Vertex Investment"),
1,334,956 shares owned by Vertex Investment (II) Ltd., a Singapore
corporation ("Vertex II"), and 1,334,956 shares owned by Vertex Asia Ltd., a
Singapore corporation ("Vertex Asia"). Vertex Investment, Vertex II and
Vertex Asia are a group of investment companies under the common control of
Singapore Technologies Pte. Ltd., a Singapore corporation. Singapore
Technologies Pte. Ltd. is 22.11% owned by Singapore Technologies Holdings
Pte. Ltd., which is in turn a wholly owned subsidiary of Ministry of
Finance, Inc., a government agency. Vertex has granted to the underwriters a
30-day option to purchase an aggregate of 500,000 shares (comprised at
250,000 shares from Vertex Investment International (III), Inc.; 125,000
shares from Vertex Investment (II) Ltd. and 125,000 shares from Vertex Asia
Limited), in the form of ADSs, solely to cover over allotments, if any. If
the over-allotment option is exercised in full, Vertex would own 4,588,193
shares, representing 14.0% of the outstanding ordinary shares after the
offering.
(3) Includes options to purchase 136,972 shares exercisable within 60 days of
January 31, 2000 at an exercise price of $4.65 or $4.93 per share.
Mr. Wikle has granted to the underwriters a 30-day option to purchase 40,000
shares, in the form of ADSs, solely to cover over-allotments, if any. If the
over-allotment option is exercised in full, Mr. Wikle would own 16,972
shares, representing 0.3% of the outstanding ordinary shares after the
offering.
(4) Includes options to purchase 149,461 shares exercisable within 60 days of
January 31, 2000 at an exercise price of $4.65 or $4.93 per share.
Mr. Arthur has granted to the underwriters a 30-day option to purchase
40,000 shares, in the form of ADSs, solely to cover over-allotments, if any.
If the over-allotment option is exercised in full, Mr. Arthur would own
109,461 shares, representing 0.3% of the outstanding ordinary shares after
the offering.
(5) Includes options to purchase 88,723 shares exercisable within 60 days of
January 31, 2000 at an exercise price of $4.65 or $4.93 per share.
Mr. Kernan has granted to the underwriters a 30-day option to purchase
20,000 shares, in the form of ADSs, solely to cover over-allotments, if any.
If the over-allotment option is exercised in full, Mr. Kernan would own
68,723 shares, representing 0.2% of the outstanding ordinary shares after
the offering.
(6) Includes 551,564 shares under outstanding stock options, warrants and
compensatory rights exercisable within 60 days of January 31, 2000.
At January 31, 2000, 24,318,390 shares, including shares beneficially owned by
certain directors and officers, were managed through the Euroclear and
Clearstream, Luxembourg systems, which represent approximately 75.12% of the
issued and outstanding shares of the company. Approximately 101 shareholders
hold shares traded through Euroclear and Clearstream, Luxembourg.
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DESCRIPTION OF SHARE CAPITAL
SET FORTH BELOW IS INFORMATION CONCERNING OUR SHARE CAPITAL TOGETHER WITH
RELATED SUMMARY INFORMATION CONCERNING PROVISIONS OF OUR STATUTS AND APPLICABLE
FRENCH LAW. THIS DESCRIPTION OF OUR SHARE CAPITAL AND SUMMARY INFORMATION IS NOT
COMPLETE AND MAY NOT CONTAIN ALL THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE ORDINARY SHARES OR ADSS. YOU SHOULD CAREFULLY READ OUR STATUTS,
WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT CONTAINING THIS
PROSPECTUS.
GENERAL
Our company was incorporated on June 12, 1987 and will expire according to
provisions of our STATUTS on June 11, 2086.
At December 31, 1999, our outstanding share capital on a fully diluted basis
consisted of 39,042,117 shares, nominal value 6.25 FF per share (including
1,060,550 shares issuable upon conversion of our outstanding convertible bonds,
4,987,314 shares issuable upon exercise of warrants and stock options, 761,437
shares issuable pursuant to stock purchase rights, 142,790 shares issuable upon
allocation and subscription of stock options unallocated at the time. All of our
outstanding shares are fully paid. Pursuant to our STATUTS, our shares may be
held only in registered form. See "--Form and Holding of Shares."
CHANGES IN SHARE CAPITAL
Our share capital may be increased only with the approval of our shareholders at
an extraordinary general meeting following a recommendation of our board of
directors. Increases in share capital may be effected by the issuance of
additional shares, by an increase in the nominal value of existing shares or the
creation of a new class of shares. Additional shares may be issued for cash, in
satisfaction of indebtedness incurred by us, for assets contributed in kind,
upon the conversion of debt securities previously issued by us or by the
capitalization of reserves. French law permits different classes of shares to
have different liquidation, voting and dividend rights.
Our share capital may be decreased only with the approval of our shareholders at
an extraordinary general meeting. Our share capital may be decreased by reducing
the nominal value of the shares or by decreasing the number of outstanding
shares. The conditions under which share capital may be reduced will vary
depending upon whether or not the reduction is attributable to losses incurred
by us. The number of outstanding shares may be decreased by the repurchase and
cancellation by us of our shares. If the reduction is not attributable to losses
incurred by us, each shareholder will be offered an opportunity to participate
in any exchange or repurchase. If, as a consequence of losses, our net assets
are reduced below one half of our share capital, our board of directors must,
within four months from the approval of the accounts indicating such loss,
convene an extraordinary general meeting of our shareholders in order to decide
whether to dissolve the company before expiration of our statutory term. If the
dissolution is not declared, the share capital, by the end of the second fiscal
year following the fiscal year during which the losses were incurred and subject
to the legal provisions concerning the minimum capital of SOCIETES ANONYMES,
must be reduced by an amount at least equal to the losses which could not be
charged on reserves, if during that period the net assets have not been restored
up to an amount at least equal to one half of the capital.
On February 9, 2000, our shareholders authorized the board to issue new shares
or securities having a maximum aggregate nominal value of FF300,000,000. Shares
issued pursuant to these resolutions may, at the board's discretion, be used in
order to obtain a listing of our shares on Nasdaq or any other stock exchange
market by way of public offering.
On February 9, 2000, our shareholders authorized the board of directors to
increase our share capital in the nominal amount of FF6,191,718.80 represented
by 990,675 new shares to be subscribed to by Business Brain Showa-Ota Inc.,
Schlumberger Systemes, SCM Microsystems, Inc. and Sun Microsystems, Inc.
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PREEMPTIVE SUBSCRIPTION RIGHTS
Unless previously waived, holders of our shares have preemptive rights to
subscribe for additional shares issued by us for cash on a PRO RATA basis.
Shareholders may waive such preemptive subscription rights either individually
or at an extraordinary general meeting under certain circumstances. Preemptive
subscription rights, if not previously waived, are transferable during the
subscription period relating to a particular offering of our shares. Our
shareholders have waived their preemptive rights with respect to the issuance of
new securities, including the shares offered hereby, having a maximum aggregate
nominal value of FF300,000,000.
REGISTRATION RIGHTS
After this offering, the holders of 699,300 shares will be entitled to rights
with respect to the registration of such shares under the Securities Act. Under
the terms of our agreement with the holders of these registrable securities, if
we proposed to register any of our securities under the Securities Act, either
for our own account or for the account of other security holders exercising
registration rights, these holders are entitled to receive notice of the
registration and are entitled to include shares of these registrable securities
therein. Additionally, holders of 582,750 shares are entitled to demand
registration rights pursuant to which they may require us to file a registration
statement under the Securities Act at our expense with respect to their shares,
and we are required to use our best efforts to effect this registration. All of
these registration rights are subject to conditions and limitations, among them
the right of the underwriters of an offering to limit the number of shares
included in the registration and our right not to effect a requested
registration within six months following an offering of our securities,
including the offering made hereby.
ATTENDANCE AND VOTING AT SHAREHOLDER'S MEETINGS
In accordance with French law, there are two types of shareholder's general
meetings, ordinary and extraordinary. Ordinary general meetings of shareholders
are required for matters such as the election of directors, the appointment of
statutory auditors, the approval of the annual report prepared by our board of
directors and the annual accounts, the declaration of dividends and the issuance
of bonds. Extraordinary general meetings of shareholders are required for
approval of matters such as amendments to our STATUTS, modifications of
shareholders' rights, approval of mergers, increases or decreases in share
capital, the creation of a new class of capital stock and the authorization of
the issuance of investment certificates or notes convertible or exchangeable
into capital stock. In particular, shareholder approval will be required for
mergers where we are not the surviving entity or where we are the surviving
entity, but in connection with which we are issuing a portion of our share
capital to the acquired entity.
Our board of directors is required to convene an annual ordinary general meeting
of shareholders within six months after the end of our fiscal year. Other
ordinary or extraordinary meetings may be convened at any time during the year.
Meetings of shareholders may be convened by board of directors or, if our board
of directors fails to call such a meeting, by our auditors, currently Ernst &
Young Audit and Jean-Louis Brun d'Arre, or by an agent appointed by a court. The
court may be requested to appoint an agent either by shareholders holding at
least 10% of our share capital or by any interested party in cases of particular
urgency. Following a successful take-over bid or an acquisition of control, the
new majority shareholders may call an ordinary or extraordinary general meeting
of shareholders. The notice for each shareholder meeting must state the matters
to be considered at such meeting.
French law provides that, at least 15 days before the date set for any general
meeting on first call, and at least six days before any second call, notice of
the meeting must be sent by mail to all holders of properly registered shares.
The Company may publish an additional notice of the meeting, in a journal
authorized to publish legal announcements in the DEPARTEMENT in which we are
registered, at least thirty days prior to the date of the meeting. A preliminary
written notice must be sent to each shareholder who has requested to be notified
in writing 35 days before the date set of any ordinary or extraordinary general
meeting. Shareholders holding a defined percentage of our share capital, which
varies depending on the absolute amount of the share capital, may propose
resolutions to be submitted for approval by the shareholders at the meeting.
Shareholder attendance and the exercise of voting rights at ordinary general
meetings and extraordinary general meetings of our shareholders are subject to
certain conditions. In order to exercise voting rights, our STATUTS requires
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that a shareholder must have its shares registered in its name in a shareholder
account maintained by or on behalf of us from at least one business day prior to
the meeting until the end of the day of the meeting. Certain procedures to
effect such requirements will apply to a holder of ADSs desiring to exercise the
voting rights relating to the shares corresponding to such ADSs. See
"Description of American Depositary Shares--Voting Rights."
All shareholders who have properly registered their shares have the right to
participate in general meetings, either in person, by proxy, or by mail, and to
vote according to the number of shares they hold. Each share confers on the
shareholder the right to one vote. Under French law, shares held by entities
controlled directly or indirectly by us shall not be entitled to any voting
rights. Proxies may be granted by a shareholder to his or her spouse, to another
shareholder or to a legal representative, in the case of a corporation, or by
sending a proxy in blank to us without nominating any representative. In the
latter case, the chairman of the meeting of shareholders will vote the shares
covered by such blank proxy in favor of all resolutions proposed by the board of
directors and against all others.
The presence in person or by proxy of shareholders holding not less than 25% (in
the case of an ordinary general meeting) or 33.3% (in the case of an
extraordinary general meeting) of shares entitled to vote is necessary for a
quorum. If a quorum is not present at any meeting, the meeting is adjourned.
Upon recommencement of an adjourned meeting, there is no quorum requirement in
the case of an ordinary general meeting and the presence in person or by proxy
of shareholders holding not less than 25% of our shares entitled to vote is
necessary for a quorum in the case of an extraordinary general meeting.
At an ordinary general meeting, a simple majority of the votes cast is required
to pass a resolution. At an extraordinary general meeting, a two-thirds majority
of the votes cast is required. However, a unanimous vote is required to increase
liabilities of shareholders. Abstention by those present or represented by proxy
is deemed a vote against a resolution submitted to a vote.
The rights of a holder of shares of a class of our capital stock, can be amended
only after an extraordinary general meeting of all shareholders of such class
has taken place and the proposal to amend such rights has been approved by a
two-thirds majority vote of the outstanding shares of such class present in
person or represented by proxy.
In addition to obtaining rights to certain information regarding our company,
any shareholder may, during the two-week period preceding a shareholder's
meeting, submit to our board of directors written questions relating to the
agenda for the meeting. Our board of directors is required to respond to such
questions during the meeting, except if it is contrary to the best interests of
the company, such as responses requiring the disclosure of confidential
information or trade secrets.
As set forth in our STATUTS, shareholders' meetings are held at our registered
office or at any other location specified in the preliminary written notice.
DIVIDEND AND LIQUIDATION RIGHTS
Subject to the requirements of French law and our STATUTS, net income in each
fiscal year (after deduction for depreciation and reserves), as increased or
reduced, as the case may be, by any of our profit or loss carried forward from
prior years, is available for distribution to our shareholders as dividends.
Dividends may also be distributed from our reserves, subject to approval by our
shareholders and certain limitations. If net income (as shown on an interim
income statements certified by our statutory auditors) is sufficient, our board
of directors has the authority, subject to French law and regulations, without
the approval of shareholders, to distribute cash interim dividends. Dividends
paid in newly issued shares require shareholder approval.
We are required to establish and maintain a legal reserve by making a minimum
provision of 5% of our net income in each year as may be necessary to maintain
such reserve at a level equal to 10% of the aggregate nominal value of our share
capital, as increased or reduced from time to time. The legal reserve is
distributable only upon our liquidation. Our STATUTS also provide that our
distributable profits (after reduction of any amounts required to be allocated
to the legal reserve) can be allocated to one or more special purpose reserves
or distributed as dividends, as may be determined by the general meeting of
shareholders.
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The payment of dividends is fixed by the ordinary general meeting of
shareholders at which the annual accounts are approved and following
recommendation of our board of directors. Dividends are distributable to
shareholders PRO RATA according to their respective holdings of shares.
Dividends are payable to holders of shares issued on the date of the shareholder
meeting approving the distribution of dividends or, in the case of interim
dividends, on the date of the meeting of our board of directors approving the
distribution of interim dividends. The actual dividend payment date is
determined by our shareholders at the ordinary general meeting approving the
declaration of the dividends or by our board of directors in the absence of such
determination by our shareholders. The payment of the dividends must occur
within nine months of the end of our fiscal year. Dividends not claimed within
five years of the date of payment revert to the French State. Our STATUTS
authorize our shareholders, in an ordinary general meeting, to authorize the
grant to each shareholder of an option to receive all or part of any annual or
interim dividends in either cash or shares.
We have not paid any cash dividends on our shares since our incorporation. We
currently anticipate that we will retain all future earnings for use in our
business and do not anticipate paying any dividends in the foreseeable future.
In the event that we are liquidated, our assets remaining after payment of our
debts, liquidation expenses and all of our remaining obligations will be
distributed first to repay in full the capital of the shares, then the surplus,
if any, will be distributed PRO RATA among the holders of shares in proportion
to the nominal value of their shareholdings and subject to any special rights
granted to holders of priority shares, if any.
REPURCHASE OF SHARES
Pursuant to French law, we may not make open market repurchases of our shares or
otherwise acquire shares except (a) to reduce our share capital by subsequent
cancellation of such shares under certain circumstances with approval of our
shareholders at an extraordinary general meeting, and (b) to obtain shares for
distribution to our employees under an approved profit-sharing or stock option
plan. The number of shares repurchased under (b) may not, in either case, result
in us holding more than 10% of the then outstanding shares. Shares held by us
are deemed to be outstanding under French law but are not entitled to any
dividends, voting rights or preemptive rights. French law imposes certain other
restrictions on our ability to purchase our own shares in addition to the
general principles disclosed pursuant to this paragraph. We currently do not own
any of our shares.
FORM AND HOLDING OF SHARES
FORM OF SHARES. Our STATUTS provides that shares may be held only in registered
form.
HOLDING OF SHARES. Shares are registered in the name of the respective owners
thereof in individual accounts maintained by or on behalf of us. Each account
shows the name of the shareholder and the number of shares it holds. We will
issue or cause to be issued ATTESTATIONS D'INSCRIPTION EN COMPTE or
confirmations as to holdings of shares registered in the account to the persons
in whose names such shares are registered. These confirmations do not constitute
documents of title.
DISCLOSURE OF 5% OWNERSHIP. Pursuant to our by-laws, a holder who acquires or
disposes of our shares must notify us in accordance with the Easdaq Market
Authority within five business days of the date of such transaction where its
completion would make the holder's shares exceed or fall below a five percent
threshold of our outstanding voting financial instruments.
LISTING
Our shares are listed on Easdaq. Application has been made to list the ADSs on
Nasdaq.
TRANSFER AGENT AND REGISTRAR
The Bank of New York will act as transfer agent and registrar for our ordinary
shares offered hereby.
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EXCHANGE CONTROLS
FOREIGN INVESTMENT REGULATIONS
Pursuant to a French law dated February 14, 1996, prior authorization is no
longer required for the acquisition of a controlling interest in a French
corporation by any person, whether or not such person is a resident of the
European Union, except where such corporation is engaged in defense related
activities. ADV Technologies, one of our subsidiaries, has provided various
engineering and other services to the French Ministry of Defense in the past,
but no longer has any significant business relationship with the French Ministry
of Defense.
Under French law, there is no limitation on the right of non-resident or foreign
shareholders to vote the securities of a French company.
EXCHANGE CONTROL
The payment of all dividends to foreign shareholders must be effected through an
authorized intermediary bank. All registered banks and financial institutions in
France are authorized intermediaries.
CONVERTIBLE BONDS
In July and October 1997, we issued $6.03 and $2.0 million, respectively,
aggregate principal amount of convertible bonds. These bonds bear interest at a
rate of 7.75% payable on a bi-annual basis. These bonds mature on June 19, 2002.
Since June 1999 the bonds have been redeemable at par value, subject to the
closing price of our shares on the Nasdaq National Market (assuming we are
listed on Nasdaq National Market) having been greater than twice the conversion
price ($4.60) for a period of at least 25 consecutive trading days. As of
December 31, 1999, 350 bonds convertible into 760,550 shares were outstanding.
In October 1999, we issued 6.0 million aggregate principal amount of
non-interest bearing convertible bonds. The bonds are to be redeemed at 112% of
their principal amount on October 15, 2001. We are entitled to redeem these
bonds at redemption prices ranging from 103% to 112% of their principal amount
depending on the date we select for redemption, which can be any time prior to
their stated maturity date. After April 15, 2000, at the option of the holder,
each bond can be converted into 25 of our shares. Additionally, in the event of
a public offering of shares or any capital increase of the company of at least
$12 million, we are required to redeem the bonds, provided that any holder
notified of such redemption may elect to convert such bonds into shares. In
addition, 100 warrants were issued with each convertible bond, each warrant
entitling the holder to one of our shares at an exercise price of $5.00. The
warrants are exercisable on or after April 15, 2000 and expire on April 15,
2002. The bonds and warrants are separately tradeable.
PRIVATE PLACEMENTS
Schlumberger Systemes, Business Brain Showa-Inc., Sun Microsystems, Inc. and SCM
Microsystems, Inc. have subscribed to 174,825, 116,550, 582,750 and 116,550,
respectively, of our ordinary shares at a subscription price of $17.16 per
share. The subscription price was determined at a board of directors meeting
held on December 16, 1999 and is based on the average closing price of our share
between November 25 and December 8, 1999. The sale of these shares was approved
by our stockholders on February 9, 2000 and closed on February 16, 2000. We
received net proceeds after commissions of approximately $16.5 million.
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
AMERICAN DEPOSITARY SHARES
The Bank of New York will issue the ADSs. Each ADS will represent an ownership
interest in one ordinary share. We will deposit the shares (or the right to
receive shares) at the Paris, France office of Banque Nationale de Paris, our
custodian (the "Custodian"). Each ADS will also represent securities, cash or
other property deposited with The Bank of New York but not distributed to ADS
holders. The Bank of New York 's office is located at 101 Barclay Street, New
York, NY 10286.
You may hold ADSs either directly or indirectly through your broker or other
financial institution. This description assumes you hold your ADSs directly and
are, therefore, considered an "ADS holder." If you hold the ADSs indirectly, you
must rely on the procedures of your broker or other financial institution to
assert the rights of ADS holders described in this section. You should consult
with your broker or financial institution to find out what those procedures are.
Because The Bank of New York will actually be the legal owner of the shares, you
must rely on it to exercise the rights of a shareholder. The agreement and the
ADSs are generally governed by New York law.
Although all material elements of the deposit agreement are summarized in this
prospectus, you should read the entire agreement and the information contained
in the American Depositary Receipts representing the ADSs. Directions on how to
obtain copies of these are provided in the section entitled "Where You Can Find
Information."
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
The Bank of New York has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on shares or other deposited
securities after deducting its fees and expenses, if applicable. You will
receive these distributions in proportion to the number of shares your ADSs
represent.
CASH. The Bank of New York will convert any cash dividend or other cash
distribution we pay on the shares into U.S. dollars, if it can do so on a
reasonable basis and can transfer the U.S. dollars in the United States. If that
is not possible or if any approval from the French government is needed and
cannot be obtained, the agreement allows The Bank of New York to distribute
French francs only to those ADSs holders to whom it is possible to do so. It
will hold the French francs it cannot convert for the account of the ADS holders
who have not been paid. It will not invest the French francs and it will not be
liable for the interest.
Before making a distribution, any withholding taxes that must be paid under
French law will be deducted. See "Taxation--U.S. Taxation--Dividends." The Bank
of New York will distribute only whole U.S. dollars and cents and will round
fractional cents to the nearest whole cent. IF THE EXCHANGE RATES FLUCTUATE
DURING A TIME WHEN THE BANK OF NEW YORK CANNOT CONVERT THE FRENCH CURRENCY, YOU
MAY LOSE SOME OR ALL OF THE VALUE OF THE DISTRIBUTION.
SHARES. The Bank of New York may distribute new ADSs representing any shares we
may distribute as a dividend or free distribution if we furnish it promptly with
satisfactory evidence that it is legal to do so. The Bank of New York will only
distribute whole ADSs. It will sell shares which would require it to use a
fractional ADS and distribute the net proceeds in the same way as it does with
cash. If The Bank of New York does not distribute additional ADSs, each ADS will
also represent the new shares.
RIGHTS TO RECEIVE ADDITIONAL SHARES. If we offer holders of our ordinary shares
any rights to subscribe for additional shares or any other rights, The Bank of
New York may make these rights available to you. We must first instruct The Bank
of New York to do so and furnish it with satisfactory evidence that it is legal
to do so. If we do not furnish this evidence and/or give these instructions, and
The Bank of New York decides it is practical to sell the rights, The Bank of New
York will sell the rights and distribute the proceeds, in the same manner it
deals with cash. The Bank of New York may allow rights that are not distributed
or sold to lapse. In that case, you will receive no value for them.
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If The Bank of New York makes rights available to you, it will exercise the
rights and purchase the shares on your behalf. The Bank of New York will then
deposit the shares and issue ADSs to you. It will only exercise rights if you
pay it the exercise price and any other charges the rights require you to pay.
U.S. securities laws may restrict the sale, deposit, cancellation and transfer
of ADSs issued after the exercise of rights. For example, you may not be able to
trade the ADSs freely in the United States. In this case, The Bank of New York
may issue the ADSs under a separate restricted deposit agreement which will
contain the same provisions as the agreement, except for the changes needed to
put the restrictions in place.
OTHER DISTRIBUTIONS. The Bank of New York will send to you anything else we
distribute on deposited securities by any means it thinks are legal, fair and
practical. If it cannot legally make the distribution The Bank of New York has a
choice. It may decide to sell what we distribute and distribute the net proceeds
in the same manner as it deals with cash or it may decide to hold what we
distributed, in which case the ADSs will also represent the newly distributed
property.
The Bank of New York is not responsible if it decides that it is unlawful or
impractical to make a distribution available to any ADS holders. We have no
obligation to register ADSs shares, rights or other securities under the
Securities Act. We also have no obligation to take any action to permit the
distribution of ADSs, shares, rights or anything else to ADS holders. This means
that you may not receive the distribution we make on our shares or any value for
them if it is illegal or impractical for us to make them available to you.
DEPOSIT, WITHDRAWAL AND CANCELLATION
The Bank of New York will issue ADSs to you or your broker upon the deposit of
shares or evidence of rights to receive shares with the Custodian. Upon payment
of its fees and expenses and of any taxes or charges, such as stamp taxes or
stock transfer taxes or fees, The Bank of New York will register the appropriate
number of ADSs in the names you requested and will deliver the ADSs at its
office to the persons you request.
You may turn in your ADSs at The Bank of New York's office. Upon payment of its
fees and expenses and of any taxes or charges, such as stamp taxes or stock
transfer taxes or fees, The Bank of New York will deliver (1) the underlying
shares to an account designated by you and (2) any other deposited securities
underlying the ADS at the office of the Custodian. Alternatively, at your
request, risk and expenses, The Bank of New York will deliver the deposited
securities at its office.
VOTING RIGHTS
You may instruct The Bank of New York to vote the shares underlying your ADSs
but only if we ask The Bank of New York to ask for your instructions. Otherwise,
you will not be able to exercise your right to vote unless you withdraw the
shares from the ADS program and place them in a "blocked" account established by
The Bank of New York for that very purpose. However, you may not know about a
shareholders' meeting sufficiently in advance to withdraw your shares in order
to vote them.
If we ask for your instructions, The Bank of New York will notify you of the
upcoming vote and arrange to deliver our voting materials to you. The materials
will (1) describe the matters to be voted on and (2) explain how you, on a
certain date, may instruct The Bank of New York to vote the shares or other
deposited securities underlying your ADSs as you direct. For instructions to be
valid, The Bank of New York must receive them on or before the date specified.
The Bank of New York will try, as far as practical, subject to French law, the
provisions of our STATUTS and the deposited securities, to vote or to have its
agents vote the shares or other deposited securities as you instruct in the
voting instruction card that you return to them. The Bank of New York will only
vote or attempt to vote in accordance with your instructions.
Under French company law, shareholders holding a defined percentage of our share
capital can propose new resolutions or modifications to resolutions previously
presented to our board of directors. In such a case your instructions to vote on
the prior resolution would be counted as a vote against the revised resolution.
In addition, we and The Bank of New York may agree to modify or amend the above
voting procedures or adopt additional voting
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procedures from time to time as they determine may be necessary or appropriate
to comply with French or United States law or our STATUTS. There can be no
assurance that such modifications, amendments or additional voting procedures
will not limit the practical ability of ADS holders to give voting instructions
in respect of our shares represented by ADSs or will not include restrictions on
the ability of ADS holders to sell ADSs during a specified period of time prior
to a shareholders' meeting.
We cannot assure you that you will receive the voting materials in time to
ensure that you can instruct The Bank of New York how to vote your shares. The
Bank of New York and its agents are not responsible in respect of whether or not
you are entitled to vote or the proper entry of information in our share
registry. This means that you may not be able to exercise your right to vote and
there may be nothing you can do if your shares are not voted as you wish.
FEES AND EXPENSES
<TABLE>
ADS HOLDERS MUST PAY: FOR:
- -------------------------------------------- --------------------------------------------
<S> <C>
$5.00 (or less) per 100 ADSs Each issuance of an ADS, including as a
result of a distribution of shares or rights
or other property Each cancellation of an
ADS, including if the agreement terminates
- -----------------------------------------------------------------------------------------------
$2.00 (or less) per 100 ADSs Any cash distribution
- -----------------------------------------------------------------------------------------------
Registration or Transfer Fees Transfer and registration of shares on the
share register of the Foreign Registrar from
your name to The Bank of New York or its
agent when you deposit or withdraw shares
- -----------------------------------------------------------------------------------------------
Expense of The Bank of New York Conversion of French Francs to U.S. dollars
Cable, telex and facsimile transmission
expenses
- -----------------------------------------------------------------------------------------------
Taxes and other governmental charges The As necessary
Bank of New York the Custodian are required
to pay on any ADS or share underlying an
ADS, for example, stock transfer taxes,
stamp duty or withholding taxes
</TABLE>
PAYMENT OF TAXES
You will be responsible for any taxes or other governmental charges payable on
your ADSs or on the deposited securities underlying your ADSs. The Bank of New
York may refuse to transfer your ADSs or allow you to withdraw the deposited
securities underlying your ADSs until such taxes or other charges are paid. It
may apply payments owed to you or sell deposited securities underlying your ADSs
to pay any taxes owed and you will remain liable for any deficiency. If it sells
deposited securities, it will, if appropriate, reduce the number of ADSs to
reflect the sale and pay to you any proceeds, or send to you any property,
remaining after it has paid the taxes.
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RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
<TABLE>
IF WE: THEN:
- -------------------------------------------- --------------------------------------------
<S> <C>
Change the nominal or par value of our The cash, shares or other securities
shares; reclassify, split up or consolidate received by The Bank of New York will become
any of the deposited securities deposited securities
- -----------------------------------------------------------------------------------------------
Distribution securities on the shares that Each ADS will automatically represent its
are not distributed to you equal share of the new deposited securities
- -----------------------------------------------------------------------------------------------
Recapitalize, reorganize, merge, liquidate, The Bank of New York may, and will if we
sell all of substantially all of our assets, request, distribute some or all the cash,
or take any similar action shares or other securities it received. It
may also issue new ADSs or ask you to
surrender your outstanding ADSs in exchange
for new ADSs, identifying the new deposited
securities
</TABLE>
AMENDMENT AND TERMINATION
We may agree with The Bank of New York to amend the agreement and the ADSs
without your consent for any reason. If the amendment adds or increases fees or
charges, except for taxes and other governmental charges or certain expenses of
The Bank of New York, or prejudices an important right of ADS holders, it will
only become effective 30 days after The Bank of New York notifies you of the
amendment. At the time an amendment becomes effective, you are considered, by
continuing to hold your ADS, to agree to the amendment and to be bound by the
ADSs and the agreement as amended.
The Bank of New York will terminate the agreement if we ask it to do so. The
Bank of New York may also terminate the agreement if The Bank of New York has
told us that it would like to resign and we have not appointed a new depository
bank within 90 days. In both cases, The Bank of New York must notify you at
least 90 days before termination.
After termination, The Bank of New York and its agents will be required only to
advise you that the agreement is terminated, and collect distributions on the
deposited securities and deliver shares and other deposited securities upon
cancellation of ADSs. One year after termination, The Bank of New York will, if
practical, sell any remaining deposited securities by public or private sale.
After that, The Bank of New York will hold the proceeds of the sale, as well as
any other cash it is holding under agreement for the pro rata benefit of the ADS
holders that have not surrendered their ADS. It will not invest the money and
will have no liability for interest. The Bank of New York's only obligations
will be to account for the proceeds of the sale and other cash. After
termination our only obligations will be with respect to indemnification and to
pay certain amounts to The Bank of New York.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO ADS HOLDERS
The agreement expressly limits our company's and The Bank of New York's
obligations and liabilities. Our company and The Bank of New York:
- are only obligated to take the actions specifically set forth in the
agreement without negligence or bad faith;
- are not liable if either is prevented or delayed by law or circumstances
beyond their control from performing our obligations under the agreement;
- are not liable if either exercises discretion permitted under the
agreement;
- have no obligation to become involved in a lawsuit or other proceeding
related to the ADSs or the agreement on your behalf or on behalf of any
other party; and
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- may rely upon any documents they believe in good faith to be genuine and
to have been signed or presented by the proper party.
In the agreement, our company and The Bank of New York agree to indemnify each
other under certain circumstances.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before The Bank of New York will issue or register transfer of an ADS, make a
distribution to an ADS, or a withdrawal of shares, The Bank of New York may
require:
payment of stock transfer of other taxes or governmental charges and
transfer or registration fees charged by third parties for the transfer of
any shares or other deposited securities;
production of satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary; and
compliance with regulations it may establish, from time to time, consistent
with the agreement, including presentation of transfer documents.
The Bank of New York may refuse to deliver, transfer, or register transfers of
ADSs generally when the books of The Bank of New York or our company are closed,
or at any time if The Bank of New York or our company thinks it advisable to do
so.
You have the right to cancel your ADSs and withdraw the underlying shares at any
time except:
- when temporary delays arise because (1) we or The Bank of New York closed
its transfer books; (2) the transfer of shares is blocked to permit voting
at the shareholders' meeting; or (3) we are paying a dividend on the
shares;
- when you or other ADS holders seeking to withdraw shares owe money to pay
fees, taxes and similar changes; or
- when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to ADSs or the withdrawal of
shares or other deposited securities.
The right of withdrawal may not be limited by any other provision of the
agreement.
PRE-RELEASE OF ADSS
In certain circumstances, subject to the provisions of the agreement, The Bank
of New York may issue ADSs before deposit of the underlying shares. This called
a pre-release of the ADSs. The Bank of New York may also deliver shares upon
cancellation of pre-released ADS (even if the ADS are canceled before the
pre-release) transaction has been closed out). A pre-release is closed out as
soon as the underlying shares are delivered to The Bank of New York. The Bank of
New York may receive ADSs instead of shares to close out a pre-release. The Bank
of New York may pre-release ADSs only under the following conditions:
(1) before or at the time of the pre-release, the person to whom the pre-release
is being made must represent to The Bank of New York in writing that it or its
customer owns the shares or ADSs to be deposited; (2) the pre-release must be
fully collateralized with cash or other collateral that The Bank of New York
considers appropriate; and (3) The Bank of New York must be able to close out
the pre-release on not more than five business days' notice. In addition, The
Bank of New York will limit the number of ADSs that may be outstanding at any
time as a result of pre-release, although, The Bank of New York may disregard
the limit from time to time, if it thinks it is appropriate to do so.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 37,380,701 (37,473,701 ordinary
shares if the underwriter's over-allotment option is exercised in full) ordinary
shares issued and outstanding (which gives effect to the 990,675 shares, issued
in our private placements which closed on February 16, 2000 and the issuance of
300,000 shares upon the conversion of our 1999 bonds). Of these shares,
32,963,516 (33,056,516 if the underwriter's over-allotment option is exercised
in full) shares will be freely tradable in the public market, including the
300,000 shares to be issued upon conversion of our October 1999 bonds, without
restrictions or further registration under the Securities Act, unless the shares
are held by "affiliates," as that term is defined in Rule 144(a) under the
Securities Act. Shares held by affiliates will be subject to the resale
limitations of Rule 144. The remaining 4,417,185 shares outstanding will be
"restricted securities" under the Securities Act and may not be sold in the
absence of registration under the Securities Act or an exemption therefrom,
including pursuant to Rule 144 or an offshore transaction pursuant to Regulation
S. In addition, at December 31, 1999, (i) 3,491,420 shares were reserved for
issuance upon exercise of outstanding stock options pursuant to our equity
incentive plan at prices ranging from $1.67 to $19.75 per share, (ii) 1,495,894
shares were reserved for issuance upon exercise of outstanding warrants at
exercise prices ranging from $3.80 to $8.93 per share, (iii) 760,550 shares were
reserved for issuance upon conversion of our convertible notes at a price of
$4.60 per share, (iv) 761,437 shares were reserved for issuance upon exercise of
share purchase rights at prices ranging from $1.25 to $3.91 per share and
(v) 142,790 shares reserved for future issuance under our various stock option
plans.
Our company, together with our directors, officers and certain shareholders have
entered into lock-up agreements in connection with this offering generally
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of our ADSs or shares or any securities
exercisable for or convertible into our ADSs or shares owned by them for a
period of 150 days after the date of this prospectus without the prior written
consent of J.P. Morgan Securities Inc. Notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares
subject to lock-up agreements will not become eligible for resale until these
agreements expire or are waived by J.P. Morgan Securities Inc. Taking into
account the lock-up agreements, and assuming J.P. Morgan Securities Inc. does
not release shareholders from these agreements, the following shares will be
eligible for sale in the public market at the following times:
- beginning on the effective date of this prospectus, 29,234,728 shares,
including those sold in the offering, will be immediately available for
sale in the public market;
- beginning 90 days after the effective date, approximately 22,973 shares
will be eligible for sale under Rule 701; and
- beginning 150 days after the effective date, approximately 3,034,807
shares will be eligible for sale under Rule 144 at various times;
In general, under Rule 144 as currently in effect, after the expiration of the
lock-up agreements, a person who has beneficially owned restricted securities
for at least one year would be entitled to sell within any three-month period of
a number of shares that does not exceed the greater of:
- 1% of the number of shares then outstanding, which will equal
approximately 373,800 shares immediately after the offering; or
- the average weekly trading volume of the shares during the four calendar
weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner of
sale, notice, and the availability of current public information about us. Under
Rule 144(k), a person who is not deemed to have been our affiliate at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell these
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers, directors or
consultants who purchased shares under a written compensatory plan or contract
to resell these shares in reliance upon Rule 144 but without compliance with
specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period, public
information, volume limitation or notice provisions of Rule 144.
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TAXATION
TAXATION OF U.S. HOLDERS
The following discussion is a general summary of the material U.S. federal
income and French tax consequences of the purchase, ownership and disposition of
ADSs that may be applicable to a purchaser of ADSs that is a U.S. holder. For
this purpose, you are a "U.S. holder" if you are a beneficial owner of ADSs
that:
(a) owns, directly, indirectly or constructively, less than 10% of our voting
stock;
(b) is, for U.S. federal income tax purposes, either: (i) a citizen or
individual resident of the United States; (ii) a corporation created or
organized in or under the laws of the United States (or of any political
subdivision thereof); or (iii) a trust or estate, the income of which is
subject to U.S. federal income taxation regardless of its source;
(c) is entitled to benefits under the Convention between the United States of
America and the French Republic for Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital of
August 31, 1994 (the "Treaty"); and
(d) holds such ADSs as capital assets within the meaning of Section 1221 of the
U.S. Internal Revenue Code of 1986, as amended (the "Code").
A partnership for U.S. federal income tax purposes is not subject to income tax
on income derived from holding the ADSs, regardless of whether the partnership
was formed under the laws of the United States. If a partner in a partnership
holding ADSs would otherwise qualify as a U.S. Holder, as defined above, if such
partner held the ADSs directly, the partner generally will be subject to tax in
the same manner as a US. Holder on such partner's distributive share of the
income of the partnership derived from holding the ADSs.
The discussion set forth below is included for general information only and does
not represent tax advice. This discussion does not address all aspects of
taxation that may be relevant to U.S. holders in light of their particular
circumstances or to certain U.S. holders that are subject to special provisions
of U.S. tax law, including, but not limited to, some United States expatriates,
insurance companies, tax-exempt organizations, financial institutions, persons
subject to alternative minimum tax, traders or dealers in securities or
currencies, persons holding ADSs as a position in a "straddle," or as part of a
hedging, conversion or other integrated transaction, and U.S. persons whose
functional currency is not the U.S. dollar. You should consult your own tax
advisor with respect to the tax consequences to you of the purchase, ownership
and disposition of ADSs, including the tax consequences under state, local and
other tax laws and the possible effects of changes in United States federal and
other tax laws.
This discussion is based on the Code, existing and proposed Treasury regulations
promulgated thereunder, administrative and judicial interpretations thereof, the
Treaty, French tax law, and on the practice of the French tax authorities,
including tax regulations issued by the French tax authorities on June 7, 1994
and March 1, 1996 (the "Regulations"), all as of the date hereof and all of
which are subject to change, possibly with retroactive effect, and differing
interpretations.
We believe, and the following discussion assumes, that we are not currently a
passive foreign investment company ("PFIC") and that, based on the likely
composition of our income and assets, we will not constitute a PFIC in the
foreseeable future. If we are, for any taxable year, a PFIC for U.S. federal
income tax purposes, the U.S. federal income tax consequences to a U.S. holder
that owns ADSs at any time during such taxable year may differ from those
described below. You should consult your own tax advisor regarding the potential
application of the PFIC rules to our company and with respect to the U.S. tax
consequences to you if we were a PFIC at anytime.
In general for U.S. federal income tax purposes, U.S. holders will be treated as
the owners of the Shares represented by the ADSs. This conclusion is based on
the assumption that the deposit agreement is the only arrangement that governs
the U.S. holders' rights with respect to the ADSs, that the terms of the deposit
agreement will not be modified and that each obligation provided for in, or
otherwise contemplated by, the deposit agreement will be performed in accordance
with its terms.
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TAXATION OF DIVIDENDS
WITHHOLDING/AVOIR FISCAL. In France, dividends are paid out of after-tax income
and French residents are entitled to a tax credit, known as the AVOIR FISCAL.
The AVOIR FISCAL generally is equal to 50% of the dividend paid, unless it is
not used by an individual, in which case it is generally equal to 40% of the
dividend paid.
In addition, in case the dividends are subject to the precompte, shareholders
entitled to the AVOIR FISCAL at the rate of 40% are generally entitled to an
additional AVOIR FISCAL equal to 20% of any such precompte actually paid to each
by the Company (see "--precompte")
Under French domestic law, dividends paid to you normally would be subject to a
25% French withholding tax and you would not be eligible for the benefit of the
AVOIR FISCAL.
Under the Treaty, the rate of French withholding tax on dividends paid to you on
your ADSs is reduced to 15% if your ownership of the ADSs is not effectively
connected with a permanent establishment or a fixed base you have in France. If
you are an eligible U.S. holder (as defined below), dividends paid to you on
your ADSs will be immediately subject to the reduced rate of 15%, provided that
you establish before the date of payment of the dividend that you are a resident
of the United States under the Treaty in accordance with the procedures
described below. If you are an eligible U.S. holder, you will also be entitled
to a payment by the French tax authorities equal to the AVOIR FISCAL, less a 15%
withholding tax. As noted below, such payment will not be made to you until
after the close of the calendar year in which the dividend was paid and only
upon receipt by the French tax authorities of a claim made by you for such
payment in accordance with the procedures set forth below.
You are an eligible U.S. holder if you are a U.S. holder of ADSs:
(a) who owns all the rights attached to full ownership of such ADSs, including
but not limited to dividend rights;
(b) who is: (i) an individual or other non-corporate U.S. holder; (ii) a United
States corporation that owns, directly or indirectly, less than 10% of the
capital of the company (provided that, in the case of a corporation that is
a regulated investment company, less than 20% of its shares are
beneficially owned by persons who are neither citizens nor residents of the
United States); or (iii) a partnership or trust that is treated as a
resident of the United States pursuant to the provisions of the Treaty, but
only to the extent that its partners, beneficiaries or grantors would
qualify under clause (i) or (ii) above; and
(c) whose ownership of ADSs is not effectively connected with a permanent
establishment or a fixed base in France.
In general, under the Treaty, an eligible U.S. holder may receive a payment of
the AVOIR FISCAL only if such holder (or its partners, beneficiaries or
grantors, if the holder is a partnership or trust) attests that it is subject to
U.S. federal income tax on the payment of the AVOIR FISCAL and the related
dividend. Certain entities are not entitled to the full AVOIR-FISCAL. Tax-exempt
"U.S. pension funds" (as defined below) and certain other tax-exempt entities
(including certain governmental institutions, not-for-profit organizations and,
with respect to ADSs owned through an investment retirement account ("IRA"),
individuals) ("other tax-exempt entities") that own, directly or indirectly,
less than 10% of the capital of the Company, and that satisfy certain filing
formalities specified in the Regulations:
(a) are entitled to a payment, subject to French withholding tax, equal to
30/85 of the gross AVOIR FISCAL (the "partial AVOIR FISCAL"); and
(b) are eligible for the reduced withholding tax rate of 15% on dividends.
A "U.S. pension fund" includes exempt pension funds established and managed in
order to pay retirement benefits subject to the provisions of Section
401(a) (qualified retirement plans), Section 403(b) (tax deferred annuity
contracts) or Section 457 (deferred compensation plans) of the Code.
If you are an eligible U.S. holder, you can establish entitlement to a reduced
withholding tax rate of 15% at the time a dividend on the ADSs is paid if:
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(a) you duly complete and provide the French tax authorities with Treasury Form
RF 1 A EU-NO. 5052 (the "Form") before the date of payment of the relevant
dividend together with, if you are not an individual, an affidavit
attesting that you are the beneficial owner of all the rights attached to
the full ownership of the ADSs, including but not limited to dividend
rights; or
(b) if completion of the Form is not possible prior to the payment of
dividends, you duly complete and provide the French tax authorities with a
simplified certificate (the "Certificate") stating that: (a) you are a U.S.
resident as defined pursuant to the provisions of the Treaty; (b) your
ownership of the ADSs is not effectively connected with a permanent
establishment or fixed base in France; (c) you own all the rights attached
to the full ownership of the ADSs, including but not limited to dividend
rights; (d) you meet all the requirements of the Treaty for obtaining the
benefit of the reduced rate of withholding tax and the right to payment of
the French AVOIR FISCAL; and (e) you claim the reduced rate of withholding
tax and the payment of the AVOIR FISCAL under the Treaty.
The Form or the Certificate, together with their respective instructions, will
be provided by the Depositary with respect to ADSs registered with the
Depositary and are also available from the United States Internal Revenue
Service (the "IRS"). The Depositary will arrange for the filing with the French
tax authorities of all Forms or Certificates completed by U.S. holders of ADSs
provided they are returned to the Depositary within the time period specified by
the Depositary in its distribution to registered U.S. holders of ADSs.
If you are not entitled to the AVOIR FISCAL (i.e., you are not an eligible U.S.
holder) or if you have not filed a completed Form or Certificate before the
dividend payment date, dividends paid to you on your ADSs will be subject to
French withholding tax at a rate of 25%. In such event, you may claim a refund
of the excess withholding tax and the AVOIR FISCAL by completing and providing
the French tax authorities with the Form before December 31st of the calendar
year following the year during which the dividend is paid. U.S. pension funds
and other tax-exempt entities entitled to a partial AVOIR FISCAL are subject to
the same general filing requirements as eligible U.S. holders except that they
may have to supply additional documentation evidencing their entitlement to
these benefits.
Eligible U.S. holders, U.S. pension funds and other tax-exempt entities entitled
to a partial AVOIR FISCAL must file the Form or Certificate and, where
applicable, the affidavit in order to receive payment of the AVOIR FISCAL or
partial AVOIR FISCAL (whichever is applicable). The avoir fiscal or partial
AVOIR FISCAL is generally expected to be paid to eligible U.S. holders, U.S.
pension funds and other tax-exempt entities within 12 months of filing the
relevant form, but not before January 15th following the end of the calendar
year in which the related dividend is paid. Similarly, any French withholding
tax refund is generally expected to be paid within 12 months of filing the
relevant form, but not before January 15th following the end of the calendar
year in which the related dividend is paid.
For U.S. federal income tax purposes, the gross amount of any dividend and the
amount of the AVOIR FISCAL paid to you on the ADSs, including any French
withholding tax thereon, will be included in gross income as foreign source
dividend income in the year each such payment is received (which, if you hold
ADSs, will be the year of receipt by the Depositary) to the extent paid or
deemed paid out of our current or accumulated earnings and profits as calculated
for U.S. federal income tax purposes. No dividends received deduction will be
allowed with respect to dividends paid by us.
The amount of any dividend paid in euros or francs, including the amount of any
French taxes withheld therefrom, will be equal to the U.S. dollar value of the
euros or francs on the date such dividend is distributed by us regardless of
whether the payment is in fact converted into U.S. dollars. You generally will
be required to recognize foreign currency gain or loss, which will generally be
United States source ordinary income or loss, upon the sale or disposition of
euros or francs. Moreover, you may also be required to recognize such foreign
currency gain or loss, which will generally be United States source ordinary
income or loss, as a result of the receipt of a refund of amounts, if any,
withheld from a dividend in excess of the Treaty rate of 15%.
To the extent that the amount of any distribution on the ADSs (including the
amount of any avoir fiscal received which is treated as a distribution in the
year of receipt) exceeds a U.S. holder's pro rata portion of our current and
accumulated earnings and profits for a taxable year as calculated for U.S.
federal income tax purposes, the
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distribution will first be treated as a tax-free return of capital, causing a
reduction in the U.S. holder's adjusted basis in the ADSs (but not below zero),
and the balance in excess of adjusted basis will be taxed as capital gain
recognized on a sale or exchange.
French withholding tax imposed at the Treaty rate of 15% on dividends paid on
the ADSs and on any related payment of the AVOIR FISCAL will be treated as
payment of a foreign income tax and, subject to certain conditions and
limitations, may be taken as a credit against your U.S. federal income tax
liability. Under the Code, the limitation on foreign taxes eligible for credit
is not calculated with respect to all worldwide income, but instead is
calculated separately with respect to specific classes of income. For this
purpose, dividends distributed by us and the related AVOIR FISCAL payments
generally will constitute "passive income," or in the case of certain U.S.
holders, "financial services income." Alternatively, provided that you do not
elect to claim a foreign tax credit in respect of any foreign taxes paid by you
in a particular taxable year, you may claim the foreign taxes paid by you in the
year as an itemized deduction. Unlike a tax credit, a deduction does not reduce
U.S. federal income tax on a dollar-for-dollar basis. A deduction, however, is
not subject to the limitations generally applicable to foreign tax credits.
PRECOMPTE. Amounts distributed as dividends by French companies out of profits
which have not been taxed at the ordinary corporate income tax rate or which
have been earned and taxed more than five years before the distribution and
which give rise to the AVOIR FISCAL are subject to a PRECOMPTE, or prepayment,
by such companies. The PRECOMPTE is paid by the distributing company to the
French tax authorities and is generally equal to one-half of the nominal
dividend distributed.
If you are not entitled to the AVOIR FISCAL, or you are a U.S. pension fund or
other tax exempt entity entitled to a partial AVOIR FISCAL, you generally may
obtain a refund from the French tax authorities of any PRECOMPTE that we pay
with respect to the dividends distributed on your ADSs. Pursuant to the Treaty,
the amount of the PRECOMPTE refunded to United States residents is reduced by
the 15% withholding tax applicable to dividends and by the partial AVOIR FISCAL
paid to the U.S. pension funds and certain other tax-exempt entities. You are
only entitled to a refund of PRECOMPTE actually paid in cash and you are not
entitled to a refund of the PRECOMPTE that we pay by off-setting French and/or
foreign tax credits.
If you are entitled to a refund of the PRECOMPTE, you must apply for such refund
by filing a French Treasury form RF 1 B EU-NO. 5053 before the end of the
calendar year following the year in which the dividend was paid. The form and
its instructions are available from the IRS or at the CENTRE DES IMPOTS DES NON
RESIDENTS (9, rue d'Uzes, 75094 Paris Cedex 2).
For U.S. federal income tax purposes, the gross amount of the PRECOMPTE, if any,
paid to you (including any French withholding tax thereon) will be included in
gross income as dividend income in the year each such payment is received. Such
amounts generally will constitute foreign source "passive" or (in the case of
certain holders) "financial services" income for foreign tax credit purposes.
The amount of any PRECOMPTE paid in euros or francs, including the amount of any
French taxes withheld therefrom, will be equal to the U.S. dollar value of the
euros or francs on the date such PRECOMPTE is included in income (which, if you
hold ADSs, will be the date of receipt by the Depositary), regardless of whether
the payment is in fact converted into U.S. dollars. You will generally be
required to recognize United States source ordinary income or loss upon the sale
or disposition of euros or francs.
TAXATION OF CAPITAL GAINS
You will generally not be subject to French tax on any capital gain from the
sale or exchange of ADSs unless those ADSs form part of the business property of
a permanent establishment or fixed base that you have in France. Special
rules apply to individuals who are residents of more than one country. The
deposit or withdrawal of Shares by you under the Deposit Agreement will not be a
taxable event for U.S. federal income tax purposes. In general, for U.S. federal
income tax purposes, you will recognize capital gain or loss on the sale,
exchange or other disposition of ADSs equal to the difference between the amount
realized upon the sale, exchange or other disposition and your tax basis in such
ADSs. Such gain or loss generally will be United States source gain or loss. If
you are an individual, capital gains may be subject to U.S. federal income tax
at a preferential rate provided that your holding period for the ADSs sold or
otherwise disposed of exceeds one year. The deduction of capital losses is
subject to certain limitations.
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FRENCH ESTATE AND GIFT TAXES
Pursuant to the Convention Between the United States of America and the French
Republic for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24,
1978, you will not be subject to French inheritance or gift tax as a result of a
transfer of ADSs by gift or by reason of your death unless (i) you are domiciled
in France at the time of making the gift, or at the time of death, or (ii) the
ADSs were used in, or held for use in, the conduct of a business through a
permanent establishment or fixed base in France.
FRENCH WEALTH TAX
The French wealth tax (IMPOT DE SOLIDARITE SUR LA FORTUNE) generally will not
apply to your ADSs if you are a resident of the United States pursuant to the
Treaty.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING
Dividend payments with respect to ADSs and proceeds from the sale, exchange or
redemption of ADSs may be subject to information reporting to the IRS and
possible U.S. backup withholding tax at a 31% rate. Backup withholding will not
apply to you, however, if you furnish a correct taxpayer identification number
and make any other required certification or if you are a corporation or
otherwise exempt from backup withholding. If you are required to establish your
exempt status, you must provide such certification on IRS Form W-9 (Request for
Taxpayer Identification Number and Certification). Finalized Treasury
Regulations, which are applicable to payments made after December 31, 2000, have
generally expanded the circumstances under which information reporting and
backup withholding may apply.
Amounts withheld as backup withholding may be credited against your U.S. federal
income tax liability, and you may obtain a refund of any excess amounts withheld
under the backup withholding rules by timely filing the appropriate claim for
refund with the IRS and furnishing any required information. You should consult
your own tax advisor regarding the application of the information reporting and
backup withholding rules.
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UNDERWRITING
ActivCard, the selling shareholders and the underwriters named below have
entered into an underwriting agreement covering the ADSs to be offered in the
U.S. and international portions of this offering. J.P. Morgan Securities Inc. is
acting as book running lead manager for this offering. J.P. Morgan Securities
Inc. and SG Cowen Securities Corporation are acting as joint lead managers for
this offering. J.P. Morgan Securities Inc., SG Cowen Securities Corporation and
SoundView Technology Group, Inc. are acting as representatives of the
underwriters. Each underwriter has agreed to purchase from ActivCard the number
of ADSs set forth opposite its name in the following tables.
<TABLE>
<CAPTION>
--------------
UNDERWRITERS NUMBER OF ADSS
- ------------ --------------
<S> <C>
J.P. Morgan Securities Inc..................................
SG Cowen Securities Corporation.............................
SoundView Technology Group, Inc.............................
---------
Total..................................................... 4,000,000
=========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
ADSs set forth above, then they must take all of the ADSs. No underwriter is
obligated to take any ADSs allocated to a defaulting underwriter except under
limited circumstances.
The underwriters are offering the ADSs, subject to the prior sale of such ADSs,
and when, as and if such ADSs are delivered to and accepted by them. The
underwriters will initially offer to sell ADSs to the public at the initial
public offering price set forth on the cover page of this prospectus. The
underwriters may sell ADSs to securities dealers at a discount of up to $ per
ADS from the initial public offering price. Any such securities dealers may
resell ADSs to certain other brokers or dealers at a discount of up to $ per
ADS from the initial public offering price. After the initial public offering,
the underwriters may vary the public offering price and other selling terms.
Vertex and Messrs. Wikle, Kernan and Arthur collectively have granted to the
underwriters an option to purchase up to an additional 600,000 shares in the
form of ADSs, at the initial public offering price to the public, less the
aggregate underwriting discount, solely to cover over-allotments. This option
may be exercised at any time up to 30 days after the date of this prospectus. To
the extent that the underwriters exercise such option, each of the underwriters
will have a firm commitment, subject to certain conditions, to purchase a number
of option shares proportionate to such underwriter's initial commitment.
The following table shows the per ADS and total underwriting discounts and
commissions that Activcard and the selling shareholders will pay to the
underwriters. These amounts are shown assuming both no purchase of and full
purchase of all additional ADSs.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per ADS...................................................
</TABLE>
The underwriters may purchase and sell ADSs in the open market in connection
with this offering. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the underwriters of a greater number of ADSs than they
are required to purchase in the offering. Stabilizing transactions consist of
certain bids or purchases made for the purpose of preventing or slowing a
decline in the market price of the ADSs while the offering is in progress. The
underwriters may also impose a penalty bid, which means that an underwriter must
repay to the other underwriters a portion of the underwriting discount received
by it. An underwriter may be subject to a penalty bid if the representative of
the underwriters, while engaging in stabilizing or short covering transactions,
repurchases ADSs sold by or for the account of that underwriter. These
activities may stabilize, maintain or otherwise affect the market price of the
ADSs. As a result, the price of the ADSs may be higher than the price that
otherwise might exist in the open market. If the underwriters
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commence these activities, they may discontinue them at any time. The
underwriters may carry out these transactions on the Nasdaq or Easdaq, in the
over-the-counter market or otherwise.
A prospectus in electronic format is being made available on an Internet web
site maintained by Wit SoundView's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView in this offering
have agreed to make a prospectus in electronic format available on web sites
maintained by each of these dealers. Other than the prospectus in electronic
format, the information on Wit Capital Corporation's web site is not part of the
prospectus or the registration statement of which this prospectus forms a part,
has not been approved and/or endorsed by ActivCard or any underwriter in its
capacity as underwriter and should not be relied upon by investors.
ActivCard estimates that its total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $2.0 million. The
selling shareholders will pay their own expenses.
We, our officers, all directors and executive officers who own ordinary shares
and certain other stockholders, warrantholders and optionholders have agreed
that for a period of 150 days following the date of this prospectus, without the
prior consent of J.P. Morgan Securities, Inc. will not, directly or indirectly,
offer, sell, assign, transfer, encumber, pledge, contract to sell, grant an
option to purchase or otherwise dispose of, other than by operation of law, any
ADSs or any other securities convertible into or exercisable or exchangeable for
ADSs, including, without limitation, options, warrants and the like which are
owned either of record or beneficially or which are acquired on or prior to the
date of this prospectus or received upon the exercise of options or warrants.
J.P. Morgan Securities, Inc. has advised us that it has no present intention of
releasing any of the parties subject to such lockup agreements until the
expiration of the 150-day period.
ActivCard and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933. ActivCard has agreed to reimburse the underwriters for some of their
expenses.
We intend to list the ADSs on the Nasdaq National Market under the trading
symbol "ACTI."
It is expected that delivery of the ADSs will be made to investors on or about
, 2000.
There has been no public market for the ADSs prior to this offering. In
determining the initial offering price, ActivCard and the underwriters referred
to the closing price of our ordinary shares on Easdaq on the trading day prior
to the commencement of this offering.
None of ActivCard, the selling shareholders or the underwriters can assure
investors that an active trading market will develop for the ADSs, or that the
ADSs will trade in the public market at or above the initial offering price.
From time to time in the ordinary course of their business, some of the
underwriters and their affiliates have engaged in, and may in the future engage
in, commercial and investment banking transactions with ActivCard and its
affiliates. SG Cowen Securities Corporation acted as private placement agent in
connection with our private placement of 990,675 ordinary shares which closed on
February 16, 2000 for which it received customary fees.
The underwriters do not intend to sell any ADSs to any accounts over which they
exercise discretionary authority.
70
<PAGE>
LEGAL MATTERS
The validity of the ADSs offered hereby will be passed upon for ActivCard by
Shearman & Sterling, New York, New York. The validity of the shares represented
by the ADSs will be passed upon by Shearman & Sterling, Paris, France. Cahill
Gordon & Reindel, New York, New York is acting as counsel for the underwriters
in connection with selected legal matters relating to this offering.
EXPERTS
The consolidated financial statements of ActivCard as of December 31, 1998 and
1999 and for the years ended December 31, 1997, 1998 and 1999 included in this
prospectus have been audited by Ernst & Young Audit, Paris, France, independent
auditors, as stated in its report appearing herein. The consolidated financial
statements of ActivCard have been included in reliance upon the report of such
firm given upon its authority as experts in accounting and auditing.
WHERE YOU CAN FIND INFORMATION
We have filed with the Securities and Exchange Commission in Washington D.C. a
registration statement on Form F-1 of which this prospectus is a part under the
Securities Act with respect to the ADSs offered hereby. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. Statements made in this prospectus as to the
contents of any contract, agreement or other document are summaries of the
material terms of such contract, agreement or other document. With respect to
each such contract, agreement or other document filed as an exhibit to the
registration statement, reference is made to the exhibit. The registration
statement (including the exhibits and schedules thereto) may be inspected and
copied at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and
will also be available for inspection and copying at the regional offices of the
Securities and Exchange Commission located at Seven World Trade Center, 13th
Floor, New York New York 10048 and at Citicorp Center, 500 West Madison Street
(Suite 1400), Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Securities and
Exchange Commission also maintains a website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of this website is
http://www.sec.gov.
We will furnish The Bank of New York, the Depositary for the ADSs, with annual
reports in English, which will include a review of operations and annual audited
consolidated financial statements audited by an independent accounting firm and
prepared in accordance with U.S. GAAP. We will also furnish the Depositary with
quarterly reports in English, which will include unaudited quarterly
consolidated financial information prepared in accordance with U.S. GAAP. The
Depositary has agreed with us that, upon receipt of such reports, it will
promptly mail such reports to all registered holders of ADSs. We will also
furnish to the Depositary summaries in English or an English version of all
notices of shareholders' meetings and other reports and communications that are
made generally available to shareholders. The Depositary will arrange for the
mailing of such documents to all registered holders of ADSs. As a foreign
private issuer, we are exempt from the rules under the Securities Exchange Act
of 1934, as amended, prescribing the furnishing and the content of proxy
statements.
As a result of this offering, it is anticipated that we will become subject to
the reporting requirements of the U.S. Securities Exchange Act of 1934,
applicable to foreign private issuers, and in accordance therewith will file
reports, including annual reports on Form 20-F, and other information with the
Commission. In addition, we have agreed to file with the Commission quarterly
reports, which will include unaudited quarterly consolidated financial
information, on Form 6-K for the first three quarters of each fiscal year and
our annual report on Form 20-F within the time period prescribed under Section
13 of the Exchange Act for the filing by domestic issuers of quarterly reports
on Form 10-Q and an annual report on Form 10-K, respectively. Such reports and
other information may be obtained, upon written request, from The Bank of New
York, as Depositary, at its Corporate Trust Office located at 101 Barclay
Street, New York, NY 10286.
Price-sensitive information will be made available to investors in Europe
through the Easdaq Regulatory Company Reporting System and international
information vendors. You can request from us a copy of the latest version of our
71
<PAGE>
Articles of Association and our annual financial statements by contacting us at
24-28 Avenue de General de Gaulle, 92156 Suresnes Cedex, France, telephone
number 33-1-42-04-8400 and telefax number 31-1-42-04-8484.
72
<PAGE>
ACTIVCARD S.A.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at December 31, 1997, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statement of Changes in Shareholders' Equity
(Deficit) for the years ended December 31, 1997, 1998 and
1999...................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Directors and Shareholders
ActivCard S.A.
We have audited the accompanying consolidated balance sheets of ActivCard S.A.
and subsidiaries as of December 31, 1997, 1998 and 1999 and the related
consolidated statements of operations, changes in shareholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1999. The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 1997, 1998 and 1999, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG Audit
John Mackey
Paris, France
February 10, 2000
F-2
<PAGE>
ACTIVCARD S.A.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
------------------------------
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. 5,291 4,150 8,790
Accounts receivable (less allowance for doubtful account
of $134 in 1997, $89 in 1998 and $248 in 1999).......... 2,202 2,512 2,576
Unbilled work-in-process.................................. 457 18 27
Research and development tax credit receivable--current
portion................................................. 249 34 80
Inventory................................................. 771 1,133 1,224
Prepaid expenses.......................................... 478 469 906
Value-added tax recoverable............................... 804 699 496
Advances to suppliers..................................... 42 206 237
Other current assets...................................... 62 81 62
------- ------- -------
Total current assets........................................ 10,356 9,302 14,398
------- ------- -------
Property and equipment:
Office and computer equipment............................. 1,051 1,458 1,728
Furniture and fixtures.................................... 1,055 1,036 806
------- ------- -------
Total property and equipment.............................. 2,106 2,494 2,534
------- ------- -------
Less accumulated depreciation and amortization............ (1,109) (1,457) (1,646)
------- ------- -------
Property and equipment-net.................................. 997 1,037 888
------- ------- -------
Other assets:
Research and development tax credit receivable............ 826 1,325 691
Other long-term assets.................................... 872 711 457
------- ------- -------
Total assets................................................ 13,051 12,375 16,434
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Currents liabilities:
Short-term debt and current portion of long-term debt..... 1,381 1,426 1,419
Accounts payable.......................................... 2,073 2,075 2,090
Accrued payroll and related benefits...................... 1,231 1,637 1,885
Advances from customers................................... 70 78 211
Value-added tax payable................................... 472 262 218
Accrued expenses.......................................... 36 424 130
------- ------- -------
Total current liabilities................................... 5,263 5,902 5,953
------- ------- -------
Long-term debt, less current portion........................ 2,321 1,343 198
Convertible loan, less current portion...................... 8,030 8,030 9,259
Other long-term liabilities................................. 428 105 32
Commitments and contingencies (see notes 1,5,9,10 and 11)
Shareholders' equity (deficit)
Ordinary shares, FRF 6.25 nominal value 15,529,246,
20,872,438 and 32,090,026 shares issued and outstanding
at December 31, 1997, 1998 and 1999, respectively....... 18,969 24,576 36,339
Additional paid-in capital................................ 21,188 25,836 34,483
Accumulated deficit....................................... (41,430) (51,728) (67,640)
Deferred stock compensation............................... (420) (272) (124)
Accumulated translation adjustment........................ (1,298) (1,417) (2,066)
------- ------- -------
Total shareholders' equity (deficit)........................ (2,991) (3,005) 992
------- ------- -------
Total liabilities and shareholders' equity (deficit)........ 13,051 12,375 16,434
======= ======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE>
ACTIVCARD S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
---------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Products.............................................. 6,210 7,624 9,976
Engineering services.................................. 1,357 642 286
----------- ----------- -----------
Total revenues.......................................... 7,567 8,266 10,262
Cost of revenue:
Products.............................................. 3,470 4,564 5,099
Engineering services.................................. 1,356 659 238
----------- ----------- -----------
Total cost of revenue................................... 4,826 5,223 5,337
----------- ----------- -----------
Gross profit............................................ 2,741 3,043 4,925
----------- ----------- -----------
Costs and expenses
Research and development.............................. 3,281 3,888 5,233
Marketing and selling................................. 7,210 7,042 9,829
General and administrative............................ 2,317 2,504 5,603
----------- ----------- -----------
Total costs and expenses................................ 12,808 13,434 20,665
----------- ----------- -----------
Loss from operations.................................... (10,067) (10,391) (15,740)
----------- ----------- -----------
Interest expenses....................................... (301) (702) (743)
Interest income......................................... 142 179 294
Foreign exchange gain (loss)............................ (22) 163 262
----------- ----------- -----------
Financial income (expenses), net........................ (181) (360) (187)
----------- ----------- -----------
Loss before income taxes and minority interest.......... (10,248) (10,751) (15,927)
Income tax benefit...................................... 714 452 15
----------- ----------- -----------
Net loss before minority interest....................... (9,534) (10,299) (15,912)
Minority interest....................................... 32 1 --
----------- ----------- -----------
Net loss................................................ (9,502) (10,298) (15,912)
=========== =========== ===========
Basic and diluted net loss per share.................... (0.61) (0.55) (0.55)
=========== =========== ===========
Number of shares used in computing basic and diluted net
loss per share........................................ 15,460,178 18,618,463 29,114,715
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE>
ACTIVCARD S.A.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ACCUMULATED
ORDINARY SHARES ADDITIONAL DEFERRED OTHER SHAREHOLDERS'
--------------------- PAID-IN ACCUMULATED STOCK COMPREHENSIVE EQUITY
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION LOSS (DEFICIT)
---------- -------- ---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1997......... 15,340,516 18,768 21,281 (31,928) (707) (647) 6,767
Exercise of warrants at FF6.25
per share..................... 174,280 185 185
Exercise of complementary rights
at FF25.28 per share.......... 7,375 8 24 32
Exercise of complementary rights
at FF25.50 per share.......... 7,075 8 23 31
Amortization of deferred
compensation.................. 147 147
Cancellation of warrants........ (140) 140 --
Comprehensive loss:
Net loss for 1997............. (9,502)
Foreign currency
translation................. (651)
Total Comprehensive Loss........ (10,153)
---------- ------ ------ -------- ----- ------- --------
BALANCE DECEMBER 31, 1997....... 15,529,246 18,969 21,188 (41,430) (420) (1,298) (2,991)
Issuance of ordinary shares at
$2.00
per share, less offering
expenses...................... 4,658,773 4,873 4,069 8,942
Exercise of warrants at FF6.25
per share..................... 404,960 441 441
Exercise of warrants at FF24.80
per share..................... 124,616 129 389 518
Exercise of complementary rights
at FF25.50 per share.......... 11,055 11 34 45
Exercise of complementary rights
at FF25.28 per share.......... 10,608 11 33 44
Exercise of complementary rights
at $2.00 per share............ 133,180 142 123 265
Amortization of deferred
compensation.................. 148 148
Comprehensive loss:
Net loss for 1998............. (10,298)
Foreign currency
translation................. (119)
Total Comprehensive Loss........ (10,417)
---------- ------ ------ -------- ----- ------- --------
BALANCE DECEMBER 31, 1998....... 20,872,438 24,576 25,836 (51,728) (272) (1,417) (3,005)
Issuance of ordinary shares at
$1.25
per share, less offering
expenses...................... 8,303,179 8,895 830 9,725
Issuance of ordinary shares at
FF6.25 per share.............. 480,000 480 1,920 2,400
Exercise of warrants at $4.60
per share..................... 52,152 52 188 240
Exercise of warrants at FF24.80
per share..................... 126,074 124 380 504
Exercise of complementary rights
at FF25.50 per share.......... 5,119 5 16 21
Exercise of complementary rights
at FF25.28 per share.......... 5,337 5 17 22
Exercise of complementary rights
at $2.00 per share............ 345,094 338 351 689
Exercise of complementary rights
at $1.25 per share............ 648,425 641 170 811
Exercise of stock options at
$4.65 per share............... 264,847 255 976 1,231
Exercise of stock options at
$4.03 per share............... 492 1 1 2
Exercise of stock options at
$1.67 per share............... 2,500 2 2 4
Conversion of bonds to shares at
$4.60 per share............... 984,369 965 3,452 4,417
Issuance of detachable warrants
from October.................. 344 344
Amortization of deferred
compensation.................. 148 148
Comprehensive loss:
Net loss for 1999............. (15,912)
Foreign currency
translation................. (649)
Total Comprehensive Loss........ (16,561)
---------- ------ ------ -------- ----- ------- --------
BALANCE DECEMBER 31, 1999....... 32,090,026 36,339 34,483 (67,640) (124) (2,066) 992
========== ====== ====== ======== ===== ======= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE>
ACTIVCARD S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... (9,502) (10,298) (15,912)
Adjustments to reconcile net loss to net cash used by
operating activities:
Deferred compensation on issuance of options and
warrants................................................ 147 148 148
Deferred compensation on issuance of shares............... -- -- 2,400
Depreciation and amortization............................. 716 745 1,164
(Gain) loss on disposal of property and equipment......... -- -- 17
Minority interest......................................... (31) (1) (4)
Increase (decrease) in cash from:
Accounts receivable....................................... 1,344 (149) (452)
Unbilled work-in progress................................. (338) 448 (13)
Inventory................................................. (376) (293) (270)
Prepaid expenses.......................................... (302) 39 (663)
Value-added tax recoverable............................... 79 153 111
Advances to suppliers..................................... 77 (153) (65)
Other current assets...................................... 41 (14) 8
Research and development tax credit receivable............ (664) (199) (16)
Accounts payable.......................................... (667) (136) 332
Accrued payroll and related benefits...................... (136) 303 516
Advances from customers................................... (104) 4 154
Value-added tax payable................................... (78) (230) (8)
Accrued expenses.......................................... (173) 350 (331)
Other..................................................... 194 (295) (63)
------ ------- -------
Net cash flows from operating activities.................... (9,773) (9,578) (12,947)
------ ------- -------
Cash flows from investing activities:
Purchases of property and equipment....................... (62) (589) (265)
Proceeds from sale of property and equipment.............. -- -- 10
------ ------- -------
Net cash flows from investing activities.................. (62) (589) (255)
------ ------- -------
Cash flows from financing activities:
Change in bank overdrafts................................. (267) (21) (29)
Proceeds from financing of receivables.................... 275 -- --
Repayment of financing of receivables..................... (1,497) -- 47
Proceeds from convertible loan............................ 8,030 -- 5,656
Proceeds from issuance of detachable warrants............. -- -- 344
Proceeds from loans from third parties.................... 111 -- --
Repayment of loans from third parties..................... (342) (737) (784)
Principal payments on capital lease obligations........... (172) (296) (273)
Cash proceeds from exercise of warrants, complementary
rights and stock options................................ 248 1,313 3,526
Cash proceeds from sale of ordinary shares................ -- 8,942 9,725
------ ------- -------
Net cash flows from financing activities.................... 6,386 9,201 18,212
------ ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (853) (175) (370)
------ ------- -------
Net increase (decrease) in cash and cash equivalents........ (4,302) (1,141) 4,640
------ ------- -------
Cash and cash equivalents, beginning of period.............. 9,593 5,291 4,150
------ ------- -------
Cash and cash equivalents, end of period.................... 5,291 4,150 8,790
====== ======= =======
Supplemental cash flow information:
Interest paid............................................. (119) (732) (745)
Non cash financing activities:
Common stock issued upon conversion of convertible
loan.................................................. -- -- 4,417
Fixed assets acquired under capital leases.............. 367 -- 279
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1.1 NATURE OF BUSINESS
ActivCard S.A. is organized as a societe anonyme, or limited liability
corporation, under the laws of the Republic of France. ActivCard S.A. and its
subsidiaries comprise the ActivCard Group (the "Company"), which was founded in
1985. The Company develops, manufactures, markets and supports token-based and
smart-card-based authentification solutions for computer and communication
network security. The Company also provides contract engineering services to
third parties.
1.2 BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying footnotes. Actual results could differ from those estimates.
The accompanying consolidated financial statements include the Company and its
subsidiaries in France (ActivCard Europe S.A. and ADV Technologies S.A.), the
United States (ActivCard, Inc.) and Singapore (ActivCard Asia Pte Ltd.) after
eliminating all intercompany accounts and transactions.
1.3 TRANSLATION OF FINANCIAL STATEMENTS OF FOREIGN ENTITIES
The reporting currency of the Company and its subsidiaries is the U.S. dollar.
All assets and liabilities in the balance sheets of entities whose functional
currency is other than the U.S. dollar are translated into U.S. dollar
equivalents at exchange rates as follows: (1) asset and liability accounts at
year-end rates and (2) income statement accounts at weighted average exchange
rates for the year.
Translation gains or losses are recorded in shareholders' equity and transaction
gains and losses are reflected in net income. The Company has not undertaken
hedging transactions to cover its currency translation exposure.
1.4 REVENUE RECOGNITION
Revenue from the sale of hardware products is recognized upon shipment of the
product, provided that no significant obligations remain and collection of the
receivable is considered probable.
Beginning in January 1998, the Company adopted Statement of Position 97-2
"Software Revenue Recognition" as amended by Statement of Position 98-4. In
software arrangements that include rights to multiple software products,
maintenance and/or other services, the Company allocates the total arrangement
fee among each deliverables determined based on vendor-specific evidence.
Revenue from the sale of software licences is recognized upon delivery of the
software product, unless fee is not fixed or determinable or collectibility is
not probable. Revenue allocable to maintenance is recognized on a straight-line
basis over the period the maintenance is provided.
Revenue from engineering services is recognized in accordance with the
percentage-of-completion method and to the extent that such revenue is derived
from services provided pursuant to a signed contract. The extent of progress
toward completion is measured by actual hours incurred compared to estimated
total hours and is valued at the cost of hours incurred plus the prorata portion
of the estimated total margin. Contracts include both services provided on a
fixed-price basis and services invoiced based on days worked. Anticipated
contract losses are recorded in the earliest period in which such losses become
probable.
F-7
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues from engineering services typically are billed as specified milestones
are attained, but may be billed in advance in some cases. Substantially all
advances from customers recorded as liabilities at the balance sheet date are
related to engineering services. Unbilled work-in-process is recorded as an
asset at the balance sheet date.
1.5 SALES RETURNS AND WARRANTIES
Any potential sales returns are covered by the Company's allowance for sales
returns and doubtful accounts. An allowance for sales returns of $45, $32 and
$31 has been accrued at December 31, 1997, 1998 and 1999, respectively. The
Company provides for the costs of warranty in excess of its own warranty
coverage provided to the Company by the product assembly contractors.
1.6 CONCENTRATION OF RISK
The Company sells its products to various companies across several industries.
The Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses, and such losses have been within
management's expectations. The activity in the allowance for doubtful accounts
may be summarized as follows:
<TABLE>
<CAPTION>
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Allowance balance at January 1.............................. 155 134 89
Amounts charged to expense.................................. 386 87 195
Amounts written off......................................... (407) (132) (35)
---- ---- ---
Allowance balance at December 31............................ 134 89 249
==== ==== ===
</TABLE>
The Company generally requires no collateral, but may request letters of credit
as collateral in certain circumstances.
As of December 31, 1999, the Company contracts for the manufacture and assembly
of its token with a supplier located in China and another located in Singapore.
The microcontroller chips contained in the Company's token are purchased from a
sole source supplier in South Korea. The Company believes that alternate
manufacturers can be identified if current manufacturers are unable to meet the
Company's requirements.
1.7 NET LOSS PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). Dilutive options and
warrants did not have an effect on the computation of diluted loss per share in
1997, 1998 and 1999 since they were anti-dilutive.
1.8 CASH EQUIVALENTS
The Company considers all highly liquid investments with insignificant interest
rate risk and purchased with an original maturity of three months or less to be
cash equivalents. The Company classifies investments, based on the nature of the
securities and the intent and investment goal of the Company, as trading
securities, available-for-sale securities or held to maturity securities. At
December 31, 1998 and 1999, the Company also respectively held $1,557 and $1,481
of available for sale securities, which were classified as cash equivalents.
Fair value of such securities approximated book value and there were no
unrealized gains or losses as of December 31, 1998 and 1999. The
F-8
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company had no investments as of December 31, 1997. Gross realized gains and
losses on sales of available-for-sale securities during 1997, 1998 and 1999 were
immaterial.
1.9 INVENTORIES
Inventories consist of finished goods and of components, which are stated at the
lower of cost (first-in, first-out method) or market.
1.10 PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
computed using principally the straight-line method over estimated useful lives
of three to five years. Assets under capital leases are amortized over the
shorter of the asset life or the lease term, amortization of such leases is
included in depreciation expense.
1.11 RESEARCH AND DEVELOPMENT EXPENSE AND CAPITALIZATION OF SOFTWARE COSTS
Research and development costs are expensed as incurred. In accordance with
Statement of Financial Accounting Standards No. 86, the Company capitalizes
eligible computer software costs upon achievement of technological feasibility
subject to net realizable value considerations. The Company has defined
technological feasibility as completion of a working model. As of December 31,
1997, 1998, and 1999 such capitalizable costs were insignificant. Accordingly,
the Company has not capitalized any costs and charged all such costs to research
and development expenses.
1.12 INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109, the
liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates that will be in effect when the differences are
expected to reverse.
1.13 EMPLOYEE STOCK OPTIONS
In 1996, the Company adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation". As permitted by SFAS 123, the Company has elected to continue to
account for its employee stock option plans in accordance with the provisions of
the Accounting Principles Board No. 25 (APB 25), "Accounting for Stock Issued to
Employees". Under APB 25, when the exercise price of the Company's employee
stock options is less than the market price of the underlying shares at the date
of grant, compensation expense is recognized.
1.14 COMPREHENSIVE INCOME
In 1997, the Company adopted SFAS No. 130, "Reporting Comprehensive Income".
This Statement establishes rules for the reporting of comprehensive income and
its components. Comprehensive Income consists of net income and foreign currency
translation adjustments and is presented in the Consolidated Statement of
Shareholders' Equity. The adoption of SFAS 130 had no impact on total
shareholders' equity. Prior year financial statements have been reclassified to
conform to the SFAS 130 requirements.
F-9
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1.15 SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (Statement
131). Statement 131 superseded FASB Statement No. 14, Financial Reporting for
Segments of a Business Enterprise. Statement 131 establishes standards for the
way that public business enterprise report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports.
Statement 131 also establishes standards for related disclosures about products
and engineering services, geographic areas, and major customers. The adoption of
Statement 131 did not affect results of operations or financial position and did
not affect the disclosure of segment information. See note 11.
1.16 RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standard Board issued Statement No. 133,
"Accounting for the Derivative Instruments and Hedging Activities". The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. This statement is effective for fiscal years beginning
after June 15, 2000, and will be adopted by the Company for the year ending
December 31, 2001. The management does not anticipate that the adoption of the
new Statement will have a significant effect on the Company's revenues and
earnings, as the Company currently does not have any derivative instruments.
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" (SOP 98-9) was issued in
December 1998 and addresses software revenue recognition as it applies to
certain multiple-element arrangements. SOP 98-9 also amends Statement of
Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2" to
extend the deferral of application of certain passages of Statement of Position
97-2 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years after March 15, 1999. The Company will comply with the requirements of SOP
98-9 as they become effective and this is not expected to have a significant
effect on the Company's revenues and earnings.
2. PROPERTY AND EQUIPMENT
Changes in property and equipment for the periods presented were as follows:
<TABLE>
<CAPTION>
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period.............................. 2,438 2,106 2,494
Acquisitions of property and equipment...................... 62 589 265
Acquisitions of property and equipment under capital
leases.................................................... 367 -- 279
Retirement of assets (1).................................... (575) (311) (291)
Translation adjustment...................................... (186) 110 (213)
----- ----- -----
Balance at end of period.................................... 2,106 2,494 2,534
===== ===== =====
</TABLE>
(1) The retirement of assets mainly consist of assets fully amortized and
scrapped, in particular during the relocation of the French headquarters in
1997 and following fixed assets physical counts done in 1998 and 1999.
F-10
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
2. PROPERTY AND EQUIPMENT (CONTINUED)
Changes in accumulated depreciation for the periods presented were as follows:
<TABLE>
<CAPTION>
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Accumulated depreciation at beginning of period............. (1,220) (1,109) (1,457)
Depreciation................................................ (543) (574) (590)
Reversals................................................... 528 296 264
Translation adjustment...................................... 126 (70) 137
------ ------ ------
Accumulated depreciation at end of period................... (1,109) (1,457) (1,646)
====== ====== ======
</TABLE>
3. RELATED PARTY TRANSACTIONS
In 1998, Mr. Spillmann, a member of the Company's Board of Directors
representing Bryan Garnier and Co., entered into two underwriting agreements to
place two entire rights issues. Mr Spillmann conducted all transactions
connected with these underwritings on an arms length basis. Bryan Garnier and
Co. received 3 % commission, amounting to $280, on gross proceeds for the first
rights issue and 6.5 % commission, amounting to $675, on gross proceeds for the
second rights issue. These commissions reflected markets conditions and
complexity of placing the shares for the Company.
In 1999, Mr. Spillmann entered into an underwriting agreement to place an entire
rights issue consisting of an aggregate of $6,000 principal amount of
non-interest bearing convertible bonds due October 15, 2001 and warrants to
purchase an aggregate of 1,200,000 shares at an exercise price of $5.00 per
share. Bryan Garnier and Co. received 6% commission, amounting to $360 on gross
proceeds for the issuance.
4. SHORT-TERM AND LONG-TERM DEBT
Short-term debt, all of which is denominated in French francs, is composed of
bank overdrafts amounted to $54, $36 and $5 for the years ended December 31,
1997, 1998 and 1999, respectively.
In 1997 and 1998, The Company factored certain receivables for which the
sponsoring banks have recourse against the Company. The Company recorded a
liability that is included in short-term debt until the receivable is collected
by the bank. The amounts factored during 1997 and 1998 and secured by trade
receivables in the same amount totalled $275 and $32, respectively. In 1999, the
company did not factor receivables.
F-11
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
4. SHORT-TERM AND LONG-TERM DEBT (CONTINUED)
The following table presents a summary of long-term debt, substantially all of
which is denominated and repayable in French francs:
<TABLE>
<CAPTION>
------------------------------
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Convertible loan, 7.75%..................................... 8,341 8,344 3,630
Non-interest bearing convertible bonds...................... -- -- 5,759
Interest free loan on license purchase...................... 850 650 350
Bank loans, 7.75%, payable in installments through 1999..... 336 90 7
Interest free loan from Anvar, payable in installments
through 1998(1)............................................ 584 357 --
Interest free loan from Coface, payable in installments
through 1999(2)............................................ 826 860 661
Capital lease obligations(3)................................ 737 462 464
Other....................................................... 4 -- --
------ ------ ------
Total long-term debt........................................ 11,678 10,763 10,871
Less current portion........................................ (1,327) (1,390) (1,414)
------ ------ ------
Long-term debt, net......................................... 10,351 9,373 9,457
</TABLE>
- ------------------------------
(1) Anvar is an agency of the French government that provides financing to
french companies for research and development.
(2) Coface is a French state-controlled entity that provides financing to french
companies to encourage exports and international expansion. The timing of
loan repayments is based on sales realized by the U.S. subsidiary. The first
repayment was scheduled for 1997; subsequent repayments will be made through
2000.
(3) The Company leases certain of its equipment under capital leases.
Capitalized costs of approximately $1,263, $1,350 and $1,239 are included in
property and equipment at December 31, 1997, 1998 and 1999, respectively.
Accumulated amortization of these leased assets was approximately $613, $913
and $892 at December 31, 1997, 1998 and 1999 respectively.
Future payments of long-term debt, excluding capital lease obligations, for the
years ending December 31 are as follows:
<TABLE>
<CAPTION>
-------------
DECEMBER 31,
-------------
<S> <C>
2000........................................................ 1,148
2001........................................................ 5,759
2002........................................................ 3,500
</TABLE>
F-12
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
4. SHORT-TERM AND LONG-TERM DEBT (CONTINUED)
Future minimum lease payments under capital lease obligations due for the fiscal
years ending December 31 are as follows:
<TABLE>
<S> <C>
2000........................................................ 286
2001........................................................ 147
2002........................................................ 71
2003........................................................ --
Total minimum lease payments................................ 504
Less amount representing interest........................... (40)
----
Present value of net minimum lease payments................. 464
Less current portion........................................ (238)
----
Long-term portion........................................... 226
</TABLE>
Interest paid in the years ended December 31, 1997, 1998 and 1999 approximated
interest expense.
In July 1997, the Company issued 603 convertible bonds for cash proceeds of
$6,030. A complementary issuance of 200 convertible bonds took place in
October 1997, for cash proceeds of $2,000. These bonds bear interest at a rate
of 7.75% payable on a six-monthly basis. The conversion price of each bond is
$4.60 per share and is based on the average price on Easdaq, i.e. each bond
giving right to 2,173 shares of the Company. In 1999, 453 bonds amounted to
$4,530 have been converted into 984,369 shares. As of December 31, 1999, 350
bonds giving right to conversion into 760,550 shares were outstanding.
On October 15, 1999, the Company issued units consisting of an aggregate of $6.0
million principal amount of non-interest bearing convertible bonds due
October 15, 2001 and warrants to purchase an aggregate of 1,200,000 shares at an
exercise price of $5.00 per share. The bonds are convertible into 300,000 shares
at any time on or after the earlier of April 15, 2000 and the consummation of
the offering of the company on the Nasdaq, and can be redeemed prior to maturity
at redemption prices ranging from 103% to 112% of their principal amount. The
fair value of the detachable warrants of $344 has been recorded as additional
paid-in capital as a direct deduction from the principal amount of the bonds,
determined on the basis of the value of the bonds with no such warrants issued
at an effective interest rate of 9%.
5. SHAREHOLDERS' EQUITY
5.1 GENERAL
In April and May 1997, the Company issued 174,280 ordinary shares at FF6.25
($1.04) per share resulting from the exercise of warrants issued in
September 1995. Consequently, the former warrantholders exercised their
complementary rights to obtain 7,375 new shares reserved under statutory
antidilution laws in August 1996 at a price of $5.00 per share and 7,075 new
shares reserved under statutory antidilution laws in November 1996 at a price of
$5.00 per share.
In March 1998, the Company issued 4,658,773 ordinary shares at $2.00 per share
resulting from a capital increase with preferential subscription right. Two
notable investors in the rights offering were Jean-Gerard Galvez, Chairman,
President & CEO of ActivCard, and 3i plc, a major venture capital firm in
Europe. Mr. Galvez acquired 1,709,609 shares, while 3i plc acquired 450,000
shares, both in the rights offering and open market.
F-13
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
5. SHAREHOLDERS' EQUITY (CONTINUED)
Following the March 1998 capital increase, 815,321 complementary rights were
created for bondholders and warrantholders. At December 31, 1998, the number of
existing complementary rights under this category was 620,712. In 1999, 345,094
complementary rights were exercised and 15,684 were cancelled. At December 31,
1999, the number of existing complementary rights under this category was
259,934.
In April, June, November and December 1998, the Company issued 529,576 ordinary
shares with a nominal value at FF6.25 per shares resulting from the exercise of
warrants issued in September 1995 and December 1995. Complementary rights were
exercised to obtain 154,843 ordinary shares reserved under statutory
antidilution laws in August 1996, October 1996 and March 1998.
In December 1998, the Board met with the authorization of the shareholders
meeting and decided to issue a capital increase of 8,303,179 ordinary shares at
$1.25. The subscription began in January 1999, with the shares issued in
February 1999. Net cash proceeds after offering expenses amounted to $9,725.
1,259,005 complementary rights were created for bondholders and warrantholders,
with 84,579 cancelled. At December 31, 1998, the number of existing
complementary rights under this category was 1,174,426. During 1999 648,425
complementary rights were exercised and 29,442 were cancelled. At December 31,
1999, the number of existing complementary rights under this category was
496,559.
In July 1999, the Company issued 480,000 reserved ordinary shares authorized by
the May 19, 1999 shareholders meeting with the nominal value at FF6.25 in
connection with the Ken Fineman litigation (see note 10).
In February, November and December 1999, the Company issued 984,369 ordinary
shares with the nominal value at FF6.25 per shares resulting from the conversion
of 453 convertible bonds issued in 1997.
In February, November and December 1999, the Company issued 1,003,975 shares
with the nominal value at FF6.25 per shares resulting from the exercised of
complementary rights authorized by the August 1996, October 1996, March 1998 and
December 1998 shareholders meetings.
In November and December 1999, the Company issued 178,226 shares with the
nominal value at FF6.25 per shares resulting from the exercised of warrants
authorized by the December 1995 and June 1997 shareholders meetings.
In December 1999, the Company issued 267,839 shares with the nominal value at
FF6.25 per shares resulting from the exercised of 1997 and 1998 stock option
plan.
At December 31, 1999 the issued and outstanding share capital of the Company
consisted of 32,090,026 ordinary shares.
5.2 PREEMPTIVE SUBSCRIPTION RIGHTS
Shareholders have preemptive rights to subscribe for additional shares issued by
the Company for cash on a pro rata basis. Shareholders may waive such preemptive
subscription rights at an extraordinary general meeting of shareholders under
certain circumstances. Preemptive subscription rights, if not previously waived,
are transferable during the subscription period relating to a particular offer
of shares.
5.3 DIVIDEND RIGHTS
Dividends may be distributed from the statutory retained earnings, subject to
the requirements of French law and the Company's by-laws. The Company has not
distributed any dividends since its inception and had no distributable
F-14
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
5. SHAREHOLDERS' EQUITY (CONTINUED)
retained earnings at December 31, 1999. The accumulated deficit for statutory
purposes totalled $9,211 at December 31, 1999 which represents the accumulated
deficits in the statutory financial statements.
Dividend distributions, if any, will be authorized in French francs and may be
paid in any currency.
5.4 STOCK OPTIONS AND WARRANTS
In December 1995, the shareholders approved the grant of warrants to certain
executive shareholders and to a member of the Board of Directors to purchase
respectively 192,920 and 205,040 ordinary shares at a price of FF24.80 ($3.80);
determination of the vesting and expiration was delegated to the Board of
Directors. At its February 23, 1996 meeting, the Board determined that vesting
would occur one third per year, starting from the date of entry into the
Company, and that the warrants would expire on December 31, 1999. The warrant
exercise price being equal to the conversion price of the convertible loan
instrument negotiated on December 22, 1995 with a third party, such warrant
price was determined to be equal to the fair value of an ordinary share on the
date of grant of the warrants. In May and June 1996, the Company cancelled the
warrants to subscribe for 205,040 ordinary shares issued to a resigning director
and granted warrants to subscribe for 35,000 ordinary shares to a new Board
member and warrants to subscribe for 170,040 ordinary shares to the Chairman,
President and CEO of the Company, of which 135,040 were contingent upon the
realization of an initial public offering of the Company's ordinary shares. All
205,040 warrants vest over four years and were exercisable at FF24.80 ($3.80)
per ordinary share. The difference between the exercise price and the fair value
of the underlying non-contingent shares on the date of grant (estimated between
$8.00 and $9.40) was recorded as deferred compensation expense and was amortized
over the vesting period. As of December 31, 1997, warrants for 60,640 shares had
been cancelled and warrants for 337,320 shares were remaining. In 1998, 124,616
shares were exercised and 44,120 were cancelled. As of December 31, 1998,
168,584 warrants were remaining. In 1999, 126,074 shares were exercised and
42,510 warrants were remaining as of December 31, 1999.
In July 1996, the shareholders of the Company authorized the creation of a share
warrant plan, as amended in September 1996, granting to the directors of the
Company warrants to subscribe for 105,000 ordinary shares. As of December 31,
1997, warrants for 35,000 shares had been cancelled and warrants for 70,000
shares were outstanding under the share warrant plan vesting over a period of
four years and exercisable at FF51.50 ($7.89) per share. None have been
exercised. In 1999, warrants for 35,000 shares have been cancelled. As of
December 31, 1999, warrants for 35,000 shares were remaining.
In August 1996, following the issuance of 500,000 new shares at a price of $5.00
per share, bond and warrant holders at that date were granted complementary
rights to subscribe to an aggregate of 85,291 ordinary shares at a price of
$5.00 per share under statutory antidilution laws. In October 1996, following
the issuance of 500,000 convertible bonds at a price of $5.00 per bond, bond and
warrant holders at that date were granted complementary rights under statutory
antidilution laws to subscribe to an aggregate of 84,670 bonds convertible to
84,670 ordinary shares at a price of $5.00 per share. Such complementary rights
may be exercised upon conversion of the underlying bonds or exercise of the
underlying warrants. In December 1996, following the conversion of the 1,038,440
bonds issued in January 1996 into 1,038,440 ordinary shares, the former
bondholders exercised their complementary rights to obtain 43,941 new shares and
42,157 new bonds. In April and May 1997, following the exercise of warrants
issued in September 1995, the former warrantholders exercised their
complementary rights to obtain 7,375 new shares and 7,075 new bonds.
Complementary rights for 2,566 shares and 2,462 bonds have been cancelled. On
December 31, 1997, 31,409 complementary share rights and 32,976 complementary
bond rights were remaining of which 31,409 and 30,134, respectively, benefit
employees. In April, June, November and December 1998, following
F-15
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
5. SHAREHOLDERS' EQUITY (CONTINUED)
the exercise of warrants issued in September 1995 and December 1995, the former
warrantholders consequently exercised complementary rights to obtain 11,055 and
10,608 ordinary shares reserved respectively under statutory antidilution laws
in August 1996 and October 1996. In 1998, 13,219 and 12,681 complementary rights
were cancelled. In 1998, complementary rights to obtain 5,337 and 5,119 shares
were exercised respectively under statutory antidilution laws in August 1996 and
October 1996. On December 31, 1998, 7,135 complementary share rights and 9,687
complementary bond rights were remaining. In 1999, 1,421 complementary rights
were cancelled. On December 31, 1999, 1,798 complementary share rights and 3,147
complementary bond rights were remaining.
In June 1997, the shareholders of the Company authorized the creation of a 1997
stock option plan granting the Board of Directors of the Company the authority
to issue options to employees to subscribe for a maximum of 1,200,000 ordinary
shares, this amount including the options issued under the 1996 stock option
plan. Options for 312,750 shares were granted under the 1997 stock option plan
to employees subject to French regulations at FF35.54 ($5.75) per ordinary share
(vesting over a period of four years with the restriction that the employee may
not sell any share before the end of a five year period), and options for 2,500
shares were cancelled. Options for 821,500 shares were granted under the 1997
stock option plan to employees subject to US regulations at $5.75 per ordinary
share vesting over a period of four years and options for 152,000 shares were
cancelled. As of December 31, 1997, options for 310,250 shares to employees
subject to French regulation and options for 669,500 to employees subject to US
regulation are outstanding. In 1998, 74,250 shares were granted under the 1997
stock option plan to employees subject to US regulation at $5.75 and 145,250
shares were granted under the 1997 stock option plan to employees subject to
French regulation at $5.75. In 1998, following the March 1998 rights issue, the
number and price of the stock option granted under the 1997 stock option plan
have been adjusted. The stock has been repriced from $5.75 to $5.43 and the
number of shares increased 6 % for each option holder. As of December 31, 1998,
options for 426,916 shares to employees subject to French regulations and
options for 709,140 to employees subject to US regulation were outstanding.
These amounts included the March 1998 adjustment. In 1999, following the
January 1999 capital increase, pursuant to the December 1998 shareholders
meeting, the number and price of stock options granted under the 1997 stock
option plan have been adjusted. The exercise price was repriced from $5.43 to
$4.65, and the number of exercisable shares increased 17% for each option
holder. This increase is reflected in the amounts mentioned hereafter. In 1999,
employees subject to US regulations exercised 264,673 options at $4.65 and
employees subject to French regulations exercised 174 options at $4.65. At
December 31, 1999 options for 463,251 shares to employees subject to French
regulations were outstanding: 460,251 at $4.65, 3,000 at $19.75. At December 31,
1999 options for 697,674 shares to employees subject to US regulations were
outstanding: 514,174 at $4.65 and 183,500 at $19.75.
In June 1997, the shareholders of the Company authorized the creation of a share
warrant plan granting to the directors of the Company warrants to subscribe for
91,000 ordinary shares. As of December 31, 1997, warrants for 91,000 shares were
outstanding under the share warrant plan vesting over a period of four years and
exercisable at FF58.30 ($8.93) per share. In 1998, 75,000 warrants were
cancelled. As of December 31, 1998, 16,000 warrants were remaining. In 1999,
5,000 warrants were cancelled and 11,000 warrants were remaining as of
December 31, 1999.
In June 1997, the shareholders of the Company authorized the creation of
warrants conferring to Bryan Garnier and Co. and Cross Border, investment
bankers, the right to subscribe to convertible bonds of the Company in the
amount of up to 4% of the convertible bonds issued in July and October 1997. As
of December 31, 1997, following the issue of 803 convertible bonds giving right
to 1,744,919 shares, 32 warrants were outstanding giving right to 69,536 shares
at a price of $4.60 per share, to be exercised no later than five years after
their attribution. No bonds have
F-16
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
5. SHAREHOLDERS' EQUITY (CONTINUED)
been converted in 1998. In 1999, 24 warrants were exercised and converted into
52,152 shares. As of December 31, 1999, 8 warrants giving right to 17,384 shares
were remaining.
In June 1998, the Shareholders of the Company authorized the creation of a share
warrant plan granting to the Directors of the Company warrants to subscribe to
120,000 ordinary new shares of the Company. The warrants exercise price is
$5.75. These warrants may be exercised no later than five years after the date
of their issuance after which they will lose all validity. In 1998, 5,000
warrants were cancelled. As of December 31, 1998 115,000 warrants were
remaining. In 1999, 5,000 warrants were cancelled and 110,000 warrants were
remaining as of December 31, 1999.
In June 1998, the shareholders of the Company authorized the creation of a 1998
stock option plan granting the Board of Directors of the Company the authority
to issue options to employees to subscribe for a maximum of 1,200,000 ordinary
shares. The option exercise price will be set by the Board of Directors on the
date when the options are allocated. The subscription price shall be equal to
the average closing price quoted on a regulated stock exchange of a member State
of the ECDE during twenty trading days of the stock exchange prior to the
allocation date of the options. These options may be exercised no later than
seven years after their allocation. In 1998, 953,000 shares were granted under
the 1998 stock option plan to employees subject to US regulations and 112,100
shares were granted under the 1998 stock option plan to employees subject to
French regulations. As of December 31, 1998, options for 110,100 shares to
employees subject to French regulations and options were outstanding: 45,000 at
$5.75, 54,100 at $4.70 and 11,000 at $2.60. As of December 31, 1998, options for
889,000 shares to employees subject to US regulations and options were
outstanding: 632,500 at $5.75, 69,500 at $4.70 and 187,000 at $2.60. In 1999,
following the January 1999 capital increase, pursuant to the December 1998
shareholders' meeting, the number and price of stock options granted under the
1998 stock option plan have been adjusted. The different exercise prices were
repriced from $5.75 to $4.93, from $4.70 to $4.03 and from $2.60 to $2.23 and
the number of exercisable shares increased 17% for each option holder. This
increase is reflected in the amounts mentioned hereafter. In 1999, employees
subject to US regulations exercised 2,992 options: 492 at $4.03 and 2,500 at
$1.67. At December 31, 1999, options for 208,797 shares to employees subject to
French regulations were outstanding: 52,650 at $4.93, 56,277 at $4.03, 12,870 at
$2.23, 83,500 at $1.67 and 3,500 at $4.23. At December 31, 1999, options for
1,139,338 shares to employees subject to US regulations were outstanding:
740,025 at $4.93, 65,613 at $4.03, 187,200 at $2.23, 102,000 at $1.67 and 44,500
at $4.23.
In May 1999, the shareholders of the Company authorized the creation of a 1999
stock option plan granting the Board of Directors of the Company the authority
to issue options to employees to subscribe for a maximum of 1,100,000 ordinary
shares. The option exercise price will be set by the Board of Directors on the
date when the options are allocated. The subscription price shall be equal to
the average closing price quoted on a regulated stock exchange of a member State
of the ECDE during twenty trading days of the stock exchange prior to the
allocation date of the options. These options may be exercised no later than
seven years after their allocation. As of December 31, 1999, options for 407,860
shares to employees subject to French regulations were outstanding: 401,860 at
$4.23 and 6,000 at $5.00. As of December 31, 1999, options for 574,500 shares to
employees subject to US regulations and options were outstanding: 475,500 at
$4.23 and 99,000 at $5.00.
In May 1999, our shareholders authorized the creation of a share warrant plan
granting to our directors warrants to subscribe for 90,000 new ordinary shares.
The warrant exercise price was $4.14. These warrants may be exercised no later
than five years after the date of their issuance after which they will expire.
In 1999 10,000 warrants were cancelled. As of December 31, 1999 80,000 warrants
were remaining.
F-17
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
5. SHAREHOLDERS' EQUITY (CONTINUED)
On October 15, 1999, the Company issued units consisting of an aggregate of $6.0
million principal amount of non-interest bearing convertible bonds due
October 15, 2001 and warrants to purchase an aggregate of 1,200,000 shares at an
exercise price of $5.00 per share. No bonds have been converted or cancelled in
1999.
Pro forma information regarding net loss and loss per share is required by SFAS
123, and has been determined as if the Company had accounted for its employee
stock options and warrants under the fair value method of SFAS 123. The fair
value for these options and warrants was estimated at the date of grant using a
Black-Scholes option pricing model with the following average assumptions for
1999, 1998 and 1997, respectively: risk-free interest rates of 4%, for all years
dividend yield of 0% in all years; volatility factors of the expected market
price of the Company's ordinary shares of 0.67 for 1997, 0.69 for 1998 and 0.61
to 1.59 for 1999 and a weighted-average expected life of the options of 5.8
years.
For purposes of pro forma disclosures, the estimated fair value of the options
granted is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for loss per share
information):
<TABLE>
<CAPTION>
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss.......................................... (10,177) (11,376) (17,835)
Pro forma net loss per share (in U.S. dollars).............. (0.66) (0.61) (0.61)
</TABLE>
During the initial phase-in period, as required by SFAS 123, the pro forma
amounts were determined based on stock option grants in 1997, 1998 and 1999
only. Since pro forma compensation expense is recognized over vesting periods of
four years, the pro forma amounts for compensation cost may not be indicative of
the pro forma effects of application of SFAS 123 on net earnings (loss) and
earning (loss) per share for future years.
A summary of the Company's stock option and director warrant activity, and
related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1997 1998 1999
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS AND EXERCISE OPTIONS AND EXERCISE OPTIONS AND EXERCISE
WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year.... 1,683,950 $5.44 1,952,566 $4.77 2,574,275 $5.32
Granted........................... 1,294,786 $6.01 1,469,985 $5.13 3,078,206 $5.34
Exercized......................... (174,280) $1.04 (529,576) $1.89 (446,065) $4.39
Forfeited......................... (851,890) $8.22 (318,700) $6.32 (219,102) $4.45
--------- --------- ---------
Outstanding--end of year.......... 1,952,566 $4.77 2,574,275 $5.32 4,987,314 $5.09
Exercisable at end of year........ 583,838 $2.54 410,372 $5.46 808,324 $4.84
</TABLE>
F-18
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
5. SHAREHOLDERS' EQUITY (CONTINUED)
The weighted-average fair value of options and warrants granted during 1997,
1998 and 1999 was as follows:
<TABLE>
<CAPTION>
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Options whose price equalled market price of the
underlying shares on the grant date....................... -- -- --
Options whose price was less than the market price of the
underlying shares on the grant date....................... -- -- $1.52
Options whose price was greater than the market price of the
underlying shares on the grant date....................... $3.68 $1.99 $5.74
</TABLE>
The summary of stock options and warrants outstanding and exercisable as of
December 31, 1999 was as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ------------------------------
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING REMAINING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ---------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.67 - $4.03 629,970 5.34 $ 2.88 44,556 $3.22
$4.23 - $5.75 4,124,844 4.52 $ 4.75 732,018 $4.81
$9.20 - $10.41 46,000 1.92 $ 9.49 31,750 $9.41
$19.75 186,500 6.96 $19.75 -- $ --
</TABLE>
At December 31, 1999, in addition to shares reserved for the exercise of
outstanding options, 142,790 shares were reserved for future option grants.
In December 1996, the French parliament adopted a law that requires French
companies to pay French social contributions and certain salary-based taxes,
which may represent, for the Company, up to 43% of the taxable salary, on the
difference between the exercise price of a stock option and the fair market
value of the underlying shares on the exercise date if the beneficiary disposes
of the shares before a five-year period following the grant of the option. The
new law is consistent with personal income tax law that requires individuals to
pay income tax on the difference between the option exercise price and the fair
value of the shares at the grant date if the shares are sold or otherwise
disposed of within five years of the option grant. The law applies to all
options exercised after January 1, 1997 related to French resident employees.
The Company has not recorded a liability for social charges for options granted
as of December 31, 1999 as the French stock option plan prohibits any sale of
shares before a five year period.
6. INCOME TAXES
The income tax benefit in 1997, 1998 and 1999 amounted to $714, $452 and $15,
respectively, and related entirely to the current tax benefit in France. There
was no current tax related to the United States and Singapore subsidiaries and
no French, United States or Singapore deferred tax expense or benefit in any
year.
F-19
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
6. INCOME TAXES (CONTINUED)
A reconciliation of income tax benefit computed at the French statutory rate
(41.7% in 1997, 40.0% in 1998 and in 1999) to the income tax benefit recognized
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Income tax benefit computed at the French statutory rate.... 4,270 4,480 6,360
Operating losses not utilized............................... (4,270) (4,480) (6,360)
Research and development and training tax credit............ 723 460 15
Minimum tax payable......................................... (9) (8) --
------ ------ ------
Total income tax benefit.................................... 714 452 15
====== ====== ======
</TABLE>
Research and development credits are recoverable in cash in the fourth year
after the credit is earned, if the credit has not been applied against taxes
payable.
Significant components of the Company's deferred taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Deferred tax liabilities:
Provision for contingent payment deducted for tax
purposes.............................................. -- -- --
Deferred tax assets:
Net operating loss carryforwards........................ 14,209 17,702 19,373
Research and development capitalized for tax purposes... 42 30 6
Differences in amortization periods..................... 909 542 262
Other................................................... 357 231 450
------- ------- -------
Net deferred tax assets..................................... 15,517 18,505 20,091
Valuation allowance......................................... (15,517) (18,505) (20,091)
------- ------- -------
Deferred taxes, net......................................... -- -- --
======= ======= =======
</TABLE>
Due to its history of losses, the Company does not believe the recoverability of
net deferred tax assets is more likely than not. Consequently, the Company has
provided valuation allowances covering 100% of net deferred tax assets.
As of December 31, 1999, the Company has French net operating loss carryforwards
of approximately $29,171. Approximately $19,700 of these net operating loss
carryforwards will expire in the years 2000 through 2004. Remaining loss
carryforwards have no expiration date. The Company has U.S. net operating loss
carryforwards of approximately $20,358, which expire between 2011 and 2014. The
Company has net operating loss carryforward in Singapore of $2,670 with no
expiration date. These net operating loss carryforwards can only be used by the
legal entity generating the operating losses.
Taxes paid in the years ended December 31, 1997, 1998 and 1999 were
approximately $9, $8, and $10, respectively.
F-20
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
6. INCOME TAXES (CONTINUED)
In December 1999, the Company received the preliminary conclusion of a tax audit
related to the Parent Company ActivCard S.A. for the years 1996, 1997 and 1998.
The amounts reported in the reassessment notice received from the Tax
Authorities were not significant and have been recorded as liabilities.
7. EMPLOYEE RETIREMENT PLANS
The Company contributes to pensions for personnel in France and in Singapore in
accordance with local law, by contributing based on salaries to the relevant
government agencies. There exists no actuarial liability in connection with
these plans.
French law also requires payment of a lump sum retirement indemnity to all
employees based upon years of service and compensation at retirement. Benefits
do not vest prior to retirement. There is no formal plan and no funding of the
obligation is required. The Company's obligation is not material to its
financial condition, liquidity or results of operations as of December 31, 1997,
1998 and 1999 or for the years ended December 31, 1997, 1998 and 1999.
The U.S. subsidiary currently has no pension plan.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1997, 1998 and 1999, the carrying values of current financial
instruments such as cash, accounts receivable and payable, other receivables,
accrued liabilities and the current portion of long-term debt approximated their
market values, based on the short-term maturities of these instruments. At
December 31, 1997, 1998 and 1999, the fair values and carrying values of
long-term debt obligations were:
<TABLE>
<CAPTION>
---------------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
FAIR CARRYING FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE VALUE VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt................................ 9,539 10,351 8,255 9,373 10,947 9,698
</TABLE>
Fair value is determined based on expected future cash flows, discounted at
market interest rates.
F-21
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
9. OPERATING LEASE COMMITMENTS
The Company leases its facilities and certain equipment under operating leases,
which expire through 2008. Future minimum lease payments under operating leases
are as follows:
<TABLE>
<CAPTION>
-------------
YEAR ENDED
DECEMBER 31,
-------------
<S> <C>
2000........................................................ 596
2001........................................................ 447
2002........................................................ 419
2003........................................................ 387
2004........................................................ 400
2005........................................................ 408
2006........................................................ 420
2007........................................................ 433
2008........................................................ 73
</TABLE>
Rental expense for the years ended December 31, 1997, 1998 and 1999 was
approximately $487, $643 and $644, respectively.
10. CONTINGENCIES
In 1990, the Company acquired shares held by minority shareholders in ActivCard
Europe S.A. (formerly Telecash S.A.) for a price of $1,669, including cash
consideration of $417. Payment of the balance was to occur at an annual rate of
7% of the annual net profit of ActivCard Europe S.A. and its now inactive
subsidiary, Telecash International BV. The Company has now satisfied its
obligations to one of the former minority shareholders, and the balance owed to
the remaining former shareholders is 4.7% of the net income of ActivCard Europe
S.A. and its subsidiary annually up to a maximum of $834 in principal, plus
interest of 9% per year, to a maximum of $556. The Company has the option of
repaying this balance in advance. No liability has been recorded as payment is
not probable based on ActivCard Europe S.A. financial projections.
Pursuant to the terms of the agreement with the minority shareholders, in the
event that ActivCard Europe S.A. and Telecash International BV were not to make
any profit for six consecutive years beginning on January 1, 1992 and up to
December 31, 1997, the minority shareholders were either to give up their rights
to payment or to buy back from the Company the shares of ActivCard Europe S.A.
at a price equivalent to the amount initially received from the Company. Since
January 1, 1992, ActivCard Europe S.A. and Telecash International BV have not
made a profit during six consecutive years. The Company has recently agreed with
one of the former minority shareholders to reduce the amount owed to him to $314
with payment to occur at an annual rate of 1.6% of the annual net consolidated
profit of ActivCard S.A. limited to a six year period, beginning January 1,
1998, after which nothing is due. The remaining minority shareholder has either
to give up its rights to payment or to buy back from the Company the shares of
ActivCard Europe S.A. representing 0.15% of ActivCard Europe S.A. at a price of
$139. Due to the Company's history of losses, no liability has been recorded.
The probability of payment will be reassessed annually based on the likelihood
of any profit being generated prior January 1, 2004.
On October 31, 1997, an action was filed in the united States District Court for
the Northern District of California against the Company, its current U.S.
subsidiary, ActivCard, Inc., and three individuals who are either former or
current officers of the Company. The plaintiff was a former shareholder in the
Company's original U.S. subsidiary,
F-22
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
10. CONTINGENCIES (CONTINUED)
ActivCard Networks, Inc. merged into ActivCard, Inc. in June of 1996. The
lawsuit alleged violation of U.S. securities laws, breach of contract, breach of
fiduciary duty, fraud and conspiracy arising out this merger. Settlement
discussions started in late 1998 and in July 1999, an amicable settlement
agreement of all claims was signed. The impact of the settlement agreement
amounted to $3,038 was recorded at June 30, 1999 as a general and administrative
expense. The settlement agreement was composed of a $638 cash payment for legal
expenses and a grant of 480,000 shares valued at $2,400 using the listed price
on Easdaq at June 30, 1999 ($5.00 per share). The fair value of shares to be
issued at June 30, 1999 was included in the balance sheet caption "shares to be
issued". The capital increase reserved to Ken Fineman was authorized by the
May 19, 1999 shareholders' meeting and was fully subscribed on July 27, 1999.
The lawsuit was dismissed on August 12, 1999.
11. SEGMENT AND GEOGRAPHIC INFORMATION
The Company and its subsidiaries operate in two industry segments: security
products including smart cards-related products and token-related products used
to protect access to computer-based information resources and engineering
services. The following is a summary of operations by segment:
<TABLE>
<CAPTION>
-----------------------------------
TOTAL
SECURITY ENGINEERING CONTINUING
PRODUCTS SERVICES ACTIVITIES
-------- ----------- ----------
<S> <C> <C> <C>
1997
Net revenues.............................................. 6,210 1,357 7,567
Income tax benefit........................................ 714 -- 714
Income (loss) from operations............................. (9,509) (558) (10,067)
Financial income (expenses)............................... (181) -- (181)
Identifiable assets....................................... 11,333 1,718 13,051
Capital expenditures...................................... 55 7 62
Depreciation and amortization............................. 642 74 716
1998
Net revenues.............................................. 7,624 642 8,266
Income tax benefit........................................ 452 -- 452
Income (loss) from operations............................. (10,276) (115) (10,391)
Financial income (expenses)............................... (355) (5) (360)
Identifiable assets....................................... 12,090 285 12,375
Capital expenditures...................................... 580 9 589
Depreciation and amortization............................. 741 4 745
1999
Net revenues.............................................. 9,976 286 10,262
Income tax benefit........................................ 13 2 15
Income (loss) from operations............................. (15,763) 23 (15,740)
Financial income (expenses)............................... (187) -- (187)
Identifiable assets....................................... 16,409 25 16,434
Capital expenditures...................................... 265 -- 265
Depreciation and amortization............................. 1,159 5 1,164
There are no significant inter-segment sales or
transfers.
</TABLE>
F-23
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
11. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Security products revenue for the years ended December 31, 1997, 1998 and 1999
were composed as follows:
<TABLE>
<CAPTION>
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Smart card-related products................................. 460 634 2,916
Token-related products...................................... 5,750 6,990 7,060
----- ----- -----
Total Security Products revenue........................... 6,210 7,624 9,976
</TABLE>
The following is a summary of operations by geographic area for the years ended
December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
-----------------------------------------
UNITED
FRANCE STATES ASIA TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
Net revenues................................................ 7,186 215 166 7,567
Income (loss) from operations............................... (5,772) (2,797) (933) (9,502)
Long-lived assets........................................... 2,171 409 115 2,695
Total assets................................................ 11,882 882 287 13,051
Capital expenditures........................................ 24 23 16 63
Depreciation and amortization............................... 482 196 38 716
1998
Net revenues................................................ 6,989 836 441 8,266
Income (loss) from operations............................... (5,585) (4,199) (607) (10,391)
Long-lived assets........................................... 2,508 440 125 3,073
Total assets................................................ 10,577 1,305 493 12,375
Capital expenditures........................................ 242 278 69 589
Depreciation and amortization............................... 471 220 54 745
1999
Net revenues................................................ 7,963 1,842 457 10,262
Income (loss) from operations............................... (6,098) (8,916) (726) (15,740)
Long-lived assets........................................... 1,521 437 78 2,036
Total assets................................................ 13,045 3,147 242 16,434
Capital expenditures........................................ 45 205 15 265
Depreciation and amortization............................... 887 214 63 1,164
</TABLE>
F-24
<PAGE>
ACTIVCARD S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS OF U.S. DOLLARS)
11. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Customers representing more than 10% of consolidated revenues were as follows:
<TABLE>
<CAPTION>
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Security Products Segment:
Customer A................................................ 3,365 3,767 4,112
Customer B................................................ 839 1,141 1,014
Customer C................................................ 376 -- --
Engineering Services Segment:
Customer D................................................ -- -- 137
Customer E................................................ -- -- 77
Customer F................................................ 9 5 36
Customer G................................................ 2 189 --
Customer H................................................ 107 188 --
Customer I................................................ 294 58 --
Customer J................................................ 66 19 --
Customer K................................................ 114 -- --
</TABLE>
12. SUBSEQUENT EVENTS
Schlumberger Systems, Business Brain Showa-Ota Inc., Sun MicroSystems, Inc. and
SCM Microsystems, Inc. have subscribed to 174,825, 116,550, 582,750 and 116,550
respectively, of newly issued ordinary shares of the Company at $17.16 per
share. This subscription price was derived and set at the Company's
December 16, 1999 board of directors meeting using the arithmetic average of the
ten consecutive closing prices of the Company's stock between November 25 and
December 8, 1999. The sale of these shares was approved by the Company's
shareholders' meeting held on February 9, 2000. The expected net proceeds amount
to approximately $16.5 million.
F-25
<PAGE>
[INSIDE BACK COVER]
The back inside cover will contain:
- - Photographs of the following ActivCard products shown on a background
depicting a mock-up of network architecture:
ActivCard One token,
ActivCard Gold -- smart card,
ActivReader with smart card inserted, and
compact disk representing ActivCard software.
- - Bullet points listing the following applications under the following
categories:
PATENTED SOFTWARE
- Secure Network Authentication
- Secure Internet Banking
- Secure Remote Access
E-BUSINESS SERVICES
- Digital Signature
- Email Encryption
- Static Password Management
- Integrates into Network Computing Systems
SECURE INTERNET TRANSACTIONS
- Personal ATM
- Visa Cash
- EMV Approved
- Secure Signature
- Secure Architecture
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's estimated expenses in connection
with the issuance and distribution of the securities being registered, other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 57,077
Nasdaq National Market listing fee.......................... 60,000
Easdaq listing fee.......................................... 10,000
NASD filing fee............................................. 22,120
Printing and engraving expenses............................. 400,000
Legal fees and expenses..................................... 800,000
Accounting fees and expenses................................ 300,000
Blue sky fees and expenses (including legal fees)........... 10,000
Registrar and transfer agent................................ 20,000
Miscellaneous............................................... 320,803
----------
Total....................................................... $2,000,000
==========
</TABLE>
The amounts set forth above are estimates except for the Nasdaq National Market
listing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
French law generally prohibits the Registrant from entering into indemnification
agreements with its directors and officers providing for limitations on personal
liability for damages and other costs and expenses that may be incurred by
directors and officers arising out of or related to acts or omissions in such
capacity. French law also prohibits the STATUTS of the Registrant from providing
for the limitation of liability of a member of the Board of Directors. These
prohibitions may adversely affect the ability of the Registrant to attract and
retain directors. Generally, under French law, directors and officers will not
be held personally liable for decisions taken diligently and in the corporate
interest of the Registrant. Nevertheless, the Registrant has obtained insurance
to cover directors' and officers' legal liability arising from alleged wrongful
acts that might occur in their respective capacities. The Registrant believes
that this insurance is comparable to that maintained by other companies similar
to it.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years the Registrant has sold and issued the following
securities which were not registered under the Securities Act set forth below.
No person acted as an underwriter with respect to the transactions, except as
set forth below. In each of the following instances the securities were either
offered and sold outside the United States to persons not citizens or residents
of the United States in a manner not requiring registration under the Securities
Act, pursuant to Rules 901 through 903 promulgated thereunder, or were issued in
a manner not involving a public offering and therefore not requiring
registration under the Securities Act pursuant to Section 4(2) thereof. In
addition, certain issuances described in Item 10 below were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 under the
Securities Act. The consideration paid to the Registrant in each case was cash,
unless otherwise indicated below.
(1) In April and May 1997, ActivCard S.A. issued 174,280 ordinary shares at
FF6.25 per share, resulting from the exercise of warrants issued in
September 1995.
(2) In June 1997, ActivCard S.A. issued 603 convertible bonds bearing 7.75%
interest for a nominal value of $6,030,000 million. Bryan Garnier & Cie
Limited and Cross Border Enterprise LLP acted as underwriters. The
II-1
<PAGE>
total underwriting commission was comprised of 52,152 warrants at an
exercise price of $4.60 and $301,500 in cash.
(3) In October 1997, ActivCard S.A. issued 200 convertible bonds bearing 7.75%
interest for cash proceeds of $2,000,000 million. Bryan Garnier & Cie
Limited and Cross Border acted as underwriters. The total underwriting
commission was comprised of 17,384 warrants at an exercise price of $4.60
and $100,000 in cash.
(4) In March 1998, ActivCard S.A. issued 4,658,773 ordinary shares at $2.00 per
share resulting from a capital increase with preferential subscription
rights. Bryan Garnier & Cie Limited acted as underwriters. The aggregate
offering price was $9,317,546 and the total underwriting commission was
$279,526.
(5) In April, June, November and December 1998, ActivCard S.A. issued 529,576
ordinary shares with a nominal value of FF6.25 per share, resulting from the
exercise of warrants issued in September 1995 and December 1995.
(6) In February 1999, ActivCard S.A. issued 8,303,719 ordinary shares at $1.25
per share. Bryan Garnier & Cie Limited acted as underwriters. The aggregate
offering price was $10,379,648.75 and the total underwriting commission was
$674,677.
(7) In July 19, 1999, ActivCard S.A. issued 480,000 shares as the settlement of
a litigation. "See Business--Legal Proceedings".
(8) In October 1999, ActivCard S.A. issued 12,000 Convertible Bonds with
warrants attached at $500 per bonds. One bond is convertible into 25 shares
with 100 warrants attached to each bond. Each warrant gives the holder the
right to subscribe to 1 share of common stock at $5. These bonds do not pay
interest. Bryan Garnier & Cie Limited acted as underwriters and received a
commission of $360,000.
(9) In February 2000, ActivCard S.A. issued 291,375 ordinary shares at $17.16
per share to two investors pursuant to Rules 901 and 903 under the
Securities Act and 699,300 ordinary shares at $17.16 per share to two
accredited investors for aggregate proceeds of $16,999,983. SG Cowen
Securities Corporation acted as placement agent and received placement fees
of $250,000.
(10) Since January 1, 1997, there have been issued, and there remain
outstanding, options to purchase an aggregate of 3,601,906 ordinary shares
with exercise prices ranging from $1.67 to $32.80 per share and warrants to
purchase 1,401,000 ordinary shares with exercise prices ranging from $4.14
to $8.93 per share. Since January 1, 1997, options to purchase 315,328
ordinary shares have been exercised for an aggregate consideration of
$1,414,000 and warrants to purchase 938,216 ordinary shares have been
exercised for an aggregate consideration of $2,313,000.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
The following is a list of exhibits filed as part of this registration
statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended STATUTS, or charter and by-laws, of ActivCard S.A.
(with English translation).
4.1** Form of Deposit Agreement among ActivCard S.A., The Bank of
New York, as Depositary, and holders from time to time of
American Depositary Receipts issued thereunder (including,
as an exhibit thereto, the form of American Depositary
Receipt).
5.1* Opinion of Shearman & Sterling as to validity of the shares
being issued.
10.1** Convertible Bond dated June 19, 1997 of ActivCard S.A. (with
English translation).
10.2** Convertible Bond dated October 28, 1997 of ActivCard S.A.
(with English translation).
10.3** Convertible Bond dated October 1999 of ActivCard S.A. (with
English translation).
10.4** 1997 French Stock Option Plan (with English
translation)(each participant executes a copy of this form).
10.5** 1997 U.S. Stock Option Plan (each US participant executes a
copy of this form).
10.6** 1998 French Stock Option Plan with (English
translation)(each participant executes a copy of this form).
10.7** 1998 U.S. Stock Option Plan (each US participant executes a
copy of this form).
10.8** 1999 Stock Option Plan (with English translation).
10.9+** Agreement dated June 10, 1996 between Samsung Semiconductor
Europe GmbH and ActivCard S.A.
10.10 Stock Purchase Agreement dated December 29, 1999 between
ActivCard S.A. and Business Brain Showa-Ota Inc.
10.11** Stock Purchase Agreement dated January 5, 2000 between
ActivCard S.A. and Schlumberger Systemes.
10.12** Stock Purchase Agreement dated February 3, 2000 between
ActivCard S.A. and Sun Microsystems, Inc.
10.13 Settlement Agreement and Release having an effective date on
or before August 2, 1999 among ActivCard S.A., ActivCard,
Inc., Yves Audebert, Achille Delahay, Jean Gerard Galvez and
Kenneth R. Fireman.
10.14 Agreement dated February 22, 2000 between ActivCard S.A. and
Kenneth R. Fireman.
10.15 Registration Rights Agreement dated February 3, 2000 between
ActivCard S.A. and Sun Microsystems, Inc.
10.16 Registration Rights Agreement dated February 3, 2000 between
ActivCard S.A. and SCM Microsystems, Inc.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young Audit.
23.2* Consent of Shearman & Sterling is included in its opinion
filed as Exhibit 5.1.
24.1 Power of Attorney (see page II-6).
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously manually filed with the Securities and Exchange Commission.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b) FINANCIAL STATEMENTS AND SCHEDULES
(1) Financial Statements
The financial statements filed as part of this registration statement are listed
in the index to the financial statements as page F-1.
(2) Schedules
The financial statement schedules of ActivCard have been omitted because the
information required to be set forth therein is not applicable or is shown in
the Financial Statements or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 14. Indemnification of Directors
and Officers above, or otherwise, ActivCard has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment to ActivCard of expenses incurred or paid by a director, officer or
controlling person of ActivCard in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, ActivCard will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by ActivCard pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(3) It will provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
ActivCard certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Paris, France on March 6, 2000.
<TABLE>
<S> <C> <C>
ACTIVCARD S.A.
By: /s/ JEAN-GERARD GALVEZ
------------------------------------------
Name: Jean-Gerard Galvez
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
(PRESIDENT DIRECTEUR GENERAL)
</TABLE>
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Jean-Gerard Galvez and George Wikle and each of
them severally, his true and lawful attorney or attorneys with power of
substitution and resubstitution to sign in his name, place and stead in any and
all such capacities the registration statement and any and all amendments
thereto (including post-effective amendments) and any documents in connection
therewith, and to file the same with the Securities and Exchange Commission,
each of said attorneys to have power to act with or without the other, and to
have full power and authority to do and perform, in the name and on behalf of
each such officer and director of the registrant who shall have executed such a
power of attorney, every act whatsoever which such attorneys, or any one of
them, may deem necessary or desirable to be done in connection therewith as
fully and to all intents and purposes as such officer or director of the
registrant might or could do in person.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities indicated on March 6, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JEAN-GERARD GALVEZ Chairman of the Board of Directors,
------------------------------------------- President and Chief Executive Officer
Jean-Gerard Galvez (PRESIDENT DIRECTEUR GENERAL)
/s/ YVES AUDEBERT Vice Chairman of the Board of Directors
------------------------------------------- and Chief Technology Officer
Yves Audebert (DIRECTEUR FINANCIER)
/S/ GEORGE WIKLE Chief Financial Officer and Secretary
------------------------------------------- and Authorized Representative in the United
George Wikle States
/s/ THOMAS A. ARTHUR
------------------------------------------- Senior Vice President, Worldwide Sales
Thomas A. Arthur and Business Development
/s/ JAMES E. OUSLEY
------------------------------------------- Director
James E. Ousley
/s/ SERGIO CELLINI
------------------------------------------- Director
Sergio Cellini
/s/ CLIFFORD GUNDLE
------------------------------------------- Director
Clifford Gundle
/s/ MONTAGUE KOPPEL
------------------------------------------- Director
Montague Koppel
/s/ LEE KHENG NAM
------------------------------------------- Director
Lee Kheng Nam
/s/ ANTOINE R. SPILLMANN
------------------------------------------- Director
Antoine R. Spillmann
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
- --------------------- --------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1** Amended STATUTS, or charter and by-laws, of ActivCard S.A.
(with English translation).
4.1** Form of Deposit Agreement among ActivCard S.A., The Bank of
New York, as Depositary, and holders from time to time of
American Depositary Receipts issued thereunder (including,
as an exhibit thereto, the form of American Depositary
Receipt).
5.1* Opinion of Shearman & Sterling as to validity of the shares
being issued.
10.1** Convertible Bond dated June 19, 1997 of ActivCard S.A. (with
English translation).
10.2** Convertible Bond dated October 28, 1997 of ActivCard S.A.
(with English translation).
10.3** Convertible Bond dated October 1999 of ActivCard S.A. (with
English translation).
10.4** 1997 French Stock Option Plan (with English
translation)(each participant executes a copy of this form).
10.5** 1997 U.S. Stock Option Plan (each US participant executes a
copy of this form).
10.6** 1998 French Stock Option Plan with (English
translation)(each participant executes a copy of this form).
10.7** 1998 U.S. Stock Option Plan (each US participant executes a
copy of this form).
10.8** 1999 Stock Option Plan (with English translation).
10.9+** Agreement dated June 10, 1996 between Samsung Semiconductor
Europe GmbH and ActivCard S.A.
10.10 Stock Purchase Agreement dated December 29, 1999 between
ActivCard S.A. and Business Brain Showa-Ota Inc.
10.11** Stock Purchase Agreement dated January 5, 2000 between
ActivCard S.A. and Schlumberger Systemes.
10.12** Stock Purchase Agreement dated February 3, 2000 between
ActivCard S.A. and Sun Microsystems, Inc.
10.13 Settlement Agreement and Release having an effective date on
or before August 2, 1999 among ActivCard S.A., ActivCard,
Inc., Yves Audebert, Achille Delahay, Jean Gerard Galvez and
Kenneth R. Fireman.
10.14 Agreement dated February 22, 2000 between ActivCard S.A. and
Kenneth R. Fireman.
10.15 Registration Rights Agreement dated February 3, 2000 between
ActivCard S.A. and Sun Microsystems, Inc.
10.16 Registration Rights Agreement dated February 3, 2000 between
ActivCard S.A. and SCM Microsystems, Inc.
21.1** Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young Audit.
23.2* Consent of Shearman & Sterling is included in its opinion
filed as Exhibit 5.1.
24.1 Power of Attorney (see page II-6).
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously manually filed with the Securities and Exchange Commission.
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
ACTIVCARD S.A.
4,000,000 Shares in the form of American Depositary Shares
Underwriting Agreement
March __, 2000
J.P. Morgan Securities Inc.
SG Cowen Securities Corporation
SoundView Technology Group, Inc.
As Representatives of several underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
ActivCard S.A., a SOCIETE ANONYME (corporation) organized under the
laws of the Republic of France (the "COMPANY"), proposes to issue and sell to
the several Underwriters listed in Schedule I hereto (the "UNDERWRITERS"), for
whom you are acting as representatives (the "REPRESENTATIVES") an aggregate of
4,000,000 of its ordinary shares, nominal value FF6.25 per share (the "ORDINARY
SHARES"), all of which shall initially be deposited pursuant to the Deposit
Agreement referred to below and delivered in the form of American Depositary
Shares ("ADSS") (the "UNDERWRITTEN SECURITIES"). In addition, for the sole
purpose of covering over-allotments in connection with the sale of the
Underwritten Securities, Vertex Investment International (III), Inc., Vertex
Investment (II) Ltd. and Vertex Asia Limited (the "VERTEX SHAREHOLDERS") and
Thomas A. Arthur, Douglas M. Kernan and George Wikle (the "MANAGEMENT
SHAREHOLDERS" and together with the Vertex Entities, the "SELLING
Shareholders"), propose to sell, at the option of the Underwriters, up to an
additional 600,000 Ordinary Shares in the form of ADSs (collectively, the
"OPTION SECURITIES"). The 500,000 Ordinary Shares to be sold in the form of ADSs
by the Vertex Shareholders are hereinafter referred to as the "VERTEX SHARES"
and the 100,000 Ordinary Shares to be sold in the form of ADSs by the Management
Shareholders are hereinafter referred to as the "MANAGEMENT SHARES." The
Underwritten Securities and the Option Securities are herein referred to as the
"SECURITIES."
It is understood that the Ordinary Shares will be sold in the form of
ADSs, each initially representing one Ordinary Share. The Company will enter
into a Deposit Agreement (the "DEPOSIT AGREEMENT") on or prior to the Closing
Date (as hereinafter defined) among the Company, The Bank of New York, as
Depositary (the "DEPOSITARY"), and holders from time to time of American
Depositary Receipts
<PAGE>
-2-
("ADRS") issued by the Depositary and evidencing the ADSs.
The Company has prepared and filed with the Securities and Exchange
Commission (the "COMMISSION") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "SECURITIES ACT"), a registration
statement on Form F-1, including a prospectus, relating to the Securities. The
registration statement as amended at the time when it shall become effective
including information (if any) deemed to be part of the registration statement
at the time of effectiveness pursuant to Rule 430A under the Securities Act, is
referred to in this Agreement as the "REGISTRATION STATEMENT," and the
prospectus in the form first used to confirm sales of Securities is referred to
in this Agreement as the "PROSPECTUS." If the Company has filed an abbreviated
registration statement pursuant to Rule 462(b) under the Securities Act (the
"RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term
"REGISTRATION STATEMENT" shall be deemed to include such Rule 462 Registration
Statement. In addition, a registration statement on Form F-6 in respect of the
ADSs has been filed with and declared effective by the Commission (such
registration statement, as amended at the time it became effective, is
hereinafter called the "ADS REGISTRATION STATEMENT").
The Company and each of the Selling Shareholders hereby agrees with
the Underwriters as follows:
1. The Company agrees to issue and sell the Underwritten Securities to
the several Underwriters as hereinafter provided, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective number of Underwritten Securities set forth
opposite such Underwriter's name in Schedule I hereto (or such number increased
as set forth in Section 9 hereof) at a purchase price per Security (the
"PURCHASE PRICE") of U.S.$[ ].
In addition, each of the Selling Shareholders agrees, severally and
not jointly, to sell the Option Securities to the several Underwriters as
hereinafter provided, and the Underwriters on the basis of the representations
and warranties herein contained, but subject to the conditions hereinafter
stated, shall have the option to purchase, severally and not jointly, from the
Selling Shareholders up to an aggregate of 600,000 Option Securities at the
Purchase Price, for the sole purpose of covering over-allotments (if any) in the
sale of Underwritten Securities by the several Underwriters.
If any Option Securities are to be purchased, the number of Option
<PAGE>
-3-
Securities to be purchased by each Underwriter shall be the number of Option
Securities which bears the same ratio to the aggregate number of Option
Securities being purchased as the number of Underwritten Securities set forth
opposite the name of such Underwriter in Schedule I hereto (or such number
increased as set forth in Section 9 hereof) bears to the aggregate number of
Underwritten Securities being purchased from the Company by the several
Underwriters, subject, however, to such adjustments to eliminate any fractional
Securities as the Representatives in their sole discretion shall make.
The Underwriters may exercise the option to purchase the Option
Securities at any time (but not more than once) on or before the thirtieth day
following the date of this Agreement, by written notice from the Representatives
to the Attorney-in-Fact (as defined below). Such notice shall set forth the
aggregate number of Option Securities as to which the option is being exercised
and the date and time when the Option Securities are to be delivered and paid
for which may be the same date and time as the Closing Date but shall not be
earlier than the Closing Date nor later than the tenth full Business Day (as
hereinafter defined) after the date of such notice (unless such time and date
are postponed in accordance with the provisions of Section 9 hereof). Any such
notice shall be given at least three Business Days prior to the date and time of
delivery specified therein.
2. The Company and the Selling Shareholders understand that the
Underwriters intend (i) to make a public offering of the Securities as set forth
in the Prospectus as soon after (A) the Registration Statement has become
effective and (B) the parties hereto have executed and delivered this Agreement,
as in the judgment of the Representatives is advisable and (ii) initially to
offer the Securities upon the terms set forth in the Prospectus.
3. Payment for the Securities shall be made in U.S. dollars by wire
transfer in immediately available funds to the account specified by the Company
to the Representatives in the case of the Underwritten Securities, on March __,
2000, or at such other time on the same or such other date, not later than the
fifth Business Day thereafter, as the Representatives and the Company may agree
upon in writing or to the accounts specified in writing by the Attorney-in-Fact
to the Representatives in the case of the Option Securities, on the date and
time specified by the Representatives in the written notice to the
Attorney-in-Fact of the Underwriters' election to purchase such Option
Securities. The time and date of such payment for the Underwritten Securities is
referred to herein as the "CLOSING DATE" and the time and date for such payment
for the Option Securities, if other than the Closing Date, are herein referred
to as the "ADDITIONAL CLOSING DATE." As used herein, the term "BUSINESS DAY"
means any day other than a day on which banks are permitted or
<PAGE>
-4-
required to be closed in New York City or France.
Payment for the Securities to be purchased on the Closing Date or
Additional Closing Date, as the case may be, shall be made only against
registration on the books of Banque Paribas, acting as account holder of the
Company's Ordinary Shares and as custodian for the Depositary (the "CUSTODIAN
BANK"), of (i) the Ordinary Shares underlying the ADSs to the account of the
Custodian Bank, (ii) an instruction by Banque Paribas to the Depositary to issue
the ADSs and (iii) a global ADR evidencing all such ADSs. The ADRs shall be in
book-entry form and shall be in such names and in such denominations as the
Representatives shall request in writing addressed to the Depositary not later
than two full Business Days prior to the Closing Date or the Additional Closing
Date, as the case may be, with any and all stamp, transfer or similar taxes or
duties payable in connection with (i) the registration by the Company or the
Selling Shareholders, as the case may be, of the Ordinary Shares with the
Depositary or the Custodian Bank against the issuance of the global ADR
evidencing ADSs and (ii) the issue, sale and registration by the Company or the
Selling Shareholders, as the case may be, of the Ordinary Shares underlying the
ADSs to the Underwriters having been duly paid by the Company or the Selling
Shareholders, as the case may be. The global certificate for the ADR will be
made available for inspection and packaging by the Representatives not later
than 1:00 P.M., New York City time, on the Business Day prior to the Closing
Date or the Additional Closing Date, as the case may be.
4. (A) The Company represents and warrants to each Underwriter that:
(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission, and each preliminary
prospectus filed as part of the Registration Statement as originally filed
or as part of any amendment thereto, or filed pursuant to Rule 424 under
the Securities Act, complied when so filed in all material respects with
the Securities Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein;
(b) no stop order suspending the effectiveness of the Registration
Statement or the ADS Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the knowledge of the
<PAGE>
-5-
Company, threatened by the Commission; and the Registration Statement, the
ADS Registration Statement and Prospectus (as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto)
comply, or will comply, as the case may be, in all material respects with
the Securities Act and do not and will not, as of the applicable effective
date as to the Registration Statement and the ADS Registration Statement
and any amendment thereto and as of the date of the Prospectus and any
amendment or supplement thereto, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented, if applicable, at the Closing Date
or Additional Closing Date, as the case may be, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; except that the foregoing representations and
warranties shall not apply to statements or omissions in the Registration
Statement, the ADS Registration Statement or the Prospectus made in
reliance upon and in conformity with (i) information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein and (ii) information relating
to the distribution of the Securities by the Underwriters furnished to the
Company in writing expressly for use therein;
(c) the financial statements, and the related notes thereto, included
in the Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates indicated and the results of their operations
and changes in their consolidated cash flows for the periods specified; and
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis, and the
supporting schedules included in the Registration Statement present fairly
the information required to be stated therein;
(d) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change in
the capital stock or long-term debt of the Company or any of its
subsidiaries, or any material adverse change, or any development involving
a prospective material adverse change, in or affecting the business,
prospects, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, taken as a whole (a
"MATERIAL ADVERSE CHANGE"), otherwise than as set forth or contemplated in
the Prospectus; and
<PAGE>
-6-
except as set forth or contemplated in the Prospectus, neither the Company
nor any of its subsidiaries has entered into any transaction or agreement
(whether or not in the ordinary course of business) material to the Company
and its subsidiaries, taken as a whole;
(e) the Company is a SOCIETE ANONYME duly organized and validly
existing under the laws of the Republic of France, with STATUTS duly
approved in accordance with law, and with power and authority (corporate
and other) to own its properties and conduct its business as described in
the Prospectus, and has been duly qualified to do business in all other
jurisdictions in which it owns or leases properties, or conducts any
business, so as to require such qualification, other than where the failure
to be so qualified would not have a material adverse effect on the
business, prospects, management, financial position, stockholders' equity
or results of operations of the Company and its subsidiaries, taken as a
whole (a "MATERIAL ADVERSE EFFECT");
(f) each of the Company's subsidiaries has been duly organized and is
validly existing under the laws of its jurisdiction of organization, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus, and has been duly qualified to
do business in all other jurisdictions in which it owns or leases
properties, or conducts any business, so as to require such qualification,
other than where the failure to be so qualified or in good standing would
not have a Material Adverse Effect; and all the outstanding shares of
capital stock of each subsidiary of the Company have been duly authorized
and validly issued, are fully-paid and non-assessable, and (except, in the
case of foreign subsidiaries, for directors' qualifying shares and except
as described in the Prospectus) are owned by the Company, directly or
indirectly, free and clear of all liens, encumbrances, security interests
and claims;
(g) this Agreement has been duly authorized, executed and delivered by
the Company;
(h) the Deposit Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of
the Company, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equitable
principles;
(i) the Company has an authorized capitalization as set forth in the
Prospectus and such authorized capital stock conforms as to legal matters
to
<PAGE>
-7-
the description thereof set forth in the Prospectus, and all of the
outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully-paid and non-assessable and are
not subject to any pre-emptive or similar rights; and, except as described
in or expressly contemplated by the Prospectus, there are no outstanding
rights (including, without limitation, pre-emptive rights), warrants or
options to acquire, or instruments convertible into or exchangeable for,
any shares of capital stock or other equity interest in the Company or any
of its subsidiaries, or any contract, commitment, agreement, understanding
or arrangement of any kind relating to the issuance of any capital stock of
the Company or any such subsidiary, any such convertible or exchangeable
securities or any such rights, warrants or options;
(j) the Ordinary Shares to be issued and sold by the Company and the
Ordinary Shares to be sold by the Selling Shareholders hereunder have been
duly authorized, and, when issued and delivered in the form of ADSs to and
paid for by the Underwriters in accordance with the terms of this
Agreement, will be duly issued and will be fully paid and non-assessable
and will conform to the descriptions thereof in the Prospectus; and the
issuance of such Ordinary Shares is not subject to any preemptive or
similar rights which have not been validly set aside or waived;
(k) upon due issuance by the Depositary of ADRs evidencing ADSs
against the deposit of Ordinary Shares in respect thereof in accordance
with the Deposit Agreement, such ADRs will be duly and validly issued and
the holders thereof will be entitled to the rights specified therein and in
the Deposit Agreement;
(l) neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or
breach of or in default under, its STATUTS or other charter document or any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them or any of their respective properties is bound,
except for violations, breaches and defaults which would not, individually
or in the aggregate, have a Material Adverse Effect; the issue and sale of
the Underwritten Securities to be sold by the Company, the sale of the
Option Securities by the Selling Shareholders and the performance by the
Company and the Selling Shareholders of their respective obligations under
this Agreement and the Deposit Agreement and the consummation of the
transactions contemplated herein, therein and in the Prospectus will not
conflict with or result in a breach
<PAGE>
-8-
of any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, nor will any such action result in any violation of the provisions
of the STATUTS or other charter document of the Company or any of its
subsidiaries or any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company, its subsidiaries or any of their respective properties;
and no consent, approval, authorization, order, license, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Underwritten Securities by the
Company, the sale of the Option Securities by the Selling Shareholders or
the consummation by the Company and the Selling Shareholders of the
transactions contemplated by this Agreement, the Deposit Agreement and the
Prospectus, except such consents, approvals, authorizations, orders,
licenses, registrations or qualifications (i) as have been obtained under
the Securities Act (ii) as may be required under the securities laws of any
jurisdiction outside the United States or under state securities or Blue
Sky Laws in connection with the purchase and distribution of the Securities
by the Underwriters and (iii) which, if not obtained, would not have a
Material Adverse Effect;
(m) other than as set forth in the Prospectus, there are no legal or
governmental investigations, actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company
or any of its subsidiaries or any of their respective properties or to
which the Company or any of its subsidiaries is or may be a party or to
which any property of the Company or any of its subsidiaries is or may be
the subject which, if determined adversely to the Company or any of its
subsidiaries, could, individually or in the aggregate, have, or reasonably
be expected to have, a Material Adverse Effect, and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and there are no
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(n) except as disclosed in the Prospectus, under current laws and
regulations of France and any political subdivision thereof, all dividends
and other distributions declared and payable on the Securities, including
those in
<PAGE>
-9-
the form of ADSs, may be paid by the Company to the holder thereof in euro
that may be converted into foreign currency and freely transferred out of
France and all such payments made to holders thereof who are non-residents
of France will not be subject to income, withholding or other taxes under
laws and regulations of France or any political subdivision or taxing
authority thereof or therein and without the necessity of obtaining any
governmental authorization in France or any political subdivision or taxing
authority thereof or therein;
(o) the Company and its subsidiaries have good and marketable title in
fee simple to all items of real property and good and marketable title to
all personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described or referred to
in the Prospectus or such as do not materially affect the value of such
property and do not materially interfere with the use made or proposed to
be made of such property by the Company and its subsidiaries; and any real
property and buildings held under lease by the Company and its subsidiaries
are held by them under valid, existing and enforceable leases with such
exceptions as are not material and do not interfere with the use made or
proposed to be made of such property and buildings by the Company or its
subsidiaries;
(p) no relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is required by the Securities Act to
be described in the Registration Statement and the Prospectus which is not
so described;
(q) except for rights which have been waived, no person has the right
to require the Company to register any securities for offering and sale
under the Securities Act by reason of the filing of the Registration
Statement with the Commission or the issue and sale of the Underwritten
Securities to be sold by the Company or, to the knowledge of the Company,
the sale of the Option Securities by the Selling Shareholders;
(r) the Company is not and, after giving effect to the offering and
sale of the Securities, will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT");
(s) the Company is a "foreign private issuer" (as such term is defined
in the rules and regulations of the Securities Act and the Securities
Exchange Act of
<PAGE>
-10-
1934, as amended (the "EXCHANGE ACT");
(t) Ernst & Young LLP, who have certified certain financial statements
of the Company and its subsidiaries are independent public accountants as
required by the Securities Act and applicable French laws and regulations;
(u) the Company and its subsidiaries have filed all federal, state,
local and foreign tax returns which have been required to be filed and have
paid all taxes shown thereon and all assessments received by them or any of
them to the extent that such taxes have become due and are not being
contested in good faith; and, except as disclosed in the Registration
Statement and the Prospectus, there is no material tax deficiency which has
been or might reasonably be expected to be asserted or threatened against
the Company or any subsidiary;
(v) other than as set forth in the Prospectus and except for the
redevance due to the Commission Bancaire et Financiere or EASDAQ, for the
capital duty of FF [ ] due by the Company upon any increase in share
capital and for certain value-added taxes which may applicable to certain
commissions and fees payable to the Underwriters, no ad valorem stamp,
duty, stamp duty reserve tax or issue, documentary, certification or other
similar tax imposed by any government department or other taxing authority
of or in France is payable in connection with (A) the registration under
the name of the Custodian Bank with Banque Paribas of Ordinary Shares
against the issuance of the ADRs evidencing ADSs in accordance with the
Deposit Agreement, (B) the issue, sale and transfer of the Ordinary Shares
and ADSs to or for the respective accounts of the Underwriters, in
accordance with the terms of this Agreement and the Deposit Agreement or
(C) the sale and delivery by the Underwriters of the Securities to the
initial purchasers thereof (it being understood, for the avoidance of
doubt, that the foregoing shall not apply to any subsequent sales of the
Securities in the secondary market) in accordance with the terms of this
Agreement and in the manner contemplated in the Prospectus[, provided that
this Agreement, after it has been executed by the Company, is executed by
or on behalf of the Underwriters outside France];
(w) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Ordinary Shares or the Securities, within the meaning of the Exchange Act,
as amended, or other applicable laws, rules or regulations;
<PAGE>
-11-
(x) each of the Company and its subsidiaries owns, possesses or has
obtained all licenses, permits, certificates, consents, orders, approvals
and other authorizations from, and has made all declarations and filings
with, all federal, state, local and other governmental authorities
(including foreign regulatory agencies), all self-regulatory organizations
and all courts and other tribunals, domestic or foreign, necessary to own
or lease, as the case may be, and to operate its properties and to carry on
its business as conducted as of the date hereof, except where failure of
the Company or any of its subsidiaries to own, possess or have obtained
such licenses, permits, certificates, consents, orders, approvals or other
authorizations from, and to have made such declarations or filings with,
such entities would not, singly or in the aggregate, have a Material
Adverse Effect, and neither the Company nor any such subsidiary has
received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization, except as described in the Registration
Statement and the Prospectus; and each of the Company and its subsidiaries
is in material compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date hereof;
(y) there are no existing or, to the best knowledge of the Company,
threatened labor disputes with the employees of the Company or any of its
subsidiaries which are likely to have a Material Adverse Effect;
(z) the Company and its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is customary for
companies of similar size engaged in similar businesses in similar
industries;
(aa) the Company and its subsidiaries have all required title or
licenses to patents, know-how, trademarks, service marks and trade names
necessary to operate the businesses now operated by them and as
contemplated by the Prospectus and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which, if
determined adversely to the Company or any of its subsidiaries, would,
individually or in the aggregate, have a Material Adverse Effect;
(bb) the Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses
<PAGE>
-12-
and (iii) are in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals would not, individually or in the aggregate,
have a Material Adverse Effect;
(cc) each employee benefit plan, within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
that is maintained, administered or contributed to by the Company or any of
its affiliates for employees or former employees of the Company and its
affiliates has been maintained in compliance with its terms and the
requirements of any applicable statutes, orders, rules and regulations,
including but not limited to ERISA and the Internal Revenue Code of 1986,
as amended ("CODE"), except as would not have a Material Adverse Effect; no
prohibited transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any such plan
excluding transactions effected pursuant to a statutory or administrative
exemption; for each such plan which is subject to the funding rules of
Section 412 of the Code or Section 302 of ERISA, no "accumulated funding
deficiency," as defined in Section 412 of the Code, has been incurred,
whether or not waived, and the fair market value of the assets of each such
plan (excluding for these purposes accrued but unpaid contributions)
exceeds the present value of all benefits accrued under such plan
determined using reasonable actuarial assumptions;
(dd) the statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable; and
(ee) to the knowledge of the Company, there are no outstanding claims
for services, either in the nature of a finder's fee or origination fee,
with respect to any of the transactions contemplated hereby. It is
understood that this representation does not apply to any Underwriter's
discounts and commissions, as disclosed in the Prospectus.
(B) Each of the Selling Shareholders severally and not jointly
represents and warrants to, and agrees with, each of the Underwriters that:
(a) all consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Shareholder of this Agreement,
the Power of Attorney (the "POWER OF ATTORNEY") and the Custody Agreement
(the "CUSTODY AGREEMENT") hereinafter referred to, and for the sale and
delivery of the Option Securities to be sold by such Selling Shareholder
hereunder, have
<PAGE>
-13-
been obtained; and such Selling Shareholder has full right, power and
authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement and to sell, assign, transfer and deliver the Option
Securities to be sold by such Selling Shareholder hereunder; this
Agreement, the Power of Attorney and the Custody Agreement have each been
duly authorized, executed and delivered by such Selling Shareholder;
(b) the sale of the Option Securities to be sold by such Selling
Shareholder hereunder and the compliance by such Selling Shareholder with
all of the provisions of this Agreement, the Power of Attorney and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any statute, any indenture, mortgage, deed of trust, loan agreement,
stock option agreement or other agreement or instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder is
bound or to which any of the property or assets of such Selling Shareholder
is subject, nor will such action result in any violation of the provisions
of the Certificate of Incorporation or By-laws or similar organizational
documents of such Selling Shareholder, if applicable, any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over such Selling Shareholder or the property of such
Selling Shareholder;
(c) such Selling Shareholder is the lawful owner of the Option
Securities to be sold (or the lawful owner of options exercisable for the
Securities to be sold) by such Selling Shareholder hereunder and upon sale
and delivery of, an payment for, such Option Securities, as provided
herein, such Selling Shareholder will convey to the Underwriters good and
marketable title to such Option Securities, free and clear of all liens,
encumbrances, equities and claims whatsoever;
(d) such Selling Shareholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Ordinary Shares or the Securities to
facilitate the sale or resale of the Option Securities, within the meaning
of the Exchange Act or other applicable laws, rules or regulations; and
(e) the information furnished to the Company by the Selling
Shareholders specifically for use in the Prospectus as amended or
supplemented, if applicable, under the caption "Principal and Selling
Shareholders," does not contain any untrue statement of a material fact
or omit to state a material fact
<PAGE>
-14-
required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made not misleading.
(f) Each of the Management Shareholders represents and warrants that
its stock option exercise notices representing the Management Shares to be
sold by such Management Shareholders to the Underwriters in the form of
Option Securities hereunder (the "EXERCISE NOTICES") have been placed in
custody under a Custody Agreement relating to such Management Shares, in
the form heretofore furnished to you, duly executed and delivered by such
Management Shareholder to the Company, as custodian (the "CUSTODIAN") of
the Exercise Notices. Each Selling Shareholder represents and warrants that
it has duly executed and delivered a Power of Attorney, in the form
heretofore furnished to you, appointing the person or persons indicated
therein, and each of them, as such Selling Shareholder's Attorneys-in-fact
(the "ATTORNEYS-IN-FACT" or any one of them the "ATTORNEY-IN FACT") with
authority to execute and deliver this Agreement on behalf of such Selling
Shareholder, to determine the purchase price to be paid by the Underwriters
to the Selling Shareholders for the Option Securities as provided herein,
to instruct Banque Paribas to issue the Management Shares represented by
the Exercise Notices, to instruct Banque Paribas to transfer the Management
Shares and Vertex Shares to the account of the Depositary at Banque
Paribas, to authorize the delivery of the Option Securities to be sold by
such Selling Shareholder hereunder, to receive payment from the
Underwriters for the Option Securities to a bank account designated by the
Attorney-in-Fact, and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this
Agreement and the Custody Agreement.
(g) Each of the Management Shareholders agrees that the Management
Shares represented by the Exercise Notices held in custody for such
Management Shareholder under the Custody Agreement, and each of the Vertex
Shareholders agrees that the Vertex Shares held in book-entry form by
Banque Paribas, as account holder of the Company's Ordinary Shares, are
subject to the rights of the Underwriters hereunder, and that the
arrangements made by each Management Shareholder for such custody, and the
appointment by each Selling Shareholder of the Attorneys-in-Fact pursuant
to the Power of Attorney, are to that extent irrevocable. Each of the
Selling Shareholders specifically agrees that the obligations of such
Selling Shareholder hereunder are in compliance with any applicable stock
option plan of the Company and shall not be terminated by operation of law,
whether by the death or incapacity of any individual Selling Shareholder,
or, in the case of an estate or trust, by the death or incapacity of any
executor or trustee or
<PAGE>
-15-
the termination of such estate or trust, or in the case of a partnership or
corporation, by the dissolution of such partnership or corporation, or by
the occurrence of any other event. If any individual Selling Shareholder or
any such executor or trustee should die or become incapacitated, or if any
such estate or trust should be terminated, or if any such partnership or
corporation should be dissolved, or if any other such event should occur,
before the delivery of the Option Securities hereunder, Exercise Notices
shall be transferred by or on behalf of such Management Shareholder in
accordance with the terms and conditions of this Agreement and the Custody
Agreement to the persons specified in the Custody Agreement, and the Vertex
Shares shall be transferred by or on behalf of such Vertex Shareholder in
accordance with the terms and conditions of this Agreement, and actions
taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be
as valid as if such death, incapacity, termination, dissolution or other
event had not occurred, regardless of whether or not the Custodian, the
Attorneys-in-Fact, or any of them, shall have received notice of such
death, incapacity, termination, dissolution or other event.
5. (A) The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its best efforts to cause the Registration Statement to
become effective at the earliest possible time and, if required, to file
the final Prospectus with the Commission within the time periods specified
by Rule 424(b) and Rule 430A under the Securities Act and to file promptly
all reports and any definitive proxy or information statements required to
be filed by the Company with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the
Prospectus and for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Securities; and to furnish
copies of the Prospectus to the Underwriters in New York City prior to the
close of business in New York City, on the second Business Day next
succeeding the date of this Agreement in such quantities as the
Representatives may reasonably request;
(b) to deliver, at the expense of the Company, to the Representatives
five signed copies of the Registration Statement and the ADS Registration
Statement (as originally filed) and each amendment thereto, in each case
including exhibits, and to each other Underwriter a conformed copy of the
Registration Statement and the ADS Registration Statement (as originally
filed) and each amendment thereto, in each case without exhibits, and,
during the period mentioned in paragraph (e) below, to each of the
Underwriters as
<PAGE>
-16-
many copies of the Prospectus (including all amendments and supplements
thereto) as the Representatives may reasonably request;
(c) before filing any amendment or supplement to the Registration
Statement, the ADS Registration Statement or the Prospectus, whether before
or after the time the Registration Statement becomes effective, to furnish
to the Representatives a copy of the proposed amendment or supplement for
review and not to file any such proposed amendment or supplement to which
the Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm such advice
in writing (i) when each of the Registration Statement and the ADS
Registration Statement has become effective, (ii) when any amendment to the
Registration Statement or the ADS Registration Statement has been filed or
becomes effective, (iii) when any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Representatives with
copies thereof, (iv) of any request by the Commission for any amendment to
the Registration Statement or the ADS Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the ADS
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus or the Prospectus or the initiation or
threatening of any proceeding for that purpose, (vi) of the occurrence of
any event, during the period referenced in paragraph (e) below, as a result
of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, and (vii) of the receipt by the Company of any notification
with respect to any suspension of the qualification of the Securities for
offer and sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; and to use its best efforts to prevent the
issuance of any such stop order, or of any order preventing or suspending
the use of any preliminary prospectus or the Prospectus, or of any order
suspending any such qualification of the Securities, or notification of any
such order thereof, and, if issued, to obtain as soon as possible the
withdrawal thereof;
(e) if, during such period of time after the first date of the public
offering of the Securities a prospectus relating to the Securities is
required by law to be delivered in connection with sales by the
Underwriters or any dealer, any
<PAGE>
-17-
event shall occur as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if it is necessary to amend or supplement the Prospectus
to comply with law, forthwith to prepare and furnish, at the expense of the
Company, to the Underwriters and to the dealers (whose names and addresses
the Representatives will furnish to the Company) to which Securities may
have been sold by the Representatives on behalf of the Underwriters and to
any other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law;
(f) to endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions in the United States as
the Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution of
the Securities; PROVIDED, HOWEVER, that the Company shall not be required
in connection therewith to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction;
(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earnings statement covering a
period of at least twelve months beginning with the first fiscal quarter of
the Company occurring after the effective date of the Registration
Statement, which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 of the Commission promulgated thereunder;
(h) during the period of three years hereafter, the Company will
furnish to each Representative as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such year; and
the Company will furnish to each Representative as soon as available, a
copy of each report filed by the Company with the Commission under the
Exchange Act or mailed by the Company to stockholders;
(i) for a period of 150 days after the date of the prospectus relating
to the public offering of the Securities not to (i) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly
or indirectly, any Ordinary Shares, ADSs or any other securities of the
Company which are substantially similar to
<PAGE>
-18-
the Ordinary Shares or the ADSs, or any securities convertible into or
exercisable or exchangeable for Ordinary Shares or ADSs (including, but not
limited to, Ordinary Shares or ADSs which may be deemed to be beneficially
owned by the Company in accordance with the rules and regulations of the
Commission and securities which may be issued upon exercise of a stock
option or warrant) or (ii) enter into any swap, option, future, forward or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Ordinary Shares or the ADSs or any
securities of the Company which are substantially similar to the Ordinary
Shares or the ADSs, including, but not limited to, any security convertible
into or exercisable or exchangeable for Ordinary Shares or ADSs, whether
any such transaction described in clause (i) or (ii) above is to be settled
by delivery of Ordinary Shares or ADSs or such other securities, in cash or
otherwise without the prior written consent of J.P. Morgan Securities Inc.;
PROVIDED, HOWEVER, that clauses (i) and (ii) above shall not apply to the
exercise of stock options issued pursuant to the Company's stock option
plans existing on the date of the Prospectus or the Securities to be sold
hereunder;
(j) to use the net proceeds received by the Company from the sale of
the Underwritten Securities pursuant to this Agreement in the manner
specified in the Prospectus under the caption "Use of Proceeds";
(k) to use its best efforts to list for quotation the ADSs on the
National Association of Securities Dealers Automated Quotations National
Market (the "Nasdaq National Market");
(l) to indemnify and hold harmless the Underwriters against any
documentary, stamp or similar issue tax, including any interest and
penalties, on the sale of the Securities and on the execution and delivery
of this Agreement; all payments to be made by the Company hereunder shall
be made without withholding or deduction for or on account of any present
or future taxes, duties or governmental charges whatsoever unless the
Company is compelled by law to deduct or withhold such taxes, duties or
charges, in which event the Company shall pay, to the extent permitted by
law, such additional amounts as may be necessary in order that the net
amounts received after such withholding or deduction shall equal the
amounts that would have been received if no withholding or deduction had
been made;
(m) to comply with the terms and conditions or, and to perform its
obligations under, the Deposit Agreement and to take such further steps as
may be necessary, including hiring a replacement Depositary, if necessary,
in order to accomplish the intent of the Deposit Agreement; and to furnish
<PAGE>
-19-
through the Depositary to each holder of ADSs English translations of all
reports and other communications required under French law to be given to
holders of Ordinary Shares; and
(n) whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
costs and expenses incident to the performance of its obligations
hereunder, including without limiting the generality of the foregoing, all
costs and expenses (i) incident to the preparation, issuance, registration,
transfer, execution and initial delivery of the Securities, (ii) incident
to the preparation, printing and filing under the Securities Act of the
Registration Statement, the ADS Registration Statement, the Prospectus and
any preliminary prospectus (including in each case all exhibits, amendments
and supplements thereto), (iii) incurred in connection with the
registration or qualification of the Securities under the laws of such
jurisdictions as the Representatives may designate (including fees of
counsel for the Underwriters and its disbursements), (iv) in connection
with the listing of the ADSs on the Nasdaq National Market, (v) related to
the filing with, and clearance of the offering by, the National Association
of Securities Dealers, Inc. (the "NASD"), (vi) in connection with the
printing (including word processing and duplication costs) and delivery of
this Agreement, the Preliminary and Supplemental Blue Sky Memoranda and the
furnishing to the Underwriters and dealers of copies of the Registration
Statement, the ADS Registration Statement and the Prospectus, including
mailing and shipping, as herein provided, (vii) any expenses incurred by
the Company in connection with a "road show" presentation to potential
investors, (viii) the cost of preparing certificates representing the
Securities and (ix) the cost and charges of any transfer agent and any
registrar.
(B) Each of the Selling Shareholders covenants and agrees with each of
the several Underwriters as follows:
(a) for a period of 150 days after the date of the initial public
offering of the Securities not to (i) offer, pledge, announce to sell,
sell, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any
Ordinary Shares or any securities convertible into or exercisable or
exchangeable for Ordinary Shares or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Ordinary Shares, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Ordinary Shares or such other securities, in cash or otherwise
or (iii) make
<PAGE>
-20-
any demand for or exercise any right with respect to the registration of
any Ordinary Shares or any security convertible into or exercisable or
exchangeable for Ordinary Shares without the prior written consent of the
Representatives, in each case other than the Securities to be sold by such
Selling Shareholder hereunder;
(b) to deliver to the Representatives prior to or at the Closing Date
a properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by the Treasury
Department regulations in lieu thereof) in order to facilitate the
Underwriters' documentation of their compliance with the reporting and
withholding provisions of the Tax Equity and Fiscal Responsibility Act of
1982 with respect to the transactions herein contemplated;
(c) Such Selling Shareholder will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise, in
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities; and
(d) Such Selling Shareholder will advise you promptly, and if
requested by you, will confirm such advice in writing, so long as delivery
of a prospectus relating to the Securities by an underwriter or dealer may
be required under the Act, of (i) to the extent known by such Selling
Shareholder, any material change in the Company's condition (financial or
otherwise), prospects, earnings, business or properties, (ii) any change in
information in the Registration Statement or the Prospectus relating to
such Selling Shareholder or (iii) to the extent known by such Selling
Shareholder, any new material information relating to the Company or
relating to any matter stated in the Prospectus which comes to the
attention of such Selling Shareholder.
6. The several obligations of the Underwriters hereunder to purchase
the Securities on the Closing Date or the Additional Closing Date, as the case
may be, are subject to the performance by the Company and each of the Selling
Shareholders of their obligations hereunder and to the following additional
conditions:
(a) each of the Registration Statement and the ADS Registration
Statement shall have become effective (or if a post-effective amendment is
required to be filed under the Securities Act, such post-effective
amendment shall have become effective) not later than 5:00 P.M., New York
City time, on the date hereof; and no stop order suspending the
effectiveness of the
<PAGE>
-21-
Registration Statement or the ADS Registration Statement or any
post-effective amendment shall be in effect, and no proceedings for such
purpose shall be pending before or threatened by the Commission; the
Prospectus shall have been filed with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Securities Act and in accordance with
Section 5(a) hereof;
(b) the respective representations and warranties of the Company and
the Selling Shareholders contained herein are true and correct on and as of
each of the Closing Date and the Additional Closing Date, as the case may
be, as if made on and as of the Closing Date or the Additional Closing
Date, as the case may be, and each of the Company and the Selling
Shareholders shall have complied with all agreements and all conditions on
its part to be performed or satisfied hereunder at or prior to the Closing
Date or the Additional Closing Date, as the case may be;
(c) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any Material
Adverse Change, otherwise than as set forth or contemplated in the
Prospectus, the effect of which in the judgment of the Representatives
makes it impracticable or inadvisable to proceed with the public offering
or the delivery of the Securities on the Closing Date or the Additional
Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus; and neither the Company nor any of its
subsidiaries has sustained since the date of the latest audited financial
statements included in the Prospectus any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus;
(d) the Representatives shall have received on and as of the Closing
Date or the Additional Closing Date, as the case may be, a certificate of
the Chief Executive Officer and Chief Financial Officer of the Company,
satisfactory to the Representatives, to the effect set forth in subsections
(a) through (c) (with respect to the respective representations,
warranties, agreements and conditions of the Company) of this Section 6 and
to the further effect that there has not occurred any Material Adverse
Change from that set forth or contemplated in the Registration Statement
and (2) a certificate of the Selling Shareholders, satisfactory to the
Representatives, to the effect set forth in subsection (b) of this Section
6 (with respect to the respective
<PAGE>
-22-
representations, warranties, agreements and conditions of the Selling
Shareholders);
(e) Shearman & Sterling, U.S. and French counsel for the Company,
shall have furnished to the Representatives their written opinions, dated
the Closing Date or the Additional Closing Date, as the case may be, in
form and substance satisfactory to the Representatives, to the effect that:
(i) the Company is a SOCIETE ANONYME duly incorporated and validly
existing under the laws of the Republic of France, with corporate
power and authority to own its properties and conduct its business as
described in the Prospectus;
(ii) ActivCard, Inc. is a corporation duly incorporated and validly
existing under the laws of California, with corporate power and
authority to own its properties and conduct its business as described
in the Prospectus;
(iii) other than as set forth or contemplated in the Prospectus, to
such counsel's knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the
Company or any subsidiary is subject, before or brought by any court
or governmental agency or body, domestic or foreign, that would
reasonably be expected to result in a Material Adverse Effect; to such
counsel's knowledge, such counsel does not know of any statutes or
regulations or contracts or other documents that are required to be
described in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement that are not described or
filed as required;
(iv) this Agreement has been duly authorized, executed and delivered
by the Company;
(v) the Deposit Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement
of the Company, enforceable against the Company in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and
to general equitable principles;
(vi) the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof
contained under
<PAGE>
-23-
the heading "Description of Share Capital" in the Registration
Statement and the Prospectus;
(vii) the Ordinary Shares underlying the ADSs to be issued by the
Company hereunder and deposited with the Custodian Bank pursuant to
the Deposit Agreement, have been duly authorized and validly issued
and fully paid and the issuance of such Ordinary Shares is not in
violation of any preferential subscription rights of any holders of
any securities of the Company which have not been validly set aside or
waived;
(viii) assuming due authorization, execution and delivery of the
Deposit Agreement by the Depositary, upon the due and valid issuance
by the Depositary of ADRs evidencing ADSs against the deposit of
Ordinary Shares in respect thereof in accordance with the provisions
of the Deposit Agreement, such ADRs will duly and validly issued and
the person in whose names the ADRs are registered will be entitled to
the rights specified therein and in the Prospectus, and the Deposit
Agreement and the ADSs conform in all material respects to the
description thereof contained in the Prospectus;
(ix) the statements in the Prospectus under "Taxation," "Description
of Share Capital," "Description of American Depositary Shares,"
insofar as such statements constitute matters of law or summaries of
legal matters, are correct in all material respects;
(x) no consent, approval, authorization, order, license, registration
or qualification of or with any court or governmental agency or body
in the United States of America or the State of New York or the
Republic of France is required for the issue and sale of the
Securities or the consummation of the other transactions contemplated
by this Agreement or the Deposit Agreement, except such consents,
approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act and as
may be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Securities by the
Underwriters;
(xi) none of the execution and delivery by the Company of this
Agreement or the Deposit Agreement and the issue and sale of the
Securities, or the performance by the Company of the terms of this
Agreement or the Deposit Agreement will (a) contravene any applicable
law, rule or regulation of the United States, France or the State of
New York or, (b) any order or decree known to us of any court or
government agency or
<PAGE>
-24-
instrumentality having jurisdiction over the Company, its subsidiaries
or any of their properties or (c) violate the provisions of the
organizational documents of the Company or any subsidiary, or result
in a breach or constitute a default pursuant to any contract,
indenture, mortgage, loan or credit agreement, note, lease or any
other agreement or instrument known to us, to which the Company or any
subsidiary is a party or by which it or any of them may be bound, or
to which any of the property or assets of the Company or any
subsidiary is subject (except for such conflicts, breaches or defaults
that would not have a Material Adverse Effect);
(xii) such counsel shall state that the Registration Statement became
effective under the Securities Act on March __, 2000 and the ADS
Registration Statement became effective under the Securities Act on
March __, 2000, and thereupon the offering of the Securities as
contemplated by the Prospectus became registered under the Securities
Act and, to our knowledge, no stop order suspending the effectiveness
of the Registration Statement or the ADS Registration Statement has
been issued and no proceedings for the purpose have been instituted or
are pending or contemplated under the Securities Act;
(xiii) the Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act;
(xiv) except as disclosed in the Prospectus, under current laws and
regulations of France and any political subdivision thereof, all
dividends and other distributions declared and payable on the
Securities, including those in the form of ADSs, may be paid by the
Company to the holder thereof in euro that may be converted into
foreign currency and freely transferred out of France and all such
payments made to holders thereof who are non-residents of France will
not be subject to income, withholding or other taxes under laws and
regulations of France or any political subdivision or taxing authority
thereof or therein and will otherwise be free and clear of any other
tax, duty, withholding or deduction in France or any political
subdivision or taxing authority thereof or therein and without the
necessity of obtaining any governmental authorization in France or any
political subdivision or taxing authority thereof or therein;
(xv) other than as set forth in the Prospectus, no ad valorem stamp,
duty,
<PAGE>
-25-
stamp duty reserve tax or issue, documentary, certification or other
similar tax imposed by any government department or other taxing
authority of or in France is payable in connection with (A) the
deposit with the Depositary or the Custodian Bank of Ordinary Shares
against the issuance of the ADRs evidencing ADSs in accordance with
the Deposit Agreement, (B) the issue, sale and transfer of the ADSs to
or for the respective accounts of the Underwriters, in accordance with
the terms of this Agreement and the Deposit Agreement or (C) the sale
and delivery by the Underwriters of the Securities to the initial
purchasers thereof (it being understood, for the avoidance of doubt,
that the foregoing shall not apply to any subsequent sales of the
Securities in the secondary market) in accordance with the terms of
this Agreement and in the manner contemplated in the Prospectus; and
(xvi) such counsel shall state that no facts have come to their
attention to cause them to believe that (A) the Registration
Statement, the ADS Registration Statement and the Prospectus and any
supplement or amendment thereto (other than any financial statements
and related schedules and other financial information therein as to
which no belief is expressed) do not comply as to form in all material
respects with the Securities Act, (B) the Registration Statement and
the prospectus included therein (other than any financial statements
and related schedules and other financial information therein as to
which no belief is expressed) at its effective date contained an
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
contained therein not misleading or (C) the Prospectus (except as
stated), as of its date and as of the Closing Date or the Additional
Closing Date, as the case may be, contained or contains an untrue
statement of a material fact or omitted or omits to state a material
fact necessary to make the statements contained therein, in the light
of the circumstances under which they were made, not misleading.
In rendering such opinions, such counsel may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company, Banque Paribas, as account holder of
the Company's Ordinary Shares, and certificates or other written statements
of officials of jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company.
The opinion of Shearman & Sterling described above shall be rendered
<PAGE>
-26-
to the Underwriters at the request of the Company and shall so state
therein.
(f) Emmit, Marvin & Martin, counsel for the Depositary, shall have
furnished to the Representatives their written opinion, dated the Closing
Date or the Additional Closing Date, as the case may be, in form and
substance satisfactory to the Representatives, to the effect that:
(i) the Depositary has the full power, authority and legal right to
carry out the terms of the Deposit Agreement;
(ii) the Deposit Agreement has been duly authorized, executed and
delivered by the Depositary, and, assuming due authorization,
execution and delivery of the Deposit Agreement by the Company and
further assuming that the Deposit Agreement is a valid and binding
agreement of the Company, constitutes a valid and legally and binding
obligation of the Depositary, enforceable against the Depositary in
accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws of general application
relating to or affecting creditors' rights and by general principles
of equity;
(iii) the ADSs, when issued under and in accordance with the terms of
the Deposit Agreement, will be legally issued and entitle the holders
thereof to the rights specified in the Deposit Agreement and the ADRs;
and
(iv) the ADS Registration Statement for the ADSs has been declared
effective under the Securities Act of 1933, as amended, and, no stop
order suspending the effectiveness of the ADS Registration Statement
or any part thereof has been issued and, to the best of such counsel's
knowledge, no proceedings for that purpose have been instituted or are
pending or contemplated by the Commission.
In rendering such opinions, such counsel may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Depositary and certificates or other written
statements of officials of jurisdictions having custody of documents
respecting the corporate existence or good standing of the Depositary.
(g) Shearman & Sterling, counsel for the Management Shareholders,
shall have furnished to the Representatives their written opinion, dated
the Additional Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
<PAGE>
-27-
(i) this Agreement has been duly executed and delivered by or on
behalf of each of the Management Shareholders;
(ii) a Power of Attorney has been duly executed and delivered by each
Management Shareholder and constitute valid and binding agreements of
each Management Shareholder in accordance with their terms, except
with respect to any indemnification provisions to the extent limited
by applicable law;
(iii) the Custody Agreement has been duly executed and delivered by
each Management Shareholder and constitutes a valid and binding
agreement of each Management Shareholder in accordance with its terms,
except with respect to any indemnification provisions to the extent
limited by applicable law;
(iv) each Management Shareholder has good and valid title to the
Ordinary Shares to be sold by it in the form of ADSs pursuant to the
Underwriting Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind;
(v) good and valid title to the Ordinary Shares to be sold by each
Management Shareholder in the form of ADSs pursuant to the
Underwriting Agreement free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind, has been
transferred to the Custodian Bank on behalf of the Depositary;
(vi) none of the execution and delivery of this Agreement and the
issue and sale of the Option Securities, or the performance by any
Management Shareholder of the terms of this Agreement will (a)
contravene any applicable law, rule or regulation of the United
States, France or the State of New York, or to our knowledge, any
order or decree of any court or government agency or instrumentality
having jurisdiction over such Management Shareholder or, (b) conflict
with, result in a breach of, or constitute a default under the terms
of any option plan or agreement to which such Management Shareholder
is a party or bound; and
(vii) no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
in the United States of America or the State of New York or the
Republic of France is required for the sale of the Option Securities
or the consummation by the Selling Shareholders of the transactions
contemplated by this
<PAGE>
-28-
Agreement, except such consents, approvals, authorizations,
registrations or qualifications as have been obtained under the
Securities Act and as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Option Securities by the Underwriters.
In rendering such opinions, such counsel may make the usual and
customary qualifications and may rely as to matters of fact, to the extent
such counsel deems proper, on certificates of responsible officers of the
Company or Banque Paribas, as account holder of the Company's Ordinary
Shares, and certificates or other written statements of officials of
jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company.
(h) Tan and Tan, local counsel for the Vertex Shareholders, shall have
furnished to the Representatives their written opinion, dated the
Additional Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) this Agreement has been duly authorized by or on behalf of each of
the Vertex Shareholders;
(ii) a Power of Attorney has been duly authorized by each of the
Vertex Shareholders and constitutes valid and binding agreements of
each Vertex Shareholder in accordance with their terms, except with
respect to any indemnification provisions to the extent limited by
applicable law;
(iii) the sale of the Option Securities and the execution and delivery
by each Vertex Shareholder of, and the performance by the Vertex
Shareholders of their obligations under, this Agreement, and the
consummation of the transactions contemplated herein, have been duly
authorized on the part of each of the Vertex Shareholders;
(iv) each Vertex Shareholder has good and valid title to the Ordinary
Shares to be sold by it in the form of ADSs pursuant to the
Underwriting Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind;
(v) good and valid title to the Ordinary Shares to be sold by each
Vertex Shareholder in the form of ADSs pursuant to the Underwriting
Agreement free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind, has been transferred
to the
<PAGE>
-29-
Custodian Bank on behalf of the Depositary;
(vi) none of the execution and delivery of this Agreement and the
issue and sale of the Option Securities, or the performance by any of
the Vertex Shareholders of the terms of this Agreement will (a)
contravene any law, rule or regulation of Singapore or, to our
knowledge, any order or decree of any court or government agency or
instrumentality having jurisdiction over any of the Vertex
Shareholders or (b) conflict with, result in a breach of, or
constitute a default under the terms of any option plan or agreement
to which any of the Vertex Shareholders is a party or bound; and
(vii) no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
in Singapore is required for the sale of the Option Securities or the
consummation by the Vertex Shareholders of the transactions
contemplated by this Agreement.
In rendering such opinions, such counsel may make the usual and
customary qualifications and may rely as to matters of fact, to the extent
such counsel deems proper, on certificates of responsible officers of the
Company or Banque Paribas, as account holder of the Company's Ordinary
Shares, and certificates or other written statements of officials of
jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company.
(i) on the effective date of the Registration Statement and the
effective date of the most recently filed post-effective amendment to the
Registration Statement and also on the Closing Date or Additional Closing
Date, as the case may be, Ernst & Young LLP shall have furnished to the
Representatives letters, dated the respective dates of delivery thereof, in
form and substance satisfactory to the Representatives, containing
statements and information of the type customarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus;
(j) the Representatives shall have received on and as of the Closing
Date or Additional Closing Date, as the case may be, an opinion of Cahill
Gordon & Reindel, counsel to the Underwriters, with respect to the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon
<PAGE>
-30-
such matters;
(k) the Securities to be delivered on the Closing Date or Additional
Closing Date, as the case may be, shall have been approved for listing on
the Nasdaq National Market, subject to official notice of issuance;
(l) the Deposit Agreement shall be in full force and effect;
(m) the Depositary shall have furnished or caused to be furnished to
the Representatives a certificate satisfactory to the Representatives of
one of its authorized officers with respect to the deposit with it of the
Ordinary Shares represented by the ADSs against issuance of the ADRs
evidencing the ADSs pursuant to the Deposit Agreement, the execution,
issuance and delivery of the ADRs evidencing the ADSs pursuant to the
Deposit Agreement and such other matters related thereto as the
Representatives shall reasonably request; and
(n) the "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between the Representatives and certain shareholders,
officers and directors of the Company relating to sales and certain other
dispositions of Ordinary Shares or ADSs or certain other securities,
delivered to the Representatives on or before the date hereof, shall be in
full force and effect on the Closing Date or Additional Closing Date, as
the case may be.
7. The Company agrees to indemnify and hold harmless each Underwriter,
each affiliate of any Underwriter which assists such Underwriter in the
distribution of the Securities and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses, claims,
damages and liabilities (including, without limitation, the reasonable legal
fees and other expenses incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, the
ADS Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by 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, except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through the Representatives expressly for use therein or the
Prospectus, any amendment or supplement thereto, or any preliminary
<PAGE>
-31-
prospectus.
Each of the Selling Shareholders severally and not jointly in
proportion to the number of Shares to be sold by such Selling Shareholder
hereunder agrees to indemnify and hold harmless each Underwriter, each affiliate
of any Underwriter which assists such Underwriter in the distribution of the
Securities and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages and liabilities
(including, without limitation, the reasonable legal fees and other expenses
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by 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, but (x) only with
reference to information relating to such Selling Shareholder furnished in
writing by or on behalf of such Selling Shareholder expressly for use in the
Registration Statement, the ADS Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto, and (y)
only to the extent of the gross proceeds received by such Selling Shareholders
from the offering of the Option Securities, except insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company in writing
by such Underwriter through the Representatives expressly for use therein.
Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act and each of the
Selling Shareholders to the same extent as the foregoing indemnity from the
Company and the Selling Shareholders to each Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use in
the Registration Statement, the ADS Registration Statement the Prospectus, any
amendment or supplement thereto, or any preliminary prospectus.
If any suit, action, proceeding (including any governmental
investigation), claim or demand shall be brought or asserted against any person
in respect of which indemnity may be sought pursuant to any of the three
preceding
<PAGE>
-32-
paragraphs, such person (the "INDEMNIFIED PERSON") shall promptly notify the
person or persons against whom such indemnity may be sought (each, an
"INDEMNIFYING PERSON") in writing, and such Indemnifying Persons, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Persons to represent the Indemnified Person and any others the
Indemnifying Persons may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Persons shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Persons and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Persons has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both an Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that no Indemnifying Person shall, in connection with any proceeding
or related proceeding in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Indemnified Persons, and that all such fees and expenses shall be reimbursed
as they are incurred. Any such separate firm for the Underwriters, each
affiliate of any Underwriter which assists such Underwriter in the distribution
of the Securities and such control persons of Underwriters shall be designated
in writing by J.P. Morgan Securities Inc. and any such separate firm for the
Company, its directors, its officers who sign the Registration Statement and
such control persons of the Company shall be designated in writing by the
Company and any such separate firm for the Selling Shareholders shall be
designated in writing by the Attorney-in-Fact. No Indemnifying Person shall be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, each Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, such Indemnifying Person agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding in respect
of which any Indemnified Person is or could have been a party
<PAGE>
-33-
and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in the first, second and third
paragraphs of this Section 7 is unavailable to an Indemnified Person or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Person under such paragraph, in lieu of
indemnifying such Indemnified Person thereunder, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholders on the
one hand and the Underwriters on the other hand from the offering of the
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Shareholders on the one hand and the Underwriters on the
other hand shall be deemed to be in the same respective proportions as the net
proceeds from the offering (before deducting expenses) received by the Company
and the Selling Shareholders and the total underwriting discounts and the
commissions received by the Underwriters, in each case as set forth in the table
on the cover of the Prospectus, bear to the aggregate public offering price of
the Securities. The relative fault of the Company and the Selling Shareholders
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Selling Shareholders or
by the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by PRO RATA allocation (even if the Selling Shareholders or
Underwriters were treated as one entity for such purposes) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Person as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the
<PAGE>
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limitations set forth above, any legal or other expenses incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Securities set forth opposite their names in Schedule I
hereto, and not joint.
The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company and the Selling
Shareholders set forth in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any other person controlling the Company or the Selling Shareholders and (iii)
acceptance of and payment for any of the Securities.
8. Notwithstanding anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the Option Securities)
may be terminated in the absolute discretion of the Representatives, by notice
given to the Company, if after the execution and delivery of this Agreement and
prior to the Closing Date (or, in the case of the Option Securities, by notice
given to the Attorney-in-Fact prior to the Additional Closing Date) (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
Nasdaq National Market or the EASDAQ, (ii) trading of any securities of or
guaranteed by the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by U.S. Federal, New York State
or French authorities, or (iv) there shall have occurred any outbreak or
escalation of hostilities or any change in financial markets or any calamity or
crisis that, in the judgment of the Representatives, is material and
<PAGE>
-35-
adverse and which, in the judgment of the Representatives, makes it
impracticable to market the Securities being delivered at the Closing Date or
the Additional Closing Date, as the case may be, on the terms and in the manner
contemplated in the Prospectus.
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase
Securities which it or they have agreed to purchase hereunder on such date, and
the aggregate number of Securities which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Securities to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Securities set forth opposite their respective names in Schedule I bears to the
aggregate number of Underwritten Securities set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as the
Representatives may specify, to purchase the Securities which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; PROVIDED, HOWEVER, that in no event shall the number of Securities that
any Underwriter has agreed to purchase pursuant to Section 9 be increased
pursuant to this Section 9 by an amount in excess of one-tenth of such number of
Securities without the written consent of such Underwriter. If on the Closing
Date or the Additional Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Securities which it or they have
agreed to purchase hereunder on such date, and the aggregate number of
Securities with respect to which such default occurs is more than one-tenth of
the aggregate number of Securities to be purchased on such date, and
arrangements satisfactory to the Representatives and the Company or the Selling
Shareholders, as the case may be, for the purchase of such Securities are not
made within 36 hours after such default, this Agreement (or the obligations of
the several Underwriters to purchase the Option Securities, as the case may be)
shall terminate without liability on the part of any non-defaulting Underwriter,
the Company or the Selling Shareholders. In any such case either the
Representatives or the Company shall have the right to postpone the Closing Date
(or, in the case of the Option Securities, the Representatives and the Selling
Shareholders shall have the right to postpone the Additional Closing Date), but
in no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. Any action taken under
<PAGE>
-36-
this paragraph shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Company or the
Selling Shareholders to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company or the Selling
Shareholders shall be unable to perform its obligations under this Agreement or
any condition of the Underwriters' obligations cannot be fulfilled, the Company
and the Selling Shareholders agree to reimburse the Underwriters or such
Underwriters as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the reasonable fees and
expenses of its counsel) reasonably incurred by the Underwriter in connection
with this Agreement or the offering contemplated hereunder.
11. This Agreement shall inure to the benefit of and be binding upon
the Company, the Selling Shareholders, the Underwriters, each affiliate of any
Underwriter which assists such Underwriter in the distribution of the
Securities, any controlling persons referred to herein and their respective
successors and assigns. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person, firm or corporation any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: 212-648-5705); Attention: Syndicate Department. Notices to
the Company shall be given to it at 6531 Dumbarton Circle, Freemont, California
94555 (telefax:510-574-0128); Attention: President. Notices to the Selling
Shareholders shall be given to the Attorney-in-Fact at [ ] (telefax: [
]); Attention: [ ].
13. This Agreement may be signed in counterparts, each of which shall
be an original and all of which together shall constitute one and the same
instrument.
14. In respect of any judgment or order given or made for any amount
due
<PAGE>
-37-
hereunder that is expressed and paid in a currency (the "judgment currency")
other than United States dollars, the Company will indemnify each Underwriter as
a result of any variation between (i) the rate of exchange at which the United
States dollar amount is converted into the judgment currency for the purpose of
such judgment or order and (ii) the rate of exchange at which an Underwriter is
able to purchase United States dollars with the amount of the judgment currency
actually received by such Underwriter. The foregoing indemnity shall constitute
a separate and independent obligation of the Company and shall continue in full
force and effect notwithstanding any such judgment or order. The term "rate of
exchange" shall include any premiums and costs of exchange payable in connection
with the purchase of or conversion into United States dollars.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS
OF LAWS PROVISIONS THEREOF. THE COMPANY HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE BOROUGH OF MANHATTAN IN THE
CITY OF NEW YORK IN ANY SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE IN SUCH COURTS OF ANY SUCH SUIT, ACTION OR PROCEEDING. THE
COMPANY WAIVES ANY IMMUNITY TO JURISDICTION TO WHICH IT MAY OTHERWISE BE
ENTITLED OR BECOME ENTITLED (INCLUDING SOVEREIGN IMMUNITY TO PRE-JUDGMENT
ATTACHMENT AND EXECUTION) IN ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE
COMPANY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY APPOINTS CT CORPORATION SYSTEM,
PRESENTLY LOCATED AT 111 EIGHTH AVENUE, NEW YORK, NEW YORK 10011, USA, AS ITS
AUTHORIZED AGENT IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK UPON WHICH
PROCESS MAY BE SERVED IN ANY SUCH SUIT OR RESPECT EFFECTIVE SERVICE OF PROCESS
UPON THE COMPANY IN ANY SUCH SUIT OR PROCEEDING. THE COMPANY FURTHER AGREES TO
TAKE ANY AND ALL ACTION AS MAY BE NECESSARY TO MAINTAIN SUCH DESIGNATION AND
APPOINTMENT OF SUCH AGENT IN FULL FORCE AND EFFECT FOR A PERIOD OF SEVEN YEARS
FROM THE DATE OF THIS AGREEMENT.
[Signature Page Follows]
<PAGE>
-38-
If the foregoing is in accordance with your understanding, please sign
and return four counterparts hereof.
Very truly yours,
ACTIVCARD S.A.
By:
Name:
Title:
SELLING SHAREHOLDERS
By:
Name:
Title:
As Attorney-in-Fact acting on behalf of
each of the Selling Shareholders named
in Schedule II to this Agreement.
<PAGE>
-39-
Accepted: March __, 2000
J.P. MORGAN SECURITIES INC.
SG COWEN SECURITIES CORPORATION
SOUNDVIEW TECHNOLOGY GROUP, INC.
Acting severally on behalf
of themselves and the
several Underwriters listed
in Schedule I hereto.
By: J.P. Morgan Securities Inc.
Acting on behalf of itself and the
several Underwriters listed in
Schedule I hereto.
By:
Name:
Title:
<PAGE>
-40-
SCHEDULE I
<TABLE>
<CAPTION>
Number of Underwritten
Securities To Be
Underwriter Purchased
- ----------- ---------
<S> <C>
J.P. Morgan Securities Inc..................................... [ ]
SG Cowen Securities Corporation................................ [ ]
SoundView Technology Group, Inc................................ [ ]
Total 4,000,000
---------
---------
</TABLE>
<PAGE>
-41-
SCHEDULE II
<TABLE>
<CAPTION>
Number of Option
Selling Shareholders Securities
- -------------------- ----------------
<S> <C>
Thomas A. Arthur 40,000
Douglas M. Kernan 20,000
George Wikle 40,000
Vertex Investment International (III), Inc. 250,000
Vertex Investment (II) Ltd. 125,000
Vertex Asia Limited 125,000
Total 600,000
-------
-------
</TABLE>
<PAGE>
-42-
Exhibit A
[Form of Lock-Up Agreement]
LOCK-UP AGREEMENT
March __, 2000
J.P. MORGAN SECURITIES INC.
SG COWEN SECURITIES CORPORATION
SOUNDVIEW TECHNOLOGY GROUP, INC.
As Representatives of the several
Underwriters named in Schedule I to
the Underwriting Agreement referred to below
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Re: ActivCard S.A. Equity Offering
------------------------------
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the
several Underwriters, propose to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with ActivCard S.A., a French societe anonyme (the
"COMPANY"), providing for the public offering (the "PUBLIC OFFERING") by the
several Underwriters named in Schedule I to the Underwriting Agreement (the
"UNDERWRITERS") of American Depositary Shares ("ADSS"), each representing one
Ordinary Share, nominal value FF6.25 per share ("ORDINARY SHARES"), of the
Company. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Underwriting Agreement.
In consideration of the Underwriters' agreement to purchase and make
the Public Offering of the ADSs, and for other good and valuable consideration
receipt of which is hereby acknowledged, the undersigned hereby agrees that,
without the prior written consent of J.P. Morgan Securities Inc. on behalf of
the Underwriters, subject as set forth below, the undersigned will not, during
the period ending 150 days after the effective date of the registration
statement relating to the Public Offering (the "Registration Statement"), (1)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly
<PAGE>
-43-
or indirectly, any Ordinary Shares, ADSs or any other securities of the Company
which are substantially similar to the Ordinary Shares or the ADSs, or any
securities convertible into or exercisable or exchangeable for Ordinary Shares
or ADSs (including, but not limited to, Ordinary Shares or ADSs which may be
deemed to be beneficially owned by the undersigned in accordance with the rules
and regulations of the Securities and Exchange Commission securities which may
be issued upon exercise of a stock option or warrant) (PROVIDED that such shares
or securities are either now owned by the undersigned or are hereafter acquired
prior to or in connection with the Public Offering) or (2) enter into any swap,
option, future, forward or other agreement that transfers, in whole or in part,
any of the economic consequences of ownership of the Ordinary Shares or the ADSs
or any securities of the Company which are substantially similar to the Ordinary
Shares or the ADSs, including, but not limited to, any security convertible into
or exercisable or exchangeable for Ordinary Shares or ADSs, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Ordinary Shares or ADSs or such other securities, in cash or otherwise;
PROVIDED, HOWEVER, that clauses (1) and (2) above shall not apply to the
exercise of (a) stock options issued pursuant to the Company's employee stock
option plans existing on the effective date of the Registration Statement or the
exercise of such options, (b) transfers by the undersigned to the Company, (c)
transfers by the undersigned to any other entity which is a shareholder of the
Company on the date hereof and which has signed a letter substantially similar
to this Lock-Up Agreement and in form and substance satisfactory to you and (d)
transfers by gift, will or intestacy of the undersigned's Ordinary Shares or
ADSs or any securities of the Company which are substantially similar to the
Ordinary Shares or ADSs, including, but not limited to, any security convertible
into or exercisable or exchangeable for Ordinary Shares or ADSs, PROVIDED that
the transferee delivers to the Underwriters a signed letter substantially
similar to this Lock-Up Agreement and in form and substance satisfactory to you.
In addition, the undersigned agrees that, without the prior written consent of
J.P. Morgan Securities Inc. on behalf of the Underwriters, it will not, during
the period ending 150 days after the effective date of the Registration
Statement, make any demand for, or exercise any right with respect to, the
registration of any Ordinary Shares or ADSs or any substantially similar
securities of the Company, including, but not limited to, any security
convertible into or exercisable or exchangeable for Ordinary Shares or ADSs.
In furtherance of the foregoing, the Company and any duly appointed
transfer agent for the registration or transfer of the securities described
herein are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Lock-Up Agreement.
The undersigned hereby represents and warrants that the undersigned
<PAGE>
-44-
has full power and authority to enter into this Lock-Up Agreement. All authority
herein conferred or agreed to be conferred and any obligations of the
undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.
The undersigned understands that, if the Underwriting Agreement does
not become effective, or if the Underwriting Agreement (other than the
provisions thereof which survive termination) shall terminate or be terminated
prior to payment for and delivery of the ADSs to be sold thereunder, the
undersigned shall be released from all obligations under this Lock-Up Agreement.
This agreement shall lapse and become null and void if the Public
Offering shall not have been completed on or before the date that is one month
from the date of this Lock-Up Agreement.
The undersigned understands that the Underwriters are entering into
the Underwriting Agreement and proceeding with the Public Offering in reliance
upon this Lock-Up Agreement.
THIS LOCK-UP AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
[Signature Page Follows]
<PAGE>
-45-
Very truly yours,
By:
Name:
Title:
Accepted as of the date first
set forth above:
J.P. MORGAN SECURITIES INC.
SG COWEN SECURITIES CORPORATION
SOUNDVIEW TECHNOLOGY GROUP, INC.
Acting severally on behalf of themselves and
the several Underwriters named in Schedule I
to the Underwriting Agreement
By: J.P. MORGAN SECURITIES INC.
By:
Name:
Title:
<PAGE>
Exhibit 10.10
STOCK PURCHASE AGREEMENT
------------------------
Dated as of December 29, 1999
AMONG
ACTIVCARD: S.A., a French SOCIETE ANONYME with a capital of 198,468,012.50
French Francs having its head offices at 24 avenue du General de Gaulle,
98150 Suresnes, France.
AND
BUSINESS BRAIN SHOW A-OTA INC. (hereinafter referred to as "BUSINESS BRAIN
SHOWA-OTA INC."), a company incorporated in Japan having its head offices at
2-2-3 Uchisaiwai-Cho, Chiyodaku, Tokyo, 100-0011.
Hereinafter referred to as, together or individually, respectively, the
"Parties" or the "Party".
WITNESSETH:
- -----------
1. On December 16, 1999, the Board of Directors of ActivCard (the "Board")
unanimously resolved in favor of proposing to a shareholders' meeting to
be held in February 9, 2000, among other things, an opening of
ActivCard's shareholding to private investors, including BUSINESS BRAIN
SHOWA-OTA INC.
2. The main terms of the resolution submitted to the shareholders' meeting
for approval provide for a capital increase reserved for BUSINESS BRAIN
SHOWA-OTA INC. in the amount of FRF 728,437.50, represented by 116,550 new
shares of ActivCard, it being understood by the Board that BUSINESS BRAIN
SHOWA-OTA INC. intends to subscribe all these shares as a strategic
investment and not with the aim to resell the shares upon subscription of
the capital increase.
3. Subject to the terms and conditions contained herein, it is the
intention of BUSINESS BRAIN SHOWA-OTA INC. to subscribe from ActivCard
116,550 new ActivCard shares at a price per share equal to US$ 17.16
(to be issued subject to the shareholder approval described in
paragraph 1).
THE PARTIES HAVE AGREED AS FOLLOWS:
- -----------------------------------
1. AGREEMENT
---------
Subject to the terms and conditions set forth herein, BUSINESS BRAIN
SHOWA-OTA INC. hereby agrees to subscribe from ActivCard, and ActivCard
hereby agrees to issue to BUSINESS BRAIN SHOWA-OTA INC., 116,550 new
ActivCard shares (the "Shares") at a price equal to US$ 17.16 per share
corresponding to the arithmetic average of the 10 consecutive trading prices
for the shares on Easdaq from November 25 to December 8, 1999. BUSINESS BRAIN
SHOWA-OTA INC. will pay US $1,999,998.00 (the "Subscription Price") to
ActivCard by wire transfer to the account of ActivCard on or before the
Closing Date (as defined below) and upon receipt of such funds ActivCard will
issue or cause to issue the Shares to BUSINESS BRAIN SHOWA-OTA INC., such
issuance to be evidenced by an inscription in the share register of ActivCard
held by Paribas, on behalf of the company. Account details of ActivCard will
be provided at least five days prior to the Closing Date.
Page 1
<PAGE>
2. CONDITION PRECEDENT
The obligations of ActivCard and BUSINESS BRAIN SHOWA-OTA INC. set forth in
Section 1 hereof shall be subject to the condition that the shareholders of
ActivCard shall approve the above-described capital increase in favor of
BUSINESS BRAIN SHOWA-OTA INC. in substantially the form of the resolution
recommended by the Board of Directors of ActivCard on December 16, 1999,
copies of which resolution are attached hereto.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
3.1 REPRESENTATIONS AND WARRANTIES OF ACTIVCARD
ActivCard represents and warrants to BUSINESS BRAIN SHOWA-OTA INC. that as of
the date of execution of this Agreement and the Closing Date the
execution and performance of this Agreement by it does not conflict with or
violate the rights of any third party which would create any significant
liability.
3.2 REPRESENTATIONS AND WARRANTIES OF BUSINESS BRAIN SHOWA-OTA INC.
BUSINESS BRAIN SHOWA-OTA INC. represents and warrants to ActivCard that as of
the date of execution of this Agreement and the Closing Date:
- - its execution of this Agreement and its performance hereunder are fully
authorized by all necessary corporate procedures and do not conflict with,
or constitute a violation of, any right of any third party under any
contract with BUSINESS BRAIN SHOWA-OTA INC.;
- - it is purchasing the Shares for its own account for investment and not with
a view to, or for offer or sale in connection with, any distribution thereof
in violation of the Securities Act of 1933, as amended (the "Securities
Act") and it has no present intention, agreement or arrangement to resell,
assign, transfer, pledge or otherwise dispose of all or any part of the
Shares;
- - it has been furnished with a draft of ActivCard's Registration Statement on
Form F-1 (the "Registration Statement") and has carefully reviewed the
Registration Statement and understands the risks of, and other
considerations relating to, a purchase of Shares, including, but not
limited to, the risks set forth under "Risk Factors" in the Registration
Statement and in addition to the Registration Statement has had access to
such financial and other information concerning ActivCard and the Shares as
it has deemed necessary in connection with the decision to purchase any of
the Shares, including an opportunity to ask questions of and request
information from ActivCard;
- - it understands and agrees that the offering and the sale of the Shares
hereunder is intended to be exempt from registration under the Securities
Act pursuant to Rule 904 under Regulation S of the Securities Act and
ActivCard's reliance on such exemption is based in part upon the
representations of BUSINESS BRAIN SHOWA-OTA INC. made hereunder;
- - it has not distributed the Registration Statement to anyone and no one
except BUSINESS BRAIN SHOWA-OTA INC. has used the Registration Statement,
and it has not made any copies thereof;
- - it understands and agrees that the Shares may not be transferred or resold
except as permitted under the Securities Act and the applicable state
securities laws of any state or other jurisdiction (domestic or foreign),
pursuant to registration or exemption therefrom;
Page 2
<PAGE>
- - it understands and agrees that the Shares have not been recommended by any
securities commission or regulatory authority of the federal government of
the United States of America or any state thereof or any other governmental
authority (domestic or foreign). Furthermore, the foregoing authorities
have not confirmed the accuracy or determined the adequacy of the
Registration Statement. Any representation to the contrary is a criminal
offense;
- - it understands that none of the Shares has been registered under the
Securities Act or any securities or "Blue Sky" laws of any state or other
jurisdiction (domestic or foreign);
- - it has such knowledge and experience in financial and other matters as to
be capable of evaluating the merits and risks of an investment in the
Shares and has not relied on others in connection with evaluating such
risks of such investment and is able to bear the complete loss of an
investment in the Shares;
- - it is not subscribing for the Shares as a result of or subsequent to any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio,
or represented at any seminar or meeting, or any allocation of a
subscription by a person other than a representative of ActivCard;
- - it is not relying on ActivCard with respect to the legal, tax or other
considerations with respect to an investment in the Shares;
- - it is not a U.S. person (as that term is defined in Rule 902 under
Regulation S of the Securities Act).
3.3 COVENANT OF BUSINESS BRAIN SHOWA-OTA INC.
BUSINESS BRAIN SHOWA-OTA INC. agrees and understands that:
- - the Shares have not been, and shall not be, registered under the provisions
of the U.S. SECURITIES ACT of 1933, as amended (the "SECURITIES ACT"), and
may not be offered or sold unless either they are subsequently registered
under the Securities Act or an exemption from such registration is available;
- - it will inform any contemplated purchaser for the shares of the
above-mentioned restrictions;
- - it shall indemnify and hold harmless ActivCard or any of its officers,
employees, directors and agents from and against any and all losses,
liabilities and expenses for which ActivCard and any of its officers,
employees, directors or agents from and against any and all loss, damage or
liability due to or arising out of a breach of any representation or
warranty of BUSINESS BRAIN SHOWA-OTA INC. contained in this agreement.
BUSINESS BRAIN SHOWA-OTA INC. further agrees that, in connection with the
public offering of ActivCard shares of American Depositary Shares, it will be
subject to a customary lock-up provision that will be required by the
underwriters or pursuant to any applicable securities regulations and, as a
minimum, it will be prevented from selling or transferring its shares for a
period at least equal to six months from the date of such initial public
offering.
4. PUBLIC DISCLOSURE
Each party hereto recognizes that ActivCard will publicly disclose the terms
of this agreement in connection with a possible public offering of the
ordinary Shares of ActivCard or American Depositary Shares or to comply with
Easdaq regulations.
Page 3
<PAGE>
5. MISCELLANEOUS
5.1 Closing Date
The Parties agree that, except as otherwise agreed, the day for closing the
transaction shall be the 16th of February 2000 (seven days from the date of
the shareholders' meeting referred above) (the "Closing Date").
5.2 Notice
(1) Any information, notice or communication between the Parties hereto
shall be made in writing with acknowledgment of receipt (letter, telegram,
fax, etc.) to the addressees of the Parties mentioned below, or to any other
address which may be notified by one Party to the other.
- - For: ActivCard: 6531 Dumbarton Circle, Fremont, CA 94555 USA; attention,
George R. Wikle, Chief Financial Officer Tel.: +1.510.574.0100;
- - for: BUSINESS BRAIN SHOWA-OTA INC.: 2-2-3 Uchisaiwai-cho, Chiyodaku,
Tokyo, 100-0011; attention, Hidenori Horiuchi, President
Tel.: 81.3.3595.1581.
The date of notification shall be deemed to be the date of receipt of the
document, as determined by the acknowledgment of receipt. Where there is no
acknowledgment of receipt, the date at which the document is presented shall
be deemed to constitute the date of notification.
(2) This Agreement and its attachments contain the complete and definitive
expression of the Parties' intent. They represent the totality of the
understanding that has been reached and supersede all prior agreements
relating to the subject matter of this Agreement.
6. APPLICABLE LAW--JURISDICTION
The laws of the Republic of France shall govern this agreement.
In case of disagreement, the Parties shall submit such disagreement to their
respective management, which shall attempt to find an amicable solution,
within thirty (30) days of notification of such request by a Party.
The Parties agree to submit all disputes in connection with or arising out of
the validity, interpretation, performance, termination or annulment of this
Agreement to an accredited arbitrator satisfactory to both parties.
Executed at __________________________________, this 29 day of December, 1999,
in two (2) original copies.
For: ACTIVCARD For: BUSINESS BRAIN SHOWA-OTA INC.
/s/ George R. Wikle /s/ Hidenori Horiuchi
Name: George R. Wikle Name: Hidenori Horiuchi
Title: Chief Financial Officer Title: President
Page 4
<PAGE>
Exhibit 10.13
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release (the "Agreement") is entered into
by and among following Parties: ActivCard, S.A., (the "Company"), ActivCard,
Inc., Yves Audebert, Achille Delahaye and Jean Gerard Galvez (collectively
"Defendants"), on the one hand, and Kenneth R. Fineman ("Plaintiff" or
"Fineman"), on the other hand (collectively, the "Parties").
On October 31, 1997, Plaintiff commenced an action entitled Kenneth R.
Fineman v. ActivCard, S.A. et al., in the United States District Court for the
Northern District of California, Case C-97-4021 MMC ("the Litigation")
alleging violations of Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, fraud and deceit, conspiracy, breach of contract, breach of
fiduciary duty against Defendants arising out of his ownership of shares in
ActivCard Networks, Inc. and the merger of ActivCard Networks Inc. into
Defendant ActivCard, Inc.
Plaintiff believes that the claims asserted in the Litigation have
merit. Defendants deny each and all of the claims and contentions alleged in
the Litigation. Nevertheless, to avoid the expense and uncertainty of
litigation the Parties desire that the Litigation be fully and finally
settled in the manner and on the terms and conditions set forth below.
Now, therefore, the Parties hereby agree that the Litigation be finally
and fully settled upon and subject to the following terms and conditions:
1. CONSIDERATION:
1.1 As additional consideration for Plaintiff's shares in ActivCard
Networks, Inc., and in settlement of Plaintiff's claims in the Litigation, on
the date of execution of this Agreement by the Parties, the Company will and
hereby does authorize the disbursement to Fineman of U.S. $637,500 in cash
(the "Cash Consideration") from the trust account described below and, on or
before August 2, 1999, the Company shall deliver to Plaintiff 480,000 shares
of common stock
1 of 12
Confidential Settlement Agreement
<PAGE>
of ActivCard, S.A. (the "Shares") at an issue price of $1.25 per share (the
"Effective Date"). The Company shall deliver the Shares to Fineman by
causing the Shares to be registered solely in the name of Kenneth R. Fineman
on the books of PARIBAS, 3 rue d'antin, 75078 Paris CEDEX 2, France, in an
account solely under Fineman's name and subject to his sole and exclusive
authority and discretion. The fact and manner of the delivery of the Shares,
including all account information, shall be verified by the Company in
writing, and the Company shall use its best efforts to obtain from PARIBAS,
and to deliver with the Company's verification to Fineman, written
confirmation of the fact and manner of delivery and all account information, as
soon as possible. For the purposes of this Agreement, however, the Shares
shall not be considered to have been delivered, and the Company's performance
of its obligations therefore not complete, until the foregoing written
confirmation has been received by Plaintiff through his counsel of record, by
facsimile or overnight delivery, at the address set forth below. The Shares
shall be paid for in their entirety by setting off the subscription price of
the Shares against the Company's obligation, pursuant to this Agreement, to
provide Plaintiff additional consideration for Plaintiff's shares in
ActivCard Networks, Inc. As of June 25, 1999, the Cash Consideration has
been deposited by or on behalf of Defendants in an interest-bearing trust
account maintained by Plaintiff's counsel, and Fineman is entitled to all
interest accrued on the Cash Consideration. Collectively, the Cash
Consideration and the Shares shall constitute the "Settlement Consideration."
1.2 In consideration of the foregoing, as soon as practicable following
the Company's performance of its obligations under paragraph 1.1, and in no
event later than ten court days thereafter, Plaintiff shall dismiss the
Litigation in its entirety, against all Defendants and each of them, with
prejudice, with each Party bearing its own costs, expenses and legal fees in
the Litigation. If for any reason the Litigation is not dismissed with
prejudice, the Settlement Consideration, together with any interest earned,
less all out of pocket expenses and fees incurred.
2 of 12
Settlement Agreement and Release - Confidential
<PAGE>
on behalf of Plaintiff to secure French counsel in connection with reaching a
final agreement, will be returned to the Company.
RELEASE:
2.1 A "Released Person" is a Party in whose favor the release set forth in
this Agreement has been executed by another Party.
2.1 "Released Claims" shall collectively mean any and all claims (including
"Unknown Claims" as defined in paragraph 2.2 hereof), demands, rights,
liabilities and causes of action of every nature and description
whatsoever, known or unknown, whether or not concealed or hidden, asserted or
that might have been asserted, based upon the facts, transactions, events,
occurrences, sets, disclosures, statements, omissions or failures to act
which were, could or might have been alleged in the Litigation, including,
without limitation, claims for negligence, gross negligence, breach of duty of
care and/or breach of duty of loyalty, fraud, breach of fiduciary duty, or
violations of any state or federal statutes, rules or regulations.
2.2 "Unknown Claims" means any Related Claims which any Party does not know or
suspect to exist in his or its favor at the time of the Effective Date which,
if known by him or it, might have affected his or its settlement with and
release of the Released Persons, or might have affected his or its decision to
enter into this Agreement. With respect to any and all Released Claims, the
Parties agree that, upon the Effective Date, the Parties shall have expressly
waived any and all provisions, rights and benefits conferred by any law of any
state or territory of the United States, or principle of common law, or of
international or foreign law which is similar, comparable or equivalent to
California Civil Code Section 1542, which provides as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.
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<PAGE>
Each of the Parties may hereafter discover facts in addition to or different
from those which he or it now knows or believes to be true with respect to
the subject matter of the Released Claims, but each Party agrees that upon
the Effective Date that Party shall have, fully, finally, and forever settled
and released any and all Released Claims, known or unknown, suspected or
unsuspected, contingent or non-contingent, whether or not concealed or
hidden, which now exist, or heretofore have existed upon any theory of law or
equity now existing or coming into existence in the future, including, but
not limited to, conduct which is negligent, intentional, with or without
malice, or a breach of any duty, law or rule, without regard to the
subsequent discovery or existence of such different or additional facts. The
Parties acknowledge that the foregoing waiver was separately bargained for
and an essential element of the settlement of which this release is a part.
2.3 As of the Effective Date, Plaintiff shall and hereby does fully,
finally, and forever release Defendants and each of them, and their
respective directors, officers, representatives, agents, employees,
successors, assigns, heirs and attorneys, past and present, of and from the
Released Claims. This release operates to make Defendants, and each of them,
Released Persons, as defined herein, and includes the release of all Unknown
Claims, as defined herein.
2.4 As of the Effective Date, Defendants, and each of them, shall and
hereby do fully, finally, and forever release Plaintiff, and each of his
representatives, agents, successors, assigns, heirs and attorneys, past and
present, of and from the Released Claims. This release operates to make
Plaintiff a Released Person, as defined herein, and includes the release of
all Unknown Claims, as defined herein.
3. OTHER PROVISIONS:
3.1 RIGHTS OF PLAINTIFF AS SHAREHOLDER. As a shareholder of the
Company's common stock, Plaintiff shall have the rights appurtenant to such
ownership. In particular, in the event
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<PAGE>
the Company causes its common stock to become tradable (whether directly or
indirectly, through American Depository Receipts), on any exchange other than
NASDAQ, Plaintiff's shares shall be likewise so tradable.
3.2 ACTION BY CORPORATE DEFENDANT TO EFFECT SETTLEMENT. The Company
represents and warrants that it has taken all corporate and other action
necessary and sufficient to secure all necessary approvals and to effect each
and all of the terms of the Agreement, including any and all board actions,
approvals (including shareholder approvals), and filings required by any
governmental or other agency. The Defendants acknowledge that time is of the
essence with respect to their execution of all documents and corporate and
other action necessary to effectuate the Agreement.
3.3 NO RESTRICTIONS ON SHARES. The Company represents and warrants that
all of the Shares delivered to Plaintiff pursuant to this Agreement will be
fully issued and shall be freely available and transferable without
restriction. Upon delivery of the Shares, all securities and rights under
this Agreement shall be freely transferable, assignable, and such securities
may be used as collateral or pledged in any way at the sole discretion of the
Plaintiff, except as otherwise provided herein.
3.4 ORDERLY SALE OF SHARES. Plaintiff agrees to sell any Company Shares
owned by him in an orderly fashion.
3.5 TAX TREATMENT. The Parties agree that they will not report the
transfer of the Settlement Consideration to Plaintiff as anything other than
consideration paid pursuant to a "Deorganization" within the meaning of
Section 368 of the Internal Revenue Code. Defendants will not, however, be
required to make any specific filings or to amend any previously filed tax
returns. Plaintiff agrees to indemnify the Company for any United States
withholding taxes finally determined by the Internal Revenue Service ("IRS") to
be due and payable
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<PAGE>
notwithstanding the reporting of the payment of the Settlement Consideration
in the manner described, in the amount of such taxes that would have been
payable by Plaintiff, but in no event to exceed $220,000. This indemnity
provision shall be void and of no effect if Defendants report or contend in
any manner that payment of the Settlement Consideration is anything other
than consideration paid pursuant to a reorganization within the meaning of
Section 368 of the Internal Revenue Code; the foregoing however, does not
limit Defendants' ability to accurately describe the facts pertaining to this
settlement to the IRS in response to an inquiry by the IRS, and such
responses shall not void this indemnity provision. This indemnity provision
shall expire at the earlier of a change in control of the Company or
January 1, 2003.
3.6 AUTHORITY. Each of the Parties and signatories for the Parties
represents that he or it has the full right, power and authority to execute
and perform this Agreement and each of the other instruments and agreements
required from that Party pursuant to this Agreement and that no such
execution or performance in any way, directly or indirectly, violates or
conflicts with: (a) any law or any order of a court or a government authority
or agency, or (b) any contract, right, title or interest of any other person
or entity.
3.7 CONFIDENTIALITY. The terms of this Agreement shall be confidential.
The Parties agree to keep each and all of the terms of this Agreement
confidential from third parties, nonemployees, and from employees of any
corporate Defendant who do not need to know such terms for the purpose of
performing their duties, except as may be required by law including, without
limitation, pursuant to an order of a court of competent jurisdiction, as
required by any regulatory agency, to the Company's statutory auditors, for
tax and accounting purposes, or as may be required in the course of due
diligence pursuant to any merger, acquisition, or reorganization of the
Company. The fact of the existence of a settlement may be disclosed. Released
Persons may file the Agreement in any action that may be brought against them
in order to support a defense or counterclaim based on principles of RES
JUDICATA, collateral
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<PAGE>
estoppel, release, good faith settlement, judgment bar or reduction or any
other theory of claim preclusion or issue preclusion or similar defense or
counterclaim, but shall first take all action necessary to preserve the
confidentiality of the terms of the Agreement, including filing under seal. No
party hereto shall make or cause to be made any public statement, press
release, or affirmative disclosure of the terms of this Agreement other than
those statements required under the reporting requirements imposed by the laws
of France or of the United States, nor shall any party hereto make or cause to
be made any public statement or press release regarding the merits of the
Litigation. Any party hereto who receives any inquiry regarding the
Litigation shall respond only by saying that a settlement has been reached,
and that its terms are confidential.
3.8 LEGAL FEES. In any legal or equitable action or arbitration
between any of the Parties arising out of a breach of or brought to enforce
any of the provisions of this Agreement, the prevailing party or parties
shall be entitled to recover from the non-prevailing party or parties its
costs, expenses, and attorneys' fees incurred in connection therewith.
3.9 WRITTEN MODIFICATION. This Agreement may not be altered,
amended, modified, or otherwise changed in any respect or particular
whatsoever, except in a writing duly executed by all of the Parties to this
Agreement.
3.10 ENTIRE AGREEMENT. The Parties agree that this Agreement
constitutes their full, final, and irrevocable agreement to settle the
Litigation and that this Agreement is the entire Agreement between the
Parties and supersedes all prior or contemporaneous oral or written
agreements or discussions, and that no Party has relied upon any other
communication whatsoever in entering this Agreement. The Parties acknowledge
that this Agreement has been reviewed by their respective counsel prior to
its signing, and that each Party has had an opportunity to discuss fully the
terms of this Agreement with its respective counsel.
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3.11 SEVERABILITY. All of the provisions of this Agreement shall be
considered severable, such that if any provision or part hereof shall at any
time be held under any law or ruling to be invalid, such provision or part
shall remain in force to the extent allowed by law, and all other provisions
shall remain in full force and effect and enforceable.
3.12 CONSTRUCTION. All of the provisions of this Agreement are
contractual and not mere recitals. The Parties hereby agree that any
common-law, equitable or statutory rule to the effect that an ambiguous term
or provision will be construed against the maker of this Agreement is hereby
waived. In the event of any conflict between this Agreement and any translation
of this Agreement, the English language version shall control.
3.13 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and shall
inure to the benefit of the Parties and their respective parent companies,
affiliates, subsidiaries, agents, employees, officers, directors,
shareholders, partners, joint ventures, attorneys, insurers, bonding
companies, heirs, successors and assigns.
3.14 CHOICE OF LAW. This Agreement shall be governed by, and construed
in accordance with and pursuant to, the law of California.
3.15 EXECUTION IN COUNTERPARTS AND/OR VIA FACSIMILE. This Agreement
may be executed in one or more counterparts and/or via facsimile, each of which
shall be deemed an original, but all of which shall constitute one and the
same instrument.
3.16 JURISDICTION AND VENUE. The Defendants, and each of them, hereby
consent to the jurisdiction of the United States District Court for the
Northern District of California with respect to the enforcement of this
Agreement, and any dispute arising under this Agreement. The parties further
agree that venue in the Northern District of California is proper with
respect to any action to enforce the provisions of this Agreement.
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3.17 MEDIATION. The Parties agree that any dispute between them
arising under this agreement shall be submitted to non-binding mediation
before a retired judge of the United States District Court for the Northern
District of California or of the San Francisco Superior Court before any
litigation is commenced with respect to such dispute.
3.18 NO INSOLVENCY. Each Defendant warrants that, as to his or its
contribution to the settlement consideration, at the time of such contribution,
he or it was not insolvent nor did nor will such contribution render such
Defendant insolvent within the meaning of and/or for the purposes of United
States Bankruptcy Code, including Sections 1101 and 547, or any analogous
provisions of the law of any other jurisdiction. This warranty is made by each
Defendant and not by such Defendant's counsel.
3.19 EFFECT OF COMPANY INSOLVENCY. If, prior to the expiration of 91
days following the transfer of any portion of the Settlement Consideration, a
case is commenced in respect to the Company under Title 11 of the United States
Code (Bankruptcy), or any analogous provisions of the law of any other
jurisdiction, or a trustee, receiver or conservator is appointed under any
similar law, and in the event of the entry of a final order of a court of
competent jurisdiction determining the transfer of the Settlement
Consideration, or any portion thereof, by or on behalf of the Company to be a
preference, voidable transfer, fraudulent transfer or similar
transaction, then the release given and Dismissal entered in favor of the
Company pursuant to this Agreement shall be voidable, and Plaintiff's claims
against the Company, and each of them, revived NUNC PRO TUNC, at Plaintiff's
election.
3.20 BEST EFFORTS. The Parties (a) acknowledge that it is their intent
to consummate this Agreement, and (b) agree to cooperate to the extent
reasonably necessary to effectuate and implement all terms and conditions of
the Agreement and to exercise their best efforts to accomplish the foregoing
terms and conditions of the Agreement.
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3.21 FULL, FINAL AND IRREVOCABLE SETTLEMENT OF CLAIMS. The Parties
intend this Agreement to be a final and complete resolution of all disputes
between them with respect to the Litigation. The settlement compromises
claims which are contested and shall not be deemed an admission by any Party
as to the merits of any claim or defense. The Parties agree that the
Settlement Consideration paid and the other terms of this Agreement were
negotiated in good faith by the Parties, and reflect a settlement that was
reached voluntarily after consultation with experienced legal counsel.
3.22 NO ADVERSE INFERENCES TO BE DRAWN. Neither this Agreement, nor any
act performed or document executed pursuant to or in furtherance of the
Agreement (including the Memorandum of Understanding effective June 11,
1999): (a) constitutes an admission of, or evidence of, the validity of any
Released Claim, or of any wrongdoing or liability of the Released Persons; or
(b) may be used as an admission of, or evidence of, any fault or omission of
any of the Released Persons in any civil, criminal or administrative
proceedings in any court, administrative agency or other tribunal.
AGREED AND APPROVED AS TO FORM:
/s/ Jean-Gerard Galvez
- -------------------------------------
ActivCard, S. A.
by Jean-Gerard Galvez, its chief executive officer
/s/ Jean-Gerard Galvez
- -------------------------------------
ActivCard, Inc.
by Jean-Gerard Galvez, its President
/s/ Yves Audebert
- -------------------------------------
Yves Audebert
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3.21 FULL, FINAL AND IRRAVOCABLE SETTLEMENT OF CLAIMS. The Parties
intend this Agreement to be a final and complete resolution of all disputes
between them with respect to the Litigation. The settlement compromises
claims which are contested and shall not be deemed an admission by any Party
as to the merits of any claim or defense. The Parties agree that the
Settlement Consideration paid and the other terms of this Agreement were
negotiated in good faith by the Parties, and reflect a settlement that was
reached voluntarily after consultation with experienced legal counsel.
3.22 NO ADVERSE INFERENCE TO BE DRAWN. Neither this Agreement, nor any
act performed or document executed pursuant to or in furtherance of the
Agreement (including the Memorandum of Understanding effective June 11,
1999): (a) constitutes an admission of, or evidence of, the validity of any
Released Claim, or of any wrongdoing or liability of the Released Persons; or
(b) may be used as an admission of, or evidence of, any fault or omission of
any of the Released Persons in any evil, criminal or administrative
proceedings in any court, administrative agency or other tribunal.
AGREED AND APPROVED AS TO FORM:
/s/ Jean-Gerard Galvez
- -------------------------------------
ActivCard, S. A.
by Jean-Gerard Galvez, its chief executive officer
/s/ Jean-Gerard Galvez
- -------------------------------------
ActivCard, Inc.
by Jean-Gerard Galvez, its President
/s/ Yves Audebert
- -------------------------------------
Yves Audebert
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/s/ Achille Delahayo
- ------------------------------------
Achille Delahaye
- ------------------------------------
Jean-Gerard Galvez
APPROVED AS TO FORM:
/s/ A. C. Johnston
- ------------------------------------
A. C. Johnston
Peggy Bruggman
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
Telephone: (650) 813-5600
Facsimile (650) 494-0792
Attorneys for Defendants ActivCard, SA,
ActivCard, Inc., Yves Audebert, Achille Delahaye
and Jean-Gerard Galvez
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- ------------------------------------
Achille Delahaye
/s/ Jean-Gerard Galvez
- ------------------------------------
Jean-Gerard Galvez
APPROVED AS TO FORM:
/s/ A. C. Johnston 7/23/99
- ------------------------------------
A. C. Johnston
Peggy Bruggman
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
Telephone: (650) 813-5600
Facsimile (650) 494-0792
Attorneys for Defendants ActivCard, SA,
ActivCard, Inc., Yves Audebert, Achille Delahaye
and Jean-Gerard Galvez
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AGREED AND APPROVED AS TO FORM:
- ------------------------------------
Kenneth R. Fineman
APPROVED AS TO FORM:
- ------------------------------------
James B. Burns, Jr.
John B. Missing
James A. Lico
Brobeck, Phleger & Harrison LLP
One Market, Spear Tower
San Francisco, California 94105
Telephone (415) 442-0900
Facsimile (415) 979-2927
Attorneys for Plaintiff Kenneth R. Fineman
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Exhibit 10.14
THIS AGREEMENT, dated as of February 22, 2000 (this
"AGREEMENT"), between ActivCard S.A., a French SOCIETE ANONYME ("ACTIVCARD or
the "COMPANY") and Kenneth R. Fineman, a citizen of the United States ("MR.
FINEMAN").
R E C I T A L S
WHEREAS, pursuant to a settlement agreement and release,
entered into by and among ActivCard, ActivCard, Inc., Yves Audebert, Achille
Delahaye, Jean-Gerard Galvez (collectively, the "DEFENDANTS") and Mr. Fineman,
having an effective date on or before August 2, 1999 (the "SETTLEMENT
AGREEMENT"), ActivCard issued 480,000 ordinary shares, FF 6.25 nominal value,
of the Company (the "ORDINARY SHARES") to Mr. Fineman;
AND WHEREAS, ActivCard is contemplating an offering of
Ordinary Shares in the United States, in the form of American Depositary Shares,
and has applied to list such American Depositary Shares on the Nasdaq National
Market;
AND WHEREAS, while the Ordinary Shares are freely tradeable on
Easdaq, Mr. Fineman may not offer or sell his Ordinary Shares in the United
States unless either they are registered under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or an exemption from registration is available;
AND WHEREAS, ActivCard desires to grant Mr. Fineman the rights
set forth in this Agreement in exchange for Mr. Fineman's waiver and release of
certain statements set forth Sections 3.1 and 3.3 of the Settlement Agreement
with respect to the Fineman Shares as more fully described herein;
A G R E E M E N T
NOW THEREFORE, in consideration of the promises and of the
mutual covenants and obligations hereinafter set forth, the parties hereby agree
as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"AGREEMENT" or "THIS AGREEMENT" has the meaning set
forth in the title to this Agreement.
<PAGE>
"BUSINESS DAY" means any day that is not a Saturday, a Sunday
or other day on which banks are required or authorized by law to be
closed in Fremont, California or Paris, France.
"CALCULATION DATE" means the next succeeding Business Day
following the last day of the Calculation Period.
"CALCULATION PERIOD" means the period beginning on
the Offering Date and ending on August 11, 2000.
"DEFENDANTS" has the meaning set forth in the first
recital to this Agreement.
"EASDAQ INTRA-DAY HIGH" means, for any Trading Day, the
highest reported sales price per share for the Ordinary Shares on
Easdaq; PROVIDED that any Easdaq Intra-Day High that was not based on
an arms' length trade or that was designed to unfairly manipulate, or
had the effect of unfairly manipulating, the price of the Ordinary
Shares on Easdaq shall not be counted in calculating the Gross-Up
Amount hereunder.
"EASDAQ AVERAGE HIGH" means the average of the five
highest Easdaq Intra-Day Highs during the Calculation Period.
"FINEMAN SHARES" means the Ordinary Shares issued by ActivCard
to Mr. Fineman pursuant to the Settlement Agreement and that are owned
by Mr. Fineman as of the last day of the Calculation Period, and which
shall not exceed 105,000 Ordinary Shares.
"GROSS-UP AMOUNT" has the meaning set forth in Section 3 of
this Agreement.
"NASDAQ AVERAGE HIGH" means the average of the five highest
Nasdaq Intra-Day Highs during the Calculation Period.
"NASDAQ INTRA-DAY HIGH" means, for any Trading Day, the
highest reported sales price per share for the Ordinary Shares, in the
form of American Depositary Shares on the Nasdaq National Market;
PROVIDED, that any Nasdaq Intra-Day High that was not based on an arms'
length trade or that was designed to unfairly manipulate, or had the
effect of unfairly manipulating, the price of the Company's American
Depositary Shares on the Nasdaq National Market shall not be counted in
calculating the Gross-Up Amount hereunder. In the event that the ratio
of the Company's American Depositary Shares to Ordinary Shares is other
than 1:1, then the Nasdaq Intra-Day High shall be adjusted accordingly.
"OFFERING DATE" means the first day on which the Ordinary
Shares, in the form of American Depositary Shares, are traded on the
Nasdaq National Market after the effective date of the Registration
Statement.
<PAGE>
"ORDINARY SHARES" has the meaning set forth in the
first recital to this Agreement.
"REGISTRATION STATEMENT" means the Registration Statement on
Form F-1, as amended, filed with the Securities and Exchange Commission
on or about February 22, 2000 with respect to an offering by the
Company and certain selling shareholders of Ordinary Shares, in the
form of American Depositary Shares.
"SETTLEMENT AGREEMENT" has the meaning set forth in
the first recital to this Agreement.
"TRADING DAY" means any day on which both Easdaq and
the Nasdaq National Market are open for trading.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
(a) Mr. Fineman represents and warrants to ActivCard that:
(i) as of the date of this Agreement, he owns 105,000
Ordinary Shares; and
(ii) he has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Ordinary Shares on
Easdaq or the Company's American Depositary Shares.
(b) The Company represents and warrants to Mr. Fineman that:
(i) it has not taken and will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Ordinary Shares on
Easdaq or its American Depositary Shares on the Nasdaq National Market.
SECTION 3. GROSS-UP. ActivCard agrees to pay Mr.
Fineman a sum (the "GROSS-UP AMOUNT"), if any, equal to the Gross-Up Amount as
determined by the following formula, as calculated on the Calculation Date,
Fineman Shares x (A - B) = Gross-Up Amount
where "A" is the Nasdaq Average High and "B" is the Easdaq Average High. The
Gross-Up Amount, if any, will be paid to Mr. Fineman in immediately available
funds within ten Business Days of the Calculation Date, as Mr. Fineman shall
direct in writing to ActivCard. In the event that (A - B) is equal to or less
than zero, the Gross-Up Amount shall be zero. On the Calculation Date, the
calculation of the Gross-Up Amount shall be made, at the Company's expense, by
Ernst & Young, the Company's independent auditors. All supporting materials for
the calculation of the Gross-Up Amount shall be provided to Mr. Fineman upon his
request to the Company.
<PAGE>
SECTION 4. RELEASE.
In consideration of the possibility of being paid the Gross-Up
Amount by ActivCard pursuant to Section 2 of this Agreement, Mr. Fineman agrees
to waive and release and hereby waives and releases each of the Defendants,
during the Calculation Period and only during the Calculation Period, from the
second sentence of Section 3.1 of the Settlement Agreement and the first and
second sentences of Section 3.3 of the Settlement Agreement specifically as they
relate to the Ordinary Shares issued to Mr. Fineman under the Settlement
Agreement being freely tradable and transferable without restriction on the
Nasdaq National Market. This Section 4 in no way modifies, limits or alters any
rights that Mr. Fineman has with respect to trading the Ordinary Shares issued
to Mr. Fineman under the Settlement Agreement. Except as expressly waived by
this Section 4, the Settlement Agreement remains in full force and effect.
SECTION 5. ADDITIONAL AMOUNTS.
Mr. Fineman will be responsible for all personal income taxes
relating to the Gross-Up Amount.
SECTION 6. NOTICES.
(a) All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy, nationally
recognized overnight courier or first class registered or certified mail, return
receipt requested, postage prepaid, addressed to such party at the address set
forth below or such other address as may hereafter be designated in writing by
such party to the other parties:
(i) if to ActivCard, to:
ActivCard S.A.
6531 Dumbarton Circle
Fremont, CA 94555
Telephone: (510) 574-0100
Telecopy: (510) 574-0128
Attention: Jean-Gerard Galvez
(ii) if to Mr. Fineman, to:
P.O. Box 1858
Ross, California 94957-1858
Telephone: (415) 457-5111
Facsimile: (415) 457-0727
Attention: Kenneth R. Fineman
<PAGE>
(b) All such notices, requests, consents and other
communications shall be deemed to have been delivered (a) in the case of
personal delivery or delivery by telecopy, on the date of such delivery, (b) in
the case of dispatch by nationally recognized overnight courier, on the next
business day following such dispatch and (c) in the case of mailing, on the
third business day after the posting thereof.
SECTION 7. TERMINATION. This Agreement will be
terminated and be of no further force and effect if the Registration Statement
has not become effective on or before August 1, 2000.
SECTION 8. SUCCESSORS AND ASSIGNS. This Agreement shall bind
and inure to the benefit of ActivCard and Mr. Fineman and their respective
successors and assigns.
SECTION 9. ASSIGNMENT. Neither party may assign its or his
rights hereunder without the prior written consent of the others.
SECTION 10. LEGAL FEES. In any legal or equitable action,
arbitration or mediation between any of the parties arising out of a breach of
or brought to enforce any of the provisions of this Agreement, the prevailing
party or parties shall be entitled to recover from the non-prevailing party or
parties its costs, expenses, and attorneys' fees incurred in connection
therewith.
SECTION 11. MODIFICATIONS; AMENDMENTS; WAIVERS. The terms and
provisions of this Agreement may not be modified or amended, nor may any
provision be waived, except pursuant to a writing signed, in the case of an
amendment or modification, by all parties, or in the case of a waiver, by the
party against whom the waiver is to be effective.
SECTION 12. SEVERABILITY. All of the provisions of this
Agreement shall be considered severable, such that if any provision or part
hereof shall at any time be held under any law or ruling to be invalid, such
provision or part shall remain in force to the extent allowed by law, and all
other provisions shall remain in full force and effect and enforceable.
SECTION 13. CHOICE OF LAW. This Agreement shall be governed
by, and construed in accordance with and pursuant to, the law of California.
SECTION 14. COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement
may be executed in any number of counterparts (including by telecopy), and each
such counterpart hereof shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
SECTION 15. HEADINGS. The headings of the various sections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be a part of this Agreement.
<PAGE>
SECTION 16. JURISDICTION AND VENUE. Each of ActivCard and Mr.
Fineman hereby consent to the exclusive jurisdiction of the United States
District Court for the Northern District of California with respect to the
enforcement of this Agreement, and any dispute arising under this Agreement. The
parties further agree that venue in the Northern District of California is
proper with respect to any action to enforce the provisions of this Agreement.
SECTION 17. MEDIATION. The parties agree that any dispute
between them arising under this Agreement shall be submitted to non-binding
mediation before a retired judge of the United States District Court for the
Northern District of California or of the San Francisco Superior Court before
any litigation is commenced with respect to such dispute.
SECTION 18. NO ADVERSE INFERENCES TO BE DRAWN. Neither this
Agreement, nor any act performed or document executed pursuant to or in
furtherance of the Agreement: (a) constitutes an admission of, or evidence of,
the validity of any claim, or of any wrongdoing or liability of any party
hereto; or (b) may be used as an admission of, or evidence of, any fault or
omission of any of the parties hereto in any civil, criminal or administrative
proceedings in any court, administrative agency or other tribunal.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
ActivCard S.A.
By: /s/ Jean-Gerard Galvez
------------------------
Name: Jean-Gerard Galvez
Title: Chairman & CEO
Kenneth R. Fineman
---------------------------
Kenneth R. Fineman
<PAGE>
Exhibit 10-15
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
Between
ActivCard S.A.
and
SUN MICROSYSTEMS, INC.
Dated as of February 3, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. Definitions ..........................................................................1
SECTION 2. Notice of Proposed Transfer ..........................................................2
SECTION 3. Piggyback Registration ...............................................................3
SECTION 4. Registrations of Form F-3 or S-3 .................................................... 4
SECTION 5. Holdback Agreement ...................................................................5
SECTION 6. Preparation and Filing ...............................................................6
SECTION 7. Expenses .............................................................................9
SECTION 8. Indemnification ......................................................................9
SECTION 9. Underwriting Agreement ..............................................................12
SECTION 10. Information by Holders of Registrable Shares ........................................12
SECTION 11. Exchange Act Compliance .............................................................12
SECTION 12. No-Action Letter or Opinion of Counsel in Lieu of Registration.......................12
SECTION 13. Termination .........................................................................13
SECTION 14. Successors and Assigns ..............................................................13
SECTION 15. Assignment ..........................................................................13
SECTION 16. Entire Agreement ....................................................................13
SECTION 17. Notices .............................................................................14
SECTION 18. Modifications; Amendments; Waivers ..................................................15
SECTION 19. Counterparts; Facsimile Signatures ..................................................15
SECTION 20. Headings ............................................................................15
SECTION 21. Severability; Governing Law .........................................................15
SECTION 22. Survival ............................................................................16
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated as of February 3, 2000
(this "AGREEMENT"), between ActivCard S.A., a French SOCIETE ANONYME
("ACTIVCARD"), and Sun Microsystems, Inc., a Delaware corporation ("SUN
MICROSYSTEMS").
R E C I T A L S
WHEREAS, pursuant to a stock purchase agreement dated the date
hereof (the "STOCK PURCHASE AGREEMENT"), Sun Microsystems has agreed to purchase
582,750 newly issued Ordinary Shares (as defined below) from ActivCard;
WHEREAS, the execution of this Agreement is a condition to the
purchase of the Ordinary Shares by Sun Microsystems pursuant to the Stock
Purchase Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"COMMISSION" means the U.S. Securities and Exchange
Commission or any successor agency.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect from time to time.
"ORDINARY SHARES" means the ordinary shares, FF 6.25 nominal
value per share, of ActivCard.
"OTHER SHARES" means at any time those Ordinary Shares which
do not constitute Primary Shares or Registrable Shares.
"PERSON" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust, association
or entity or government, political subdivision, agency or instrumentality of a
government.
"PRIMARY SHARES" means at any time the authorized but unissued
Ordinary Shares and Ordinary Shares held by ActivCard in its treasury.
<PAGE>
"REGISTRATION DATE" means the date upon which a registration
statement pursuant to which ActivCard shall have initially registered Ordinary
Shares under the Securities Act for sale to the public shall have been declared
effective.
"REGISTRABLE SHARES" means the Ordinary Shares issued to Sun
Microsystems pursuant to the Stock Purchase Agreement and any securities issued
with respect to such Ordinary Shares pursuant to any stock split, stock
dividend, recapitalization, substitution or other similar transaction. For
purposes of this Agreement, any Registrable Shares shall cease to be Registrable
Shares (i) when they have been registered under the Securities Act (the
registration statement in connection therewith has been declared effective) and
disposed of pursuant to such effective registration statement, (ii) when they
are sold by a person in a transaction in which the rights under the provisions
of this Agreement are not assigned, (iii) when they have been sold or
distributed pursuant to Rule 144 (including, without limitation, Rule 144(k)) or
(iv) on the last day of any three-month period within which they may be sold or
distributed without registration pursuant to Rule 144.
"RULE 144" means Rule 144 promulgated under the Securities
Act or any successor rule thereto or any complementary rule thereto (such as
Rule 144A).
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect from time to time.
"STOCK PURCHASE AGREEMENT" has the meaning set forth
in the recitals to this Agreement.
SECTION 2. NOTICE OF PROPOSED TRANSFER.
Prior to any proposed transfer of any Registrable Shares
(other than under the circumstances described in Sections 3 or 4 hereof), the
holder thereof shall have given written notice to ActivCard of its intention to
effect such transfer. Each such notice shall describe the manner of the proposed
transfer and, if requested by ActivCard, shall be accompanied by an opinion of
counsel satisfactory to ActivCard to the effect that the proposed transfer may
be effected without registration under the Securities Act, whereupon the holder
of such Registrable Shares shall be entitled to transfer such Registrable Shares
in accordance with the terms of its notice. Additionally, all such transfers
shall be made pursuant to the Letter Agreement the date hereof among Paribas,
ActivCard and Sun Microsystems, or any other similar letter agreement required
to be entered into by subsequent holders of the Registrable Shares. Sun
Microsystems' compliance with Section 3.5 of the Stock Purchase Agreement shall
be deemed to be compliance with the notice requirements of this Section 2.
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<PAGE>
SECTION 3. PIGGYBACK REGISTRATION.
(a) If ActivCard at any time proposes for any reason to
register Ordinary Shares under the Securities Act (other than a registration
relating to the initial public offering of Ordinary Shares by Activcard
(including Ordinary Shares in the form of American Depositary Shares) in the
United States, a registration relating solely to employee benefit plans, or a
registration on registration statement Form F-4, Form S-4 or any registration
form which does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Registrable Securities, in each case, promulgated under the
Securities Act or any successor forms thereto), it shall give written notice to
the holders of Registrable Shares of its intention to so register such Ordinary
Shares at least 30 days before the initial filing of such registration
statement. Upon the written request of the holders of Registrable Shares to
include Registrable Shares in such registration (which request (i) must be
delivered to ActivCard within 15 days after delivery by ActivCard of any notice
pursuant to this Section 3(a), (ii) shall specify the number of Registrable
Shares proposed to be included in such registration and (iii) shall state that
such holders of Registrable Shares desire to sell such Registrable Shares in the
public securities markets), ActivCard shall use its best efforts to cause all
such Registrable Shares to be included in such registration on the same terms
and conditions as the securities otherwise being sold in such registration;
PROVIDED, HOWEVER, that if the managing underwriter advises ActivCard that the
inclusion of all Registrable Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of the Primary
Shares or Other Shares proposed to be registered by ActivCard, then the number
of Primary Shares, Registrable Shares and/or Other Shares proposed to be
included in such registration shall be included in the following order:
(i) first, the Primary Shares and any Ordinary Shares owned by
Ken Fineman as of such date; and
(ii) second, the Registrable Shares and Other Shares requested
to be included in such registration (or, if necessary, such Registrable
Shares and Other Shares PRO RATA among the holders thereof based upon
the aggregate number of Registrable Shares and Other Shares requested
to be registered by each such holder).
(b) If the registration of which ActivCard gives notice is for
an underwritten registered public offering, ActivCard shall so advise the
holders as part of the written notice given pursuant to Section 3(a). In such
event, the right of any holder to registration pursuant to this Section 3 shall
be conditioned upon such holder's participation in such underwritten offering
and the inclusion of such holder's Registrable Securities in the underwritten
offering to the extent provided herein. All holders proposing to distribute
Registrable Shares through such underwritten offering shall (together with
ActivCard and the other shareholders distributing their securities through such
underwritten offering) enter into an underwriting agreement in customary form
with the underwriter selected by ActivCard. If any holder disapproves of the
terms of any such underwritten offering, he may elect to withdraw therefrom by
written notice to ActivCard
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<PAGE>
and the underwriter. Any Registrable Securities or other securities excluded
or withdrawn from such underwritten offering shall be withdrawn from such
registration.
(c) The number of requests permitted by the holders
of Registrable Shares pursuant to this Section 3 shall be unlimited.
SECTION 4. REGISTRATIONS ON FORM F-3 OR S-3.
(a) At such time as ActivCard shall have qualified for
the use of Form F-3 or Form S-3, as the case may be, promulgated under the
Securities Act or any successor forms thereto, the holders of the Registrable
Shares then outstanding shall have the right to request in writing that
ActivCard effect the registration of Registrable Shares in the form of ADSs on
Form F-3 or Form S-3, as the case may be, or such successor form, which request
or requests shall (i) specify the number of Registrable Shares intended to be
sold or disposed of and the holders thereof and (ii) state the intended method
of disposition of such Registrable Shares. ActivCard shall promptly use its best
efforts to effect the registration under the Securities Act of such Registrable
Shares which ActivCard has been so requested to register; PROVIDED, HOWEVER,
that ActivCard shall be required to effect a registration pursuant to this
Section 4(a) only if the holders of not less than 70% of the Registrable Shares
then outstanding shall have stated in writing a desire to sell at least 50% of
the Registrable Shares held by them in a registration pursuant to this Section
4(a). If ActivCard determines to have the Registrable Shares distributed by
means of an underwritten offering, ActivCard and the requesting holders shall
enter into an underwriting agreement with a major bracket or nationally known
underwriter.
(b) Anything contained in Section 4(a) to the contrary
notwithstanding, ActivCard shall not be obligated to effect any registration
under the Securities Act pursuant to Section 3(a) except in accordance with the
following provisions:
(i) ActivCard shall not be obligated to use its best
efforts to file and cause to become effective any registration
statement during any period in which any other registration statement
(other than on Form F-4 or Form S-4, as the case may be, or Form F-8 or
Form S-8, as the case may be, promulgated under the Securities Act or
any successor forms thereto) pursuant to which Primary Shares, Other
Shares or Registrable Shares included pursuant to Section 2 are to be
or were sold has been filed and not withdrawn or has been declared
effective within the prior 90 days.
(ii) ActivCard may delay or suspend the filing or
effectiveness of any registration statement for two periods of up to 60
days after the date of a request for registration pursuant to this
Section 4 if at the time of such request (i) ActivCard is engaged, or
has fixed plans to engage within 90 days of the time of such request,
in a firm commitment underwritten public offering of Primary Shares in
which the holders of Registrable Shares may include Registrable Shares
pursuant to Section 3 or (ii) ActivCard reasonably determines that such
registration and offering would interfere with any material transaction
involving ActivCard, as approved by the Board of Directors, or if
4
<PAGE>
there exists at the time, material non-public information relating
to ActivCard, which in the opinion of ActivCard, should not be
disclosed or if the sale of shares thereunder would, in the opinion of
ActivCard, be reasonably likely to cause a violation of the Securities
Act or the Exchange Act and result in potential liability to
ActivCard; PROVIDED, HOWEVER, that ActivCard may only delay or suspend
the filing or effectiveness of a registration statement pursuant to
this Section 4(b)(ii) for a total of 120 days after the date of a
request for registration pursuant to this Section 4; and PROVIDED,
further, that ActivCard may only delay or suspend the filing or
effectiveness of a registration statement pursuant to this Section
4(b)(ii) not more than once in any twelve (12) month period.
(iii) With respect to any registration pursuant to this
Section 4, ActivCard shall give notice of such registration to the
holders of Registrable Shares who do not request registration
hereunder. ActivCard shall include in such registration any Registrable
Shares requested, within 10 days after ActivCard has given such notice,
to be included by such holders and may include in such registration any
Primary Shares or Other Shares; PROVIDED, HOWEVER, that if the managing
underwriter advises ActivCard that the inclusion of all Registrable
Shares, Primary Shares and/or Other Shares proposed to be included in
such registration would interfere with the successful marketing
(including pricing) of the Registrable Shares proposed to be included
in such registration, then the number of Registrable Shares, Primary
Shares and/or Other Shares proposed to be included in such registration
shall be included in the following order:
(A) first, the Registrable Shares and any Ordinary
Shares owned by Ken Fineman as of such date requested to be
included in such registration (or, if necessary, such
Registrable Shares and Ordinary Shares owned by Ken Fineman
PRO RATA among the holders thereof based upon the aggregate
number of Registrable Shares and Ordinary Shares owned by Ken
Fineman requested to be registered by each such holder);
(B) second, the Other Shares requested to be
included in such registration (or, if necessary, such Other
Shares PRO RATA among the holders thereof based upon the
aggregate number of Other Shares requested to be registered by
each such holder), and
(C) third, the Primary Shares.
(c) Two requests shall be permitted by the holders
of Registrable Shares pursuant to this Section 4.
SECTION 5. HOLDBACK AGREEMENT.
If ActivCard at any time shall register Ordinary Shares under
the Securities Act
5
<PAGE>
(including any registration pursuant to Sections 3 or 4 hereof) for sale to the
public, Sun Microsystems shall not sell publicly or privately, make any short
sale of, grant any option for the purchase of, or otherwise dispose publicly of,
any Registrable Shares (other than those Ordinary Shares included in such
registration pursuant to Sections 3 or 4 hereof) without the prior written
consent of ActivCard, for a period as shall be determined by the relevant
managing underwriters, which period shall begin not more than 10 days prior to
the initial filing of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement. Sun Microsystems shall be subject to the
holdback restrictions of this Section 4 only once in any twelve-month period
during the term of this Agreement.
SECTION 6. PREPARATION AND FILING.
(a) If and whenever ActivCard is under an obligation
pursuant to the provisions of this Agreement to use its best efforts to effect
the registration of any Registrable Shares, ActivCard shall, as expeditiously as
practicable:
(i) use its best efforts to cause a registration
statement that registers such Registrable Shares to become and remain
effective for a period of 90 days or until all of such Registrable
Shares have been disposed of (if earlier). ActivCard shall not be
required to maintain the effectiveness of any registration statement
that contemplates a distribution of securities on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act;
(ii) furnish, at least five business days before filing a
registration statement, to counsel designated by Sun Microsystems
("INVESTOR'S COUNSEL"), a copy of the registration statement proposed
to be filed and the prospectus relating thereto or any amendments or
supplements relating to such a registration statement or prospectus (it
being understood that such five-business-day period need not apply to
successive drafts of the same document proposed to be filed so long as
such successive drafts are supplied to the Investor's Counsel in
advance of the proposed filing by a period of time that is reasonable
under the circumstances);
(iii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus
relating thereto as may be necessary to keep such registration
statement effective for at least a period of 90 days or until all of
such Registrable Shares have been disposed of (if earlier) and to
comply with the provisions of the Securities Act with respect to the
sale or other disposition of such Registrable Shares;
(iv) provide written notice to Investor's Counsel
concerning (i) the receipt by ActivCard of any comments of the
Commission with respect to such registration statement or prospectus
or any amendment or supplement thereto or any request by the
6
<PAGE>
Commission for the amending or supplementing thereof or for additional
information with respect thereto, (ii) the receipt by ActivCard of any
notification with respect to the issuance by the Commission of any
stop order suspending the effectiveness of such registration statement
or prospectus or any amendment or supplement thereto or the initiation
or threatening of any proceeding for that purpose and (iii) the
receipt by ActivCard of any notification with respect to the
suspension of the qualification of such Registrable Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding
for such purposes;
(v) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the holders of the Registrable Shares reasonably
request and do any and all other acts and things which may be
reasonably necessary or advisable to enable such holders to consummate
the disposition in such jurisdictions of such holders' Registrable
Shares; PROVIDED, HOWEVER, that ActivCard will not be required (i) to
qualify generally to do business, subject itself to general taxation or
consent to general service of process in any jurisdiction where it
would not otherwise be required to do so but for this paragraph (v),
(ii) to provide any material undertaking or make any changes in its
charter documents which the Board of Directors determines to be
contrary to the best interests of ActivCard or (iii) to modify any of
its contractual relationships then existing;
(vi) furnish to the holders of such Registrable Shares
such number of copies of a summary prospectus, if any, or other
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
holders may reasonably request in order to facilitate the public sale
or other disposition of such Registrable Shares;
(vii) notify the holders of such Registrable Shares on a
timely basis of the happening of any event as a result of which a
prospectus included in the registration statement relating to such
Registrable Shares, 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
light of the circumstances then existing and, at the request of such
holders, prepare and furnish to such holders a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary to cause such prospectus, as so supplemented or amended, not
to include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(viii) subject to the execution of confidentiality
agreements in form and substance satisfactory to ActivCard and upon
reasonable notice and during normal business hours, make available for
inspection by the holders of such Registrable Shares, any underwriter
participating in any disposition pursuant to such registration
statement
7
<PAGE>
and any attorney, accountant or other agent retained by Sun
Microsystems or the underwriter (collectively, the "INSPECTORS"), all
pertinent financial and other records, pertinent corporate documents
and properties of ActivCard (collectively, the "RECORDS"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause ActivCard's officers, directors and
employees to supply all information (together with the Records, the
"INFORMATION") reasonably requested by any such Inspector in
connection with such registration statement. Notwithstanding the
foregoing, any of the Information which ActivCard determines in good
faith to be confidential, and of which determination the Inspectors
are so notified, shall not be disclosed to or by the Inspectors unless
(i) the disclosure of such Information is necessary to avoid or
correct a misstatement or omission in the registration statement, (ii)
the release of such Information is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction or (iii) such
Information is generally available to the public other than as a
result of disclosure by the Inspectors; the holders of such
Registrable Shares agree that they will, upon learning that disclosure
of such Information is sought in a court of competent jurisdiction,
give notice to ActivCard and allow ActivCard, at ActivCard's expense,
to undertake appropriate action to prevent disclosure of the
Information deemed confidential; and the Inspectors shall use best
efforts to maintain the confidentiality of all Information disclosed
pursuant to this Section 6(a)(viii);
(ix) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form,
at customary times and covering matters of the type customarily covered
by cold comfort letters;
(x) use its best efforts to obtain from its counsel an
opinion or opinions in customary form;
(xi) provide a transfer agent and registrar (which may be
the same entity and which may be ActivCard) for such Registrable
Shares;
(xii) list such Registrable Shares or American Depositary
Shares representing such Registrable Shares, as the case may be, on any
national securities exchange on which any Ordinary Shares or American
Depositary Shares representing Ordinary Shares are listed;
(xiii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available
to its security holders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the
registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(xiv) subject to all the other provisions of this
Agreement, use its reasonable best efforts to take all other steps
necessary to effect such registration of such Registrable Shares
contemplated hereby (including, without limitation, if the method of
distribution is by means of an underwriting agreement in customary
form).
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(b) Each holder of the Registrable Shares, upon receipt
of any notice from ActivCard of any event of the kind described in Section
6(a)(vii) hereof, shall forthwith discontinue disposition of the Registrable
Shares pursuant to the registration statement covering such Registrable
Shares until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 6(a)(vii) hereof, and, if so
directed by ActivCard, such holder shall deliver to ActivCard all copies,
other than permanent file copies then in such holder's possession, of the
prospectus covering such Registrable Shares at the time of receipt of such
notice.
SECTION 7. EXPENSES.
All expenses (other than underwriting discounts and
commissions relating to the Registrable Shares, as provided in the last sentence
of this Section 7) incurred by ActivCard in complying with Section 6, including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the National Association of Securities Dealers, Inc.),
fees and expenses of complying with securities and blue sky laws, printing
expenses, fees and expenses of ActivCard's counsel and accountants and
reasonable fees and expenses (not to exceed U.S. $20,000) of the Investor's
Counsel, shall be paid by ActivCard; PROVIDED, HOWEVER, that all underwriting
discounts and selling commissions applicable to the Registrable Shares and Other
Shares shall be borne by the holders selling such Registrable Shares and Other
Shares, in proportion to the number of Registrable Shares and Other Shares sold
by each such holder.
SECTION 8. INDEMNIFICATION.
(a) In connection with any registration of any
Registrable Shares under the Securities Act pursuant to this Agreement,
ActivCard shall indemnify and hold harmless the holders of Registrable
Shares, each underwriter, broker or any other Person acting directly on
behalf of the holders of Registrable Shares in connection with the
distribution thereof and each other Person, if any, who controls any of the
foregoing Persons within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several (or actions in
respect thereof), to which any of the foregoing Persons may become subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or allegedly untrue statement of a material
fact contained in the registration statement under which such Registrable
Shares were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein or otherwise filed with the Commission,
any amendment or supplement thereto or any document incident to registration
or qualification of any Registrable Shares, 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
or, with respect to any prospectus, necessary to make the statements therein
in light of the circumstances under which they were made not misleading, or
any violation by ActivCard of the Securities Act or state securities or blue
sky laws applicable to ActivCard and relating to action or inaction required
of ActivCard in connection with such registration or qualification under such
state securities or blue sky laws; and ActivCard shall reimburse the holders
of Registrable Shares, such underwriter,
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such broker or such other Person acting on behalf of the holders of
Registrable Shares and each such controlling Person for any legal or other
expenses reasonably incurred by any of them in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that ActivCard shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action (including any legal
or other expenses incurred) arises out of or is based upon an untrue
statement or allegedly untrue statement or omission or alleged omission made
in said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification
of any Registrable Shares in reliance upon and in conformity with written
information furnished to ActivCard through an instrument duly executed by the
holders of Registrable Shares or their counsel or underwriter specifically
for use in the preparation thereof; PROVIDED FURTHER, HOWEVER, that the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any untrue statement, allegedly untrue statement, omission or
alleged omission made in any preliminary prospectus but eliminated or
remedied in the final prospectus (filed pursuant to Rule 424 of the
Securities Act), such indemnity agreement shall not inure to the benefit of
any holder of Registrable Shares, underwriter, broker or other Person acting
on behalf of holders of Registrable Shares from whom the Person asserting any
loss, claim, damage, liability or expense purchased the Registrable Shares
which are the subject thereof, if a copy of such final prospectus had been
made available to such holder of Registrable Shares, underwriter, broker or
other Person acting on behalf of holders of the Registrable Shares and such
final prospectus was not delivered to such Person with or prior to the
written confirmation of the sale of such Registrable Shares to such Person,
and the legal effect of delivery of such final prospectus would have been to
eliminate the liability otherwise suffered or incurred by the Person
asserting such loss, claim, damage, liability or expense.
(b) In connection with any registration of Registrable
Shares under the Securities Act pursuant to this Agreement, each holder of
Registrable Shares shall severally and not jointly indemnify and hold
harmless ActivCard, each director of ActivCard, each officer of ActivCard who
shall sign such registration statement, each underwriter, broker or other
Person acting on behalf of the holders of Registrable Shares and each Person
who controls any of the foregoing Persons within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several (or actions in respect thereof), to which any of the foregoing
Persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or allegedly untrue
statement of a material fact contained in the registration statement under
which such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein or otherwise
filed with the Commission, any amendment or supplement thereto or any
document incident to registration or qualification of any Registrable Shares,
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 or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, if such untrue statement or allegedly
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to ActivCard or such
underwriter by or on behalf
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of such holder of Registrable Shares specifically for use in connection with
the preparation of such registration statement, preliminary prospectus, final
prospectus, amendment, supplement or document; PROVIDED, HOWEVER, that the
maximum amount of liability in respect of such indemnification shall be
limited, in the case of each seller of Registrable Shares, to an amount equal
to the net proceeds actually received by such seller from the sale of
Registrable Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of
notice of the commencement of any action involving a claim referred to in the
preceding paragraphs of this Section 8, such indemnified party will, if a claim
in respect thereof is made against an indemnifying party, give written notice to
the latter of the commencement of such action. The failure of any indemnified
party to notify an indemnifying party of any such action shall not (unless such
failure shall have a material adverse effect on the indemnifying party) relieve
the indemnifying party from any liability in respect of such action that it may
have to such indemnified party on account of this Section 8. In case any such
action is brought against an indemnified party, the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; PROVIDED, HOWEVER, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 8, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party (but shall have the right to participate therein with counsel
of its choice) and such indemnifying party shall reimburse such indemnified
party for that portion of the reasonable fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section 8. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim or series of claims of all indemnified parties, it will not be obligated
to pay the fees and expenses of more than one counsel with respect to all
indemnified parties as to any claim or series of related claims. The
indemnifying party may not settle any such claim without the consent of the
indemnified party.
(d) If the indemnification provided for in this
Section 8 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any loss, claim, damage, liability or
action referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amounts paid or payable by such indemnified party as a result of such loss,
claim, damage, liability or action in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the statements or
omissions which resulted in such loss, claim, damage, liability or action as
well as any other relevant equitable
11
<PAGE>
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The parties agree that it
would not be just and equitable if contribution pursuant hereto were
determined by PRO RATA allocation or by any other method or allocation which
does not take account of the equitable considerations referred to herein. No
Person guilty of fraudulent misrepresentation shall be entitled to
contribution from any Person.
SECTION 9. UNDERWRITING AGREEMENT.
Notwithstanding the provisions of Sections 5, 6, 7 and 8, to
the extent that the holders of Registrable Shares shall enter into an
underwriting or similar agreement, which agreement contains provisions covering
one or more issues addressed in such Sections, the provisions contained in such
agreement addressing such issue or issues shall control; PROVIDED, HOWEVER, that
any such agreement to which ActivCard is not a party shall not be binding upon
ActivCard. No holder may participate in any underwritten registration hereunder
unless such holder (a) agrees to sell such holders' securities on the basis
provided in any underwriting arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably and customarily required under the terms of such
underwriting arrangements.
SECTION 10. INFORMATION BY HOLDERS OF REGISTRABLE SHARES.
Each holder of Registrable Shares shall furnish to ActivCard
such written information regarding such Person and the distribution proposed by
such Person as ActivCard may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
SECTION 11. EXCHANGE ACT COMPLIANCE.
From the Registration Date or such earlier date as a
registration statement filed by ActivCard pursuant to the Exchange Act
relating to any class of ActivCard's securities shall have become effective,
ActivCard shall comply with all of the reporting requirements of the Exchange
Act applicable to it and shall comply with all other public information
reporting requirements of the Commission which are conditions to the
availability of Rule 144 for the sale of the Common Stock. ActivCard shall
cooperate with each holder of Registrable Shares in supplying such
information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Commission
as a condition to the availability of Rule 144.
SECTION 12. NO-ACTION LETTER OR OPINION OF COUNSEL IN LIEU OF
REGISTRATION.
12
<PAGE>
Notwithstanding anything in this Agreement in the contrary, if
at any time after the date of ActivCard's initial public offering of its
securities under the Securities Act ActivCard shall have obtained from the
Commission a "no-action" letter in which the Commission has indicated that it
will take no action if, without registration under the Securities Act, any
holder disposes of Registrable Shares covered by any request for registration
made under this Agreement in the manner in which such holder proposes to dispose
of the Registrable Shares included in such request, or if in the opinion of
counsel for ActivCard concurred in by counsel for such holder no registration
under the Securities Act is required in connection with such disposition, the
Registrable Shares included in such request shall not be eligible for
registration under this Agreement; provided, however, with respect to any holder
who may deemed to be an "affiliate," as that term is defined under Rule 144, if,
notwithstanding the opinion of such counsel, the holder is unable to dispose of
all the Registrable Shares included in his request in the manner in which such
holder so proposes without registration, the Registrable Shares included in such
request shall be eligible for registration under this Agreement.
SECTION 13. TERMINATION.
All registration rights granted under this Agreement shall
terminate and be of no further force and effect upon the earlier of (i) two (2)
years after the Registration Date and (ii) the date on which all of the
Registrable Shares cease to be Registrable Shares hereunder.
SECTION 14. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of
ActivCard and Sun Microsystems and, subject to Section 15, their respective
successors and assigns.
SECTION 15. ASSIGNMENT.
Sun Microsystems may assign its rights hereunder to any of its
affiliates to which it transfers Registrable Shares; PROVIDED, HOWEVER, that
such transferee shall, as a condition to the effectiveness of such assignment,
be required to execute a counterpart to this Agreement agreeing to be treated as
a holder of Registrable Shares whereupon such purchaser or transferee shall have
the benefits of, and shall be subject to the restrictions contained in, this
Agreement as if such transferee had originally been a party hereto; and
PROVIDED, FURTHER, that such transferee shall not be a competitor of ActivCard
(as determined by the Board of Directors of ActivCard).
SECTION 16. ENTIRE AGREEMENT.
This Agreement, the Stock Purchase Agreement and the other
writings referred to herein and therein or delivered pursuant hereto or thereto,
contain the entire agreement among Sun Microsystems, ActivCard and any other
parties to each of the foregoing with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
13
<PAGE>
SECTION 17. NOTICES.
(a) All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to ActivCard, to:
ActivCard S.A.
6531 Dumbarton Circle
Fremont, CA 94555
Telephone: (510) 574-0100
Telecopy: (510) 574-0128
Attention: Jean-Gerard Galvez;
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telephone: (212) 848-7620
Telecopy: (212) 848-7179
Attention: Richard B. Vilsoet;
(ii) if to Sun Microsystems, to:
Sun Microsystems, Inc.
901 San Antonio Road
MS UMPK16-302
Palo Alto, California 94303
Telephone: (650) 786-5533
Facsimile: (650) 786-2581
Attention: Jonathan I. Schwartz;
with a copy to:
Sun Microsystems, Inc.
901 San Antonio Road
Palo Alto, California 94303
Telephone: (650) 960-1300
Facsimile: (650) 856-2114
Attention: General Counsel; and
14
<PAGE>
(b) All such notices, requests, consents and other
communications shall be deemed to have been delivered (a) in the case of
personal delivery or delivery by telecopy, on the date of such delivery, (b) in
the case of dispatch by nationally-recognized overnight courier, on the next
business day following such dispatch and (c) in the case of mailing, on the
third business day after the posting thereof.
SECTION 18. MODIFICATIONS; AMENDMENTS; WAIVERS.
The terms and provisions of this Agreement may not be modified
or amended, nor may any provision be waived, except pursuant to a writing
signed, in the case of an amendment or modification, by holders of more than 50%
of the Registrable Shares that are entitled to registration rights hereunder, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
SECTION 19. COUNTERPARTS; FACSIMILE SIGNATURES.
This Agreement may be executed in any number of counterparts
(including by telecopy), and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 20. HEADINGS.
The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 21. SEVERABILITY; GOVERNING LAW.
It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to
such jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
this Agreement or affecting the validity or enforceability of such provision
in any other jurisdiction. Notwithstanding the foregoing, if such provision
could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts
made and to be performed wholly therein.
15
<PAGE>
SECTION 22. SURVIVAL.
The respective agreements, covenants, indemnities and other
statements set forth in Section 8 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement on the date first written above.
ActivCard S.A.
By: /s/ JQ GALVEZ
----------------------------------------
Name: JQ GLAVEZ
Title: CE
SUN MICROSYSTEMS, INC.
By: /s/ JONATHON SCHWARTZ
----------------------------------------
Name: JONATHON SCHWARTZ
Title: VP
17
<PAGE>
EXECUTION COPY
-------------------------------
REGISTRATION RIGHTS AGREEMENT
-------------------------------
Between
ActivCard S.A.
and
SCM MICROSYSTEMS, INC.
Dated as of February 7, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Definitions ................................................ ..........................1
SECTION 2. Notice of Proposed Transfer ................................ ..........................2
SECTION 3. Piggyback Registration ..................................... ..........................3
SECTION 4. Holdback Agreement ......................................... ..........................4
SECTION 5. Preparation and Filing ..................................... ..........................4
SECTION 6. Expenses ................................................... ..........................7
SECTION 7. Indemnification ............................................ ..........................7
SECTION 8. Underwriting Agreement ..................................... .........................10
SECTION 9. Information by Holders of Registrable Shares ............... .........................10
SECTION 10.Exchange Act Compliance .................................... .........................10
SECTION 11.No-Action Letter or Opinion of Counsel in Lieu of Registration........................11
SECTION 12.Termination ................................................ .........................11
SECTION 13.Successors and Assigns ..................................... .........................11
SECTION 14.Assignment ................................................. .........................11
SECTION 15.Entire Agreement ........................................... .........................13
SECTION 16.Notices .................................................... .........................13
SECTION 17.Modifications; Amendments; Waivers ......................... .........................14
SECTION 18.Counterparts; Facsimile Signatures ......................... .........................14
SECTION 19.Headings ................................................... .........................14
SECTION 20.Severability; Governing Law ................................ .........................14
SECTION 21.Survival..............................................................................14
</TABLE>
<PAGE>
Exhibit 10.16
REGISTRATION RIGHTS AGREEMENT, dated as of February 7, 2000
(this
<PAGE>
"AGREEMENT"), between ActivCard S.A., a French SOCIETE ANONYME
("ACTIVCARD"), and SCM Microsystems, Inc., a California corporation ("SCM
Microsystems").
R E C I T A L S
WHEREAS, pursuant to a stock purchase agreement dated the date
hereof (the "STOCK PURCHASE AGREEMENT"), SCM Microsystems has agreed to purchase
116,550 newly issued Ordinary Shares (as defined below) from ActivCard;
WHEREAS, the execution of this Agreement is a condition to the
purchase of the Ordinary Shares by SCM Microsystems pursuant to the Stock
Purchase Agreement;
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"COMMISSION" means the U.S. Securities and Exchange Commission
or any successor agency.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect from time to time.
"ORDINARY SHARES" means the ordinary shares, FF 6.25 nominal
value per share, of ActivCard.
"OTHER SHARES" means at any time those Ordinary Shares which
do not constitute Primary Shares or Registrable Shares.
"PERSON" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust, association
or entity or government, political subdivision, agency or instrumentality of a
government.
"PRIMARY SHARES" means at any time the authorized but unissued
Ordinary Shares and Ordinary Shares held by ActivCard in its treasury.
<PAGE>
"REGISTRATION DATE" means the date upon which a registration
statement pursuant to which ActivCard shall have initially registered Ordinary
Shares under the Securities Act for sale to the public shall have been declared
effective.
"REGISTRABLE SHARES" means the Ordinary Shares issued to SCM
Microsystems pursuant to the Stock Purchase Agreement and any securities issued
with respect to such Ordinary Shares pursuant to any stock split, stock
dividend, recapitalization, substitution or other similar transaction. For
purposes of this Agreement, any Registrable Shares shall cease to be Registrable
Shares (i) when they have been registered under the Securities Act (the
registration statement in connection therewith has been declared effective) and
disposed of pursuant to such effective registration statement, (ii) when they
are sold by a person in a transaction in which the rights under the provisions
of this Agreement are not assigned, (iii) when they have been sold or
distributed pursuant to Rule 144 (including, without limitation, Rule 144(k)) or
(iv) on the last day of any three-month period within which they may be sold or
distributed without registration pursuant to Rule 144.
"RULE 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or any complementary rule thereto (such as Rule
144A).
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect from time to time.
"STOCK PURCHASE AGREEMENT" has the meaning set forth in the
recitals to this Agreement.
SECTION 2. NOTICE OF PROPOSED TRANSFER.
Prior to any proposed transfer of any Registrable Shares
(other than under the circumstances described in Section 3 hereof), the holder
thereof shall have given written notice to ActivCard of its intention to effect
such transfer. Each such notice shall describe the manner of the proposed
transfer and, if requested by ActivCard, shall be accompanied by an opinion of
counsel satisfactory to ActivCard to the effect that the proposed transfer may
be effected without registration under the Securities Act, whereupon the holder
of such Registrable Shares shall be entitled to transfer such Registrable Shares
in accordance with the terms of its notice. Additionally, all such transfers
shall be made pursuant to the Letter Agreement dated the date hereof among
Paribas, ActivCard and SCM Microsystems, or any other similar letter agreement
required to be entered into by subsequent holders of the Registrable Shares. SCM
Microsystems' compliance with Section 3.5 of the Stock Purchase Agreement shall
be deemed to be compliance with the notice requirements of this Section 2.
<PAGE>
SECTION 3. PIGGYBACK REGISTRATION.
(a) If ActivCard at any time proposes for any reason to
register Ordinary Shares under the Securities Act (other than a registration
relating to the initial public offering of Ordinary Shares by Activcard
(including Ordinary Shares in the form of American Depositary Shares) in the
United States, a registration relating solely to employee benefit plans, or a
registration on registration statement Form F-4, Form S-4 or any registration
form which does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Registrable Securities, in each case, promulgated under the
Securities Act or any successor forms thereto), it shall give written notice to
the holders of Registrable Shares of its intention to so register such Ordinary
Shares at least 30 days before the initial filing of such registration
statement. Upon the written request of the holders of Registrable Shares to
include Registrable Shares in such registration (which request (i) must be
delivered to ActivCard within 15 days after delivery by ActivCard of any notice
pursuant to this Section 3(a), (ii) shall specify the number of Registrable
Shares proposed to be included in such registration and (iii) shall state that
such holders of Registrable Shares desire to sell such Registrable Shares in the
public securities markets), ActivCard shall use its best efforts to cause all
such Registrable Shares to be included in such registration on the same terms
and conditions as the securities otherwise being sold in such registration;
PROVIDED, HOWEVER, that if the managing underwriter advises ActivCard that the
inclusion of all Registrable Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of the Primary
Shares or Other Shares proposed to be registered by ActivCard, then the number
of Primary Shares, Registrable Shares and/or Other Shares proposed to be
included in such registration shall be included in the following order:
(i) first, the Primary Shares and any other Ordinary Shares
owned by Ken Fineman as of such date; and
(ii) second, the Registrable Shares and Other Shares requested
to be included in such registration (or, if necessary, such Registrable
Shares and Other Shares PRO RATA among the holders thereof based upon
the aggregate number of Registrable Shares and Other Shares requested
to be registered by each such holder).
(b) If the registration of which ActivCard gives notice is for
an underwritten registered public offering, ActivCard shall so advise the
holders as part of the written notice given pursuant to Section 3(a). In such
event, the right of any holder to registration pursuant to this Section 3 shall
be conditioned upon such holder's participation in such underwritten offering
and the inclusion of such holder's Registrable Securities in the underwritten
offering to the extent provided herein. All holders proposing to distribute
Registrable Shares through such underwritten offering shall (together with
ActivCard and the other shareholders distributing their securities through such
underwritten offering) enter into an underwriting agreement in customary form
with the underwriter selected by ActivCard. If any holder disapproves of the
terms of any such underwritten offering, he may elect to withdraw therefrom by
written notice to ActivCard
<PAGE>
and the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwritten offering shall be withdrawn from such
registration.
(c) The number of requests permitted by the holders of
Registrable Shares pursuant to this Section 3 shall be unlimited.
SECTION 4. HOLDBACK AGREEMENT.
If ActivCard at any time shall register Ordinary Shares under
the Securities Act (including any registration pursuant to Section 3 hereof) for
sale to the public, SCM Microsystems shall not sell publicly or privately, make
any short sale of, grant any option for the purchase of, or otherwise dispose
publicly of, any Registrable Shares (other than those Ordinary Shares included
in such registration pursuant to Section 3 hereof) without the prior written
consent of ActivCard, for a period as shall be determined by the relevant
managing underwriters, which period shall begin not more than 10 days prior to
the initial filing of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement; provided, however, that SCM Microsystems
shall be subject to the holdback restrictions of this Section 4 only once in any
twelve-month period during the term of this Agreement.
SECTION 5. PREPARATION AND FILING.
(a) If and whenever ActivCard is under an obligation pursuant
to the provisions of this Agreement to use its best efforts to effect the
registration of any Registrable Shares, ActivCard shall, as expeditiously as
practicable:
(i) use its best efforts to cause a registration statement
that registers such Registrable Shares to become and remain effective
for a period of 90 days or until all of such Registrable Shares have
been disposed of (if earlier). ActivCard shall not be required to
maintain the effectiveness of any registration statement that
contemplates a distribution of securities on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act;
(ii) furnish, at least ten business days before filing a
registration statement, to counsel designated by SCM Microsystems
("INVESTOR'S Counsel"), a copy of the registration statement proposed
to be filed and the prospectus relating thereto or any amendments or
supplements relating to such a registration statement or prospectus (it
being understood that such ten-business-day period need not apply to
successive drafts of the same document proposed to be filed so long as
such successive drafts are supplied to the Investor's Counsel in
advance of the proposed filing by a period of time that is reasonable
under the circumstances);
(iii) prepare and file with the Commission such amendments and
supplements
<PAGE>
to such registration statement and the prospectus relating thereto as
may be necessary to keep such registration statement effective for at
least a period of 90 days or until all of such Registrable Shares have
been disposed of (if earlier) and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of such
Registrable Shares;
(iv) provide written notice to Investor's Counsel concerning
(i) the receipt by ActivCard of any comments of the Commission with
respect to such registration statement or prospectus or any amendment
or supplement thereto or any request by the Commission for the amending
or supplementing thereof or for additional information with respect
thereto, (ii) the receipt by ActivCard of any notification with respect
to the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or prospectus or any
amendment or supplement thereto or the initiation or threatening of any
proceeding for that purpose and (iii) the receipt by ActivCard of any
notification with respect to the suspension of the qualification of
such Registrable Shares for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purposes;
(v) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the holders of the Registrable Shares reasonably
request and do any and all other acts and things which may be
reasonably necessary or advisable to enable such holders to consummate
the disposition in such jurisdictions of such holders' Registrable
Shares; PROVIDED, HOWEVER, that ActivCard will not be required (i) to
qualify generally to do business, subject itself to general taxation or
consent to general service of process in any jurisdiction where it
would not otherwise be required to do so but for this paragraph (v),
(ii) to provide any material undertaking or make any changes in its
charter documents which the Board of Directors determines to be
contrary to the best interests of ActivCard or (iii) to modify any of
its contractual relationships then existing;
(vi) furnish to the holders of such Registrable Shares such
number of copies of a summary prospectus, if any, or other prospectus,
including a preliminary prospectus, in conformity with the requirements
of the Securities Act, and such other documents as such holders may
reasonably request in order to facilitate the public sale or other
disposition of such Registrable Shares;
(vii) notify the holders of such Registrable Shares on a
timely basis of the happening of any event as a result of which a
prospectus included in the registration statement relating to such
Registrable Shares, 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
light of the circumstances then existing and, at the request of such
holders, prepare and furnish to such holders a reasonable number of
copies of a supplement to or an amendment of such prospectus as
may be necessary to cause such prospectus, as so supplemented or
amended, not to include an untrue statement of a material fact or omit
to state a material fact required to
<PAGE>
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(viii) subject to the execution of confidentiality agreements
in form and substance satisfactory to ActivCard and upon reasonable
notice and during normal business hours, make available for inspection
by the holders of such Registrable Shares, any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by SCM
Microsystems or the underwriter (collectively, the "INSPECTORS"), all
pertinent financial and other records, pertinent corporate documents
and properties of ActivCard (collectively, the "RECORDS"), as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause ActivCard's officers, directors and employees
to supply all information (together with the Records, the
"INFORMATION") reasonably requested by any such Inspector in connection
with such registration statement. Notwithstanding the foregoing, any of
the Information which ActivCard determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, shall not be disclosed to or by the Inspectors unless (i) the
disclosure of such Information is necessary to avoid or correct a
misstatement or omission in the registration statement, (ii) the
release of such Information is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction or (iii) such Information
is generally available to the public other than as a result of
disclosure by the Inspectors; the holders of such Registrable Shares
agree that they will, upon learning that disclosure of such Information
is sought in a court of competent jurisdiction, give notice to
ActivCard and allow ActivCard, at ActivCard's expense, to undertake
appropriate action to prevent disclosure of the Information deemed
confidential; and the Inspectors shall use best efforts to maintain the
confidentiality of all information disclosed pursuant to this Section
5(a)(viii);
(ix) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form,
at customary times and covering matters of the type customarily covered
by cold comfort letters;
(x) use its best efforts to obtain from its counsel an opinion
or opinions in customary form;
(xi) provide a transfer agent and registrar (which may be the
same entity and which may be ActivCard) for such Registrable Shares;
(xii) list such Registrable Shares or American Depositary
Shares representing such Registrable Shares, as the case may be, on any
national securities exchange on which any Ordinary Shares or American
Depositary Shares representing Ordinary Shares are listed;
(xiii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available
to its security holders, as soon as
<PAGE>
reasonably practicable, earnings statements (which need not be audited)
covering a period of 12 months beginning within three months after the
effective date of the registration statement, which earnings statements
shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(xiv) subject to all the other provisions of this Agreement,
use its reasonable best efforts to take all other steps necessary to
effect such registration of such Registrable Shares contemplated hereby
(including, without limitation, if the method of distribution is by
means of an underwriting agreement in customary form).
(b) Each holder of the Registrable Shares, upon receipt of any
notice from ActivCard of any event of the kind described in Section 5(a)(vii)
hereof, shall forthwith discontinue disposition of the Registrable Shares
pursuant to the registration statement covering such Registrable Shares until
such holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5(a)(vii) hereof, and, if so directed by ActivCard, such
holder shall deliver to ActivCard all copies, other than permanent file copies
then in such holder's possession, of the prospectus covering such Registrable
Shares at the time of receipt of such notice.
SECTION 6. EXPENSES.
All expenses (other than underwriting discounts and
commissions relating to the Registrable Shares, as provided in the last sentence
of this Section 6) incurred by ActivCard in complying with Section 5, including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the National Association of Securities Dealers, Inc.),
fees and expenses of complying with securities and blue sky laws, printing
expenses, fees and expenses of ActivCard's counsel and accountants and
reasonable fees and expenses (not to exceed U.S. $20,000) of the Investor's
Counsel, shall be paid by ActivCard; PROVIDED, HOWEVER, that all underwriting
discounts and selling commissions applicable to the Registrable Shares and Other
Shares shall be borne by the holders selling such Registrable Shares and Other
Shares, in proportion to the number of Registrable Shares and Other Shares sold
by each such holder.
SECTION 7. INDEMNIFICATION.
(a) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, ActivCard shall
indemnify and hold harmless the holders of Registrable Shares, each
underwriter, broker or any other Person acting directly on behalf of the
holders of Registrable Shares in connection with the distribution thereof and
each other Person, if any, who controls any of the foregoing Persons within
the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which any
of the foregoing Persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
allegedly untrue statement of a material fact contained in the registration
statement under which such Registrable Shares were
<PAGE>
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, 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
or, with respect to any prospectus, necessary to make the statements therein
in light of the circumstances under which they were made not misleading, or
any violation by ActivCard of the Securities Act or state securities or blue
sky laws applicable to ActivCard and relating to action or inaction required
of ActivCard in connection with such registration or qualification under such
state securities or blue sky laws; and ActivCard shall reimburse the holders
of Registrable Shares, such underwriter, such broker or such other Person
acting on behalf of the holders of Registrable Shares and each such
controlling Person for any legal or other expenses reasonably incurred by any
of them in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that ActivCard shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action (including any legal or other expenses incurred) arises
out of or is based upon an untrue statement or allegedly untrue statement or
omission or alleged omission made in said registration statement, preliminary
prospectus, final prospectus, amendment, supplement or document incident to
registration or qualification of any Registrable Shares in reliance upon and
in conformity with written information furnished to ActivCard through an
instrument duly executed by the holders of Registrable Shares or their
counsel or underwriter specifically for use in the preparation thereof;
PROVIDED FURTHER, HOWEVER, that the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any untrue statement,
allegedly untrue statement, omission or alleged omission made in any
preliminary prospectus but eliminated or remedied in the final prospectus
(filed pursuant to Rule 424 of the Securities Act), such indemnity agreement
shall not inure to the benefit of any holder of Registrable Shares,
underwriter, broker or other Person acting on behalf of holders of
Registrable Shares from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Shares which are the subject
thereof, if a copy of such final prospectus had been made available to such
holder of Registrable Shares, underwriter, broker or other Person acting on
behalf of holders of the Registrable Shares and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the
sale of such Registrable Shares to such Person, and the legal effect of
delivery of such final prospectus would have been to eliminate the liability
otherwise suffered or incurred by the Person asserting such loss, claim,
damage, liability or expense.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of
Registrable Shares shall severally and not jointly indemnify and hold
harmless ActivCard, each director of ActivCard, each officer of ActivCard who
shall sign such registration statement, each underwriter, broker or other
Person acting on behalf of the holders of Registrable Shares and each Person
who controls any of the foregoing Persons within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several (or actions in respect thereof), to which any of the foregoing
Persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue
<PAGE>
statement or allegedly untrue statement of a material fact contained in the
registration statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Commission, any amendment or
supplement thereto or any document incident to registration or qualification
of any Registrable Shares, 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 or, with
respect to any prospectus, necessary to make the statements therein in light
of the circumstances under which they were made not misleading, if such
untrue statement or allegedly untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to ActivCard or such underwriter by or on behalf of such holder of
Registrable Shares specifically for use in connection with the preparation of
such registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document; PROVIDED, HOWEVER, that the maximum amount
of liability in respect of such indemnification shall be limited, in the case
of each seller of Registrable Shares, to an amount equal to the net proceeds
actually received by such seller from the sale of Registrable Shares effected
pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the
preceding paragraphs of this Section 7, such indemnified party will, if a
claim in respect thereof is made against an indemnifying party, give written
notice to the latter of the commencement of such action. The failure of any
indemnified party to notify an indemnifying party of any such action shall
not (unless such failure shall have a material adverse effect on the
indemnifying party) relieve the indemnifying party from any liability in
respect of such action that it may have to such indemnified party on account
of this Section 7. In case any such action is brought against an indemnified
party, the indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; PROVIDED, HOWEVER, that if any
indemnified party shall have reasonably concluded that there may be one or
more legal or equitable defenses available to such indemnified party which
are additional to or conflict with those available to the indemnifying party,
or that such claim or litigation involves or could have an effect upon
matters beyond the scope of the indemnity agreement provided in this Section
7, the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party (but shall have the right to
participate therein with counsel of its choice) and such indemnifying party
shall reimburse such indemnified party for that portion of the reasonable
fees and expenses of any counsel retained by the indemnified party which is
reasonably related to the matters covered by the indemnity agreement provided
in this Section 7. If the indemnifying party is not entitled to, or elects
not to, assume the defense of a claim or series of claims of all indemnified
parties, it will not be obligated to pay the fees and expenses of more than
one counsel with respect to all indemnified parties as to any claim or series
of related
<PAGE>
claims. The indemnifying party may not settle any such claim without the
consent of the indemnified party.
(d) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amounts paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be just
and equitable if contribution pursuant hereto were determined by PRO RATA
allocation or by any other method or allocation which does not take account of
the equitable considerations referred to herein. No Person guilty of fraudulent
misrepresentation shall be entitled to contribution from any Person.
SECTION 8. UNDERWRITING AGREEMENT.
Notwithstanding the provisions of Sections 4, 5, 6 and 7, to
the extent that the holders of Registrable Shares shall enter into an
underwriting or similar agreement, which agreement contains provisions covering
one or more issues addressed in such Sections, the provisions contained in such
agreement addressing such issue or issues shall control; PROVIDED, HOWEVER, that
any such agreement to which ActivCard is not a party shall not be binding upon
ActivCard. No holder may participate in any underwritten registration hereunder
unless such holder (a) agrees to sell such holders' securities on the basis
provided in any underwriting arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably and customarily required under the terms of such
underwriting arrangements.
SECTION 9. INFORMATION BY HOLDERS OF REGISTRABLE SHARES.
Each holder of Registrable Shares shall furnish to ActivCard
such written information regarding such Person and the distribution proposed by
such Person as ActivCard
<PAGE>
may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.
<PAGE>
SECTION 10. EXCHANGE ACT COMPLIANCE.
From the Registration Date or such earlier date as a
registration statement filed by ActivCard pursuant to the Exchange Act relating
to any class of ActivCard's securities shall have become effective, ActivCard
shall comply with all of the reporting requirements of the Exchange Act
applicable to it and shall comply with all other public information reporting
requirements of the Commission which are conditions to the availability of Rule
144 for the sale of the Common Stock. ActivCard shall cooperate with each holder
of Registrable Shares in supplying such information as may be necessary for such
holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of Rule
144.
SECTION 11. NO-ACTION LETTER OR OPINION OF COUNSEL
IN LIEU OF REGISTRATION.
Notwithstanding anything in this Agreement in the contrary, if
at any time after the date of ActivCard's initial public offering of its
securities under the Securities Act ActivCard shall have obtained from the
Commission a "no-action" letter in which the Commission has indicated that it
will take no action if, without registration under the Securities Act, any
holder disposes of Registrable Shares covered by any request for registration
made under this Agreement in the manner in which such holder proposes to dispose
of the Registrable Shares included in such request, or if in the opinion of
counsel for ActivCard concurred in by counsel for such holder no registration
under the Securities Act is required in connection with such disposition, the
Registrable Shares included in such request shall not be eligible for
registration under this Agreement; provided, however, with respect to any holder
who may deemed to be an "affiliate," as that term is defined under Rule 144, if,
notwithstanding the opinion of such counsel, the holder is unable to dispose of
all the Registrable Shares included in his request in the manner in which such
holder so proposes without registration, the Registrable Shares included in such
request shall be eligible for registration under this Agreement.
SECTION 12. TERMINATION.
All registration rights granted under this Agreement shall
terminate and be of no further force and effect upon the earlier of (i) two (2)
years after the Registration Date and (ii) the date on which all of the
Registrable Shares cease to be Registrable Shares hereunder.
SECTION 13. SUCCESSORS AND ASSIGNS.
This Agreement shall bind and inure to the benefit of
ActivCard and SCM Microsystems and, subject to Section 15, their respective
successors and assigns.
SECTION 14. ASSIGNMENT.
SCM Microsystems may assign its rights hereunder to any of its
affiliates to
<PAGE>
which it transfers Registrable Shares; PROVIDED, HOWEVER, that such transferee
shall, as a condition to the effectiveness of such assignment, be required to
execute a counterpart to this Agreement agreeing to be treated as a holder of
Registrable Shares whereupon such purchaser or transferee shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement as if such transferee had originally been a party hereto; and
PROVIDED, FURTHER, that such transferee shall not be a competitor of ActivCard
(as reasonably determined by the Board of Directors of ActivCard).
SECTION 15. ENTIRE AGREEMENT.
This Agreement, the Stock Purchase Agreement and the other
writings referred to herein and therein or delivered pursuant hereto or thereto,
contain the entire agreement among SCM Microsystems, ActivCard and any other
parties to each of the foregoing with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
SECTION 16. NOTICES.
(a) All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to ActivCard, to:
ActivCard S.A.
6531 Dumbarton Circle
Fremont, CA 94555
Telephone: (510) 574-0100
Telecopy: (510) 574-0128
Attention: George Wikle;
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Telephone: (212) 848-7620
Telecopy: (212) 848-7179
Attention: Richard B. Vilsoet;
<PAGE>
(ii) if to SCM Microsystems, to:
SCM MicroSystems
131 Albright Way
Los Gatos, CA 95032
Telephone: (408) 370-488_
Telecopy: [_______]
Attention: Chief Financial Officer;
.
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94086
Telephone: (650) 493-9300
Telecopy: (650) 493-6811
Attention: Kurt Bermy
(b) All such notices, requests, consents and other
communications shall be deemed to have been delivered (a) in the case of
personal delivery or delivery by telecopy, on the date of such delivery, (b) in
the case of dispatch by nationally-recognized overnight courier, on the next
business day following such dispatch and (c) in the case of mailing, on the
third business day after the posting thereof.
SECTION 17. MODIFICATIONS; AMENDMENTS; WAIVERS.
The terms and provisions of this Agreement may not be modified
or amended, nor may any provision be waived, except pursuant to a writing
signed, in the case of an amendment or modification, by holders of more than 50%
of the Registrable Shares that are entitled to registration rights hereunder, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
SECTION 18. COUNTERPARTS; FACSIMILE SIGNATURES.
This Agreement may be executed in any number of counterparts
(including by telecopy), and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
SECTION 19. HEADINGS.
The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
<PAGE>
SECTION 20. SEVERABILITY; GOVERNING LAW.
It is the desire and intent of the parties that the provisions
of this Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly therein.
SECTION 21. SURVIVAL.
The respective agreements, covenants, indemnities and other
statements set forth in Section 7 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
ActivCard S.A.
By: /s/ GEORGE R. WIKLE
------------------------------
Name: George R. Wikle
Title: Chief Financial Officer
SCM MICROSYSTEMS, INC.
By: /s/ STEVEN HUMPHREYS
------------------------------
Name: Steven Humphreys
Title: Chairman
<PAGE>
The Parties agree to submit all disputes in connection with or arising out of
the validity, interpretation, performance, termination or annulment of this
Agreement to an accredited arbitrator satisfactory to both parties.
Executed at this 7th day of February, 2000 in two (2) original
copies.
For ACTIVCARD For SCM MICROSYSTEMS
/s/ GEORGE R. WIKLE /s/ STEVEN HUMPHREYS
- ------------------------------- -----------------------------
Name: George R. Wikle Name: Steven Humphreys
Title: Chief Financial Officer Title: Chairman
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Consolidated
Historical Financial Data" and "Experts" and to the use of our report dated
February 10, 2000, in Amendment No. 1 to the Registration Statement on Form F-1
and the related Prospectus of ActivCard S.A. for the registration of 4,000,000
shares of its common stock.
ERNST & YOUNG Audit
/s/ John Mackey
represented by
John Mackey
Paris, France
March 6, 2000
