<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 2000
REGISTRATION NO. 333-11540
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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 MARCH 14, 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. A portion of the offering
may be issued in the form of ordinary shares
Our ordinary shares are listed on Easdaq under the symbol "ACTV." On March 13,
2000, the closing price on the Easdaq was $84.50 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... iii
Exchange Rates........................ iii
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......................... 72
Experts............................... 72
Where You Can Find Information........ 72
Index to Financial Statements......... F-1
</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 approval by the French COMMISSION DES
OPERATIONS DE BOURSE.
Accordingly, each of ActivCard and the underwriters has represented and agreed
that, it has not offered or sold and will not offer or sell, directly or
indirectly, the ADSs or ordinary shares to the public in the Republic of France,
and has not distributed or caused to be distributed and will not distribute or
cause to be distributed to the public in the Republic of France this prospectus
or any other material relating to the ADS or ordinary shares, and that such
offers, sales and distributions have been and shall only be made in the Republic
of France to (i) qualified investors (investisseurs qualifies) and/or (ii) a
restricted circle or investors (cercle restraint d'investis seurs), all as
defined in and in accordance with Article 6 of ordonnance no. 67-833 dated
28 September 1967, as amended, and decret no. 98-880 dated 1 October 1998.
Investors in the Republic of France may only participate in the issue of ADSs or
ordinary shares, for their own account in accordance with conditions set out in
decret no. 98-880 dated 1 October 1998. ADS or ordinary shares may only be
issued, directly or indirectly, to the public in the Republic of France in
accordance with Articles 6 and 7 of ordonnance no. 97-833 dated 28 September
1967, as amended. Where an issue of securities is effected as an exception to
the rules relating to an appel public a l'epargne in the Republic of France
(public offer rules) by way of an offer to a restricted circle of investors,
such investors must, to the extent that the ADS or ordinary shares are
i
<PAGE>
offered to 100 or more of such investors, provide certification as to their
personal association, of a professional or personal nature, with a member of the
management of the issuer.
Our ADSs and ordinary shares may not be offered or sold prior to the expiry of
six months from the date of the offer of the ADSs and ordinary shares to any
person in the United Kingdom except to persons whose ordinary activities involve
then in acquiring, holding, managing or disposing of investments, as principal
or agent, for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities Regulations
1995. No document issued in connection with the public offering may be or passed
on to any person in the United Kingdom unless that person is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemption) Order 1996, as amended, or is a person to whom the document may
otherwise by lawfully issued or passed on.
The offering of the ADSs and ordinary shares in the Republic of Italy has not
been registered with the COMMIZIONE NAZIONALE PER LE SOCIETA E LA BORSA pursuant
to Italian securities legislation. The distribution of this prospectus in the
Republic of Italy is restricted to persons who qualify as professional investors
under applicable Italian securities regulation.
------------------------
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.
ii
<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 March 13)............ 1.0460 0.9657 1.0309 1.0365
</TABLE>
iii
<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. The Underwriters may elect to take
delivery of a portion of the offering as ordinary
shares. We expect to use the facilities of SICOVAM to
facilitate transfers between ADSs and ordinary shares.
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 $337,527
Total current assets.................................. 10,356 9,302 14,398 342,506
Total assets.......................................... 13,051 12,375 16,434 344,542
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) 992 335,488
</TABLE>
- ------------------------
(1) Adjusted to reflect: (i) consummation of this offering assuming net proceeds
of $312,340,000 based on an assumed public offering price of $84.50 per ADS the
closing price for our ordinary shares on Easdaq on March 13, 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."
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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.
WE MAY BE REQUIRED TO TAKE ACTIONS THAT ARE CONTRARY TO OUR BUSINESS OBJECTIVES
TO AVOID BEING DEEMED AN INVESTMENT COMPANY AS DEFINED UNDER THE INVESTMENT
COMPANY ACT OF 1940
Generally, a company is an investment company and must register under the
Investment Company Act and comply with its regulations if the value of the
company's investment securities exceeds 40% of the value of the company's total
assets or if the company primarily engages, or holds itself out as being
primarily engaged, in the business of investing, owning or holding securities.
Our investment securities may exceed 40% of the value of our total assets.
The Investment Company Act provides that a company is not an investment company
and is not required to register under the Investment Company Act if the company
is primarily engaged, directly or through a wholly-owned subsidiary or
subsidiaries, in a business or businesses other than that of investing,
reinvesting, owning, holding or trading in securities. We believe that we are
engaged primarily and directly in the business of providing solutions for
authenticating and managing the digital identities of employees, suppliers,
partners and customers accessing e-business resources, and that we are not an
investment company as that term is defined under the Investment Company Act of
1940.
Because of the consequences that would result if the U.S. Securities and
Exchange Commission or a court were to determine that we are an investment
company, we are currently relying on a one-year temporary exemption from the
registration requirements of the Investment Company Act. If necessary, before
the end of the one-year period, we may seek an order from the Securities and
Exchange Commission declaring that we are not an investment company.
If we were unable to obtain such an order and the one-year temporary exemption
were no longer available, we may be required to take actions to avoid the
requirement to register as an investment company. For example, we may need to
acquire additional income or loss generating assets that we might not otherwise
have acquired, restrict our investment in securities pending use in our
operations to items such as cash and U.S. government securities and/or be forced
to forego opportunities to acquire interests in companies that would be
important to our strategy. In addition, we may need to sell some assets which
are considered to be investment securities, including certain short-term
securities and interests in other companies.
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The Investment Company Act contains substantive regulations with respect to
investment companies including restrictions on their capital structure,
operations, transactions with affiliates, and other matters which would be
incompatible with our operations. If we were to be deemed an investment company,
we would, among other things, effectively be precluded from making any public
offering in the United States until such time as we were no longer an investment
company. We could also be subject to administrative or legal proceedings, and,
among other things, contracts to which we are a party might be rendered
unenforceable or subject to recission.
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;
- 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;
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- 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
- 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
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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.
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
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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 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.
14
<PAGE>
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.
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
15
<PAGE>
- 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 $84.50 on March 13, 2000, near its all
time high of $94.75 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 $75.53 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 $84.50
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 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
16
<PAGE>
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;
- 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
$312.3 million. This estimate is based on an assumed public offering price of
$84.50 per ADS, which is the closing price of our shares on Easdaq on March 13,
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 ADSs 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 $84.50 per ADS, based
on the closing price of our shares on Easdaq of $84.50 per share on
March 13, 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................................ 34,483 364,013
Accumulated deficit....................................... (67,640) (67,640)
Deferred stock compensation............................... (124) (124)
Cumulative translation adjustment......................... (2,066) (2,066)
-------- --------
Total shareholders' equity.............................. 992 335.488
-------- --------
Total capitalization........................................ $ 11,868 $340,605
======== ========
</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
$84.50 per ADS based on the closing price of our shares on Easdaq of $84.50 per
share on March 13, 2000, and after deducting the underwriting discounts and
commissions and other estimated expenses, would have been approximately $8.97
per share. This represents an immediate increase of $8.28 per share to existing
stockholders and an immediate dilution of $75.53 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial offering price per ADS...................... $84.50
Net tangible book value per share before the offering..... .69
Increase in net tangible book value per share attributable
to new investors........................................ 8.28
------
Pro forma net tangible book value per share after this
offering.................................................. 8.97
------
Dilution per share to new investors......................... $75.53
======
</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 $84.50 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 22.1% $ 2.87
New investors.............................. 4,000,000 10.7 338,000,000 77.9 84.50
---------- ----- ------------ -----
Total.................................... 37,380,701 100.0% $433,874,000 100.0%
========== ===== ============ =====
</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 March 13, 2000)...................... $94.75 $22.50 400,093
</TABLE>
Our price at the close of trading on March 13, 2000 was $84.50 per share. As of
March 13, 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 $337,527
Total current assets.................. 6,529 15,779 10,356 9,302 14,398 342,506
Total assets.......................... 7,640 17,495 13,051 12,375 16,434 344,542
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) 992 335,488
</TABLE>
- ------------------------
(1) Adjusted to reflect: (i) the consummation of this offering assuming net
proceeds of $312,340,000 based on an assumed public offering price of $84.50
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.
26
<PAGE>
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
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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:
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- 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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<PAGE>
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. o
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. We are currently in the process of negotiating a
license to use two patents in Japan. 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
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<PAGE>
ownership of all manufacturing tools, molds and software, supply all critical
components and define all manufacturing 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
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<PAGE>
in the United States, 69 were based in Europe and 3 were based in Asia. As
required by French law, we hold 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 reported intra-day sales prices per share for the ADSs on the
Nasdaq National Market exceeds the average of the five highest reported
intra-day sales prices per share 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 Systemes 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, American, 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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<PAGE>
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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<PAGE>
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 expense, 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
- -----------------------------------------------------------------------------------------------
Distribute securities on the shares that are Each ADS will automatically represent its
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 ADSs. 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 charges; 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 ADSs (even if the ADSs 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 (which
consequences generally will be similar to those of the purchase, ownership and
disposition of shares by 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 both our
voting stock and share capital;
(b) is, for U.S. federal income tax purposes, either: (i) a citizen or
individual resident of the United States; (ii) a corporation or partnership
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").
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. However, because we have substantial passive assets in the
form of cash, and because the value of our goodwill and other assets may
fluctuate significantly, we can provide no assurance regarding our PFIC status
for 2000 and subsequent years. 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.
For purposes of the Treaty and U.S. federal income tax, U.S. holders of ADSs
(other than potentially a holder of pre release ADSs) will be treated as the
owner of the Shares represented by such 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.
A U.S. holder that is a partnership for U.S. federal income tax purposes (other
than a publicly traded partnership) generally will not be subject to U.S.
Federal income tax on income derived from holding the ADSs. If a partner in a
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partnership holding ADSs would otherwise qualify as a U.S. holder, if such
partner held the ADSs directly, the partner generally will be subject to U.S.
federal income tax on such partner's distributive share of the income of the
partnership derived from holding the ADSs in the same manner as a U.S. Holder.
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 amount of 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 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.
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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:
(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 upon request 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. For U.S.
holders of Shares, the Form and its instructions are available from the IRS or
the CENTRE DES IMPOTS DES NON RESIDENTS (9, rue d'Uzes, 75094 Paris Cedex 2).
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 your ADSs, including any French
withholding tax thereon and any applicable fees and expenses of the Depository,
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,
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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 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 treated 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 for U.S. federal income tax purposes.
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 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 generally will 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
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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.
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.
68
<PAGE>
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
69
<PAGE>
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.
No action has been or will be taken in any jurisdiction, except in the United
States, that would permit a public offering of the ADSs or the ordinary shares,
or the possession, circulation or distribution of a prospectus or any other
material relating to ActivCard, the ADSs or the ordinary shares, where action
for that purpose is required.
Each underwriter has agreed that it has offered or sold the ADSs and the
ordinary shares and, prior to the expiry of six months from the date of the
offer of the ADSs and the ordinary shares, will not offer or sell any ADS or
ordinary shares to any person in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing or
investments as principal or agent, for the purposes of their businesses or
otherwise in the circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995. Each underwriter has agreed that it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the ADSs
and ordinary shares in, from, or otherwise involving the United Kingdom, and
each has also agreed that it has only issued or passed on and will only issue or
pass on to any person in the United Kingdom any document received by it in
connection with the offering of the ADSs and ordinary shares to a person who is
of a kind described in Article 11(3) of the Financial Service At 1986
(Investment Advertisements) (Exemptions) Order 1996, as amended, or is a person
to whom the document may otherwise be lawfully issued or passed on.
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. A portion of the offering may be issued in the the form of
ordinary shares.
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.
70
<PAGE>
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.
71
<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
Articles of Association and our annual financial statements by contacting us at
24-28 Avenue du 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 were 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 12, 1999, ActivCard S.A. issued 8,303,179 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.
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>
- ------------------------
* Previously 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 14, 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 14, 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.
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>
- ------------------------
* Previously 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") a portion 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") and a portion of which shall
be delivered in the form of Ordinary Shares.
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
Shareholder, the "SELLING Shareholders"), propose to sell, at the option of
the Underwriters, up to an additional 600,000, all or a portion of which, at
the Underwriters' option, may be deposited and delivered 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 a portion 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.$[ ] per Ordinary Share for the Securities delivered
in the form of Ordinary Shares and U.S.$[ ] per ADS for those Securities
delivered in the form of ADSs.
In addition, each of the Selling Shareholders agrees, severally and
not jointly, to sell the Option Securities set forth opposite the name of
each such Selling Shareholder on Schedule II hereto 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.
With respect to all or any portion of the Securities to be
purchased and sold hereunder, the Representatives, on behalf of the several
Underwriters, may elect to have Securities in the form of ADSs in respect of
such Securities delivered and paid for hereunder, in lieu of, and in
satisfaction of the Company's and the Selling Shareholders' obligation to
sell to the several Underwriters, and the several Underwriters' obligations
to purchase, such Securities in the form of Ordinary Shares. Notice of such
election with respect to the Closing Date or Additional Closing Date, as the
case may be, shall be given by the Representatives to the Company at least 24
hours prior to the Closing Date or Additional Closing Date, as the case may
be.
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 20,
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 (a) in the case of
Securities to be delivered in the form of ADSs 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 Depositary's account with 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 and (B) in the
case of Securities to be delivered in the form of Ordinary Shares, only
against registration on the books and Banque Paribas, acting as account
holder of the Company's Ordinary Shares, of the Ordinary Shares to [the
Representative's account]. The ADRs and Ordinary Shares 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 (in the
case of ADRs) or the Company (in the case of Ordinary Shares) 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 (including those underlying the ADSs) to be
issued and sold by the Company and the Ordinary Shares (including those
underlying the ADSs) to be sold by the Selling Shareholders upon exercise
of the Underwriters' over-allotment option 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
the person in whose name the ADRs are registered will be entitled to the
rights specified therein and in the Prospectus;
(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 Depositary 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 ADSs and
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) each Selling Shareholder has good and valid title to the
Ordinary Shares to be sold by it (including those in the form of ADSs)
pursuant to this Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind;
(d) good and valid title to the Ordinary Shares to be sold by each
Selling Shareholder (including those in the form of ADSs) pursuant to this
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;
(e) 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
(f) 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.
(g) Each of the Management Shareholders represents and warrants that
its stock option exercise notice 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.
(h) 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.
(i) 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, (i) 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. has been duly incorporated and is validly
existing as a corporation 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 (a) any statutes or
regulations of the United States of America, the State of New York,
or the Republic of France, or (b) 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 (including those) 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 for
issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth in this
Agreement, will be validly issued and fully paid and the issuance of
such Ordinary Shares will not be 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,
domestic or foreign, is required in connection with the due
authorization, execution and delivery of this Agreement or the
Deposit Agreement or the offering, issuance, sale or delivery 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 of America, 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 such counsels 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
and Ordinary Shares 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) The choice of New York law to govern this Agreement is, under
the laws of the Republic of France, a valid choice of law and any
final judgment for a sum of money against the Company in relation to
the Underwriting Agreement rendered by a competent United States or
New York State court located in the Borough of Manhattan, The City
of New York, New York, would be recognized and enforced by the
French courts without relitigation of the matters adjudicated upon,
but without prejudice to compliance with French laws, regulations,
and court proceedings in respect of recognition and enforcement in
France of foreign judgments (exequatur); and
(xvii) 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 constitutes a valid and binding agreements
of each Management Shareholder, enforceable 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, enforceable in accordance
with its terms, except with respect to any indemnification provisions
to the extent limited by applicable law;
(iv) to the knowledge of each counsel, 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, domestic or foreign, is required in connection with the
execution and delivery of this Agreement, the Power of Attorney or
the Custody Agreement or the offering, sale or delivery 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>
-34-
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 Attorneys-in-Fact at c/o ActivCard, Inc., 6531
Dumbarton Circle, Fremont, California 94555 (telefax: 510-574-0128).
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>
------------------------------------------------------------------------
ACTIVCARD S.A.
AND
THE BANK OF NEW YORK
AS DEPOSITARY
AND
OWNERS AND HOLDERS OF AMERICAN DEPOSITARY RECEIPTS
DEPOSIT AGREEMENT
DATED AS OF , 2000
------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS....................................................................................2
SECTION 1.1. AMERICAN DEPOSITARY SHARE...........................................................2
SECTION 1.2. COMMISSION..........................................................................3
SECTION 1.3. CUSTODIAN...........................................................................3
SECTION 1.4. DEPOSIT AGREEMENT...................................................................3
SECTION 1.5. DEPOSITARY; CORPORATE TRUST OFFICE..................................................3
SECTION 1.6. DEPOSITED SECURITIES................................................................4
SECTION 1.7. DOLLARS; FRANCS.....................................................................4
SECTION 1.8. FOREIGN REGISTRAR...................................................................4
SECTION 1.9. ISSUER..............................................................................4
SECTION 1.10. OWNER............................................................................4
SECTION 1.11. RECEIPT..........................................................................5
SECTION 1.12. REGISTRAR........................................................................5
SECTION 1.13. RESTRICTED SECURITIES............................................................5
SECTION 1.14. SECURITIES ACT OF 1933...........................................................5
SECTION 1.15. SHARES...........................................................................6
ARTICLE II FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY,
TRANSFER AND SURRENDER OF RECEIPTS.......................................................................6
SECTION 2.1. FORM AND TRANSFERABILITY OF RECEIPTS................................................6
SECTION 2.2. DEPOSIT OF SHARES...................................................................7
SECTION 2.3. EXECUTION AND DELIVERY OF RECEIPTS..................................................9
SECTION 2.4. TRANSFER OF RECEIPTS; COMBINATION AND SPLIT-UP OF RECEIPTS..........................10
SECTION 2.5. SURRENDER OF RECEIPTS AND WITHDRAWAL OF SHARES......................................11
SECTION 2.6. LIMITATIONS ON EXECUTION AND DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS...........12
SECTION 2.7. LOST RECEIPTS, ETC..................................................................14
SECTION 2.8. CANCELLATION AND DESTRUCTION OF SURRENDERED RECEIPTS................................14
SECTION 2.9. PRE-RELEASE OF RECEIPTS.............................................................14
SECTION 2.10. MAINTENANCE OF RECORDS...........................................................16
ARTICLE III CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS....................................................16
SECTION 3.1. FILING PROOFS, CERTIFICATES AND OTHER INFORMATION...................................16
SECTION 3.2. LIABILITY OF OWNER FOR TAXES........................................................17
SECTION 3.3. WARRANTIES ON DEPOSIT OF SHARES.....................................................17
SECTION 3.4. INFORMATION REQUESTS................................................................18
SECTION 3.5. DISCLOSURE OF INTEREST..............................................................18
ARTICLE IV THE DEPOSITED SECURITIES......................................................................19
SECTION 4.1. CASH DISTRIBUTIONS..................................................................19
SECTION 4.2. DISTRIBUTIONS OTHER THAN CASH, SHARES OR RIGHTS.....................................19
SECTION 4.3. DISTRIBUTIONS IN SHARES.............................................................20
SECTION 4.4. RIGHTS..............................................................................21
SECTION 4.5. CONVERSION OF FOREIGN CURRENCY......................................................23
SECTION 4.6. FIXING OF RECORD DATE...............................................................25
SECTION 4.7. VOTING OF SHARES....................................................................25
SECTION 4.8. CHANGES AFFECTING DEPOSITED SECURITIES..............................................30
SECTION 4.9. REPORTS.............................................................................31
SECTION 4.10. LISTS OF OWNERS..................................................................31
SECTION 4.11. WITHHOLDING......................................................................31
i
<PAGE>
SECTION 4.12. RECEIPTS FOR TAXES PAID..........................................................32
ARTICLE V THE DEPOSITARY, THE CUSTODIANS AND THE ISSUER..................................................33
SECTION 5.1. MAINTENANCE OF OFFICE AND TRANSFER BOOKS BY THE DEPOSITARY..........................33
SECTION 5.2. PREVENTION OR DELAY IN PERFORMANCE BY THE DEPOSITARY OR THE ISSUER..................34
SECTION 5.3. OBLIGATIONS OF THE DEPOSITARY, THE CUSTODIAN AND THE ISSUER.........................35
SECTION 5.4. RESIGNATION AND REMOVAL OF THE DEPOSITARY...........................................36
SECTION 5.5. THE CUSTODIANS......................................................................37
SECTION 5.6. NOTICES AND REPORTS.................................................................39
SECTION 5.7. DISTRIBUTION OF ADDITIONAL SHARES, RIGHTS, ETC......................................39
SECTION 5.8. INDEMNIFICATION.....................................................................40
SECTION 5.9. CHARGES OF DEPOSITARY...............................................................41
SECTION 5.10. RETENTION OF DEPOSITARY DOCUMENTS................................................43
SECTION 5.11. EXCLUSIVITY......................................................................43
SECTION 5.12. LIST OF RESTRICTED SECURITIES OWNERS.............................................43
ARTICLE VI AMENDMENT AND TERMINATION.....................................................................44
SECTION 6.1. AMENDMENT...........................................................................44
SECTION 6.2. TERMINATION.........................................................................44
ARTICLE VII MISCELLANEOUS................................................................................46
SECTION 7.1. COUNTERPARTS........................................................................46
SECTION 7.2. NO THIRD PARTY BENEFICIARIES........................................................46
SECTION 7.3. SEVERABILITY........................................................................46
SECTION 7.4. HOLDERS AND OWNERS AS PARTIES; BINDING EFFECT.......................................46
SECTION 7.5. NOTICES.............................................................................47
SECTION 7.6. GOVERNING LAW.......................................................................48
SECTION 7.7. COMPLIANCE WITH U.S. SECURITIES LAWS................................................48
</TABLE>
ii
<PAGE>
DEPOSIT AGREEMENT dated as of , 2000 among ACTIVCARD S.A., a SOCIETE
ANONYME incorporated under the laws of The Republic of France (herein called the
Issuer), THE BANK OF NEW YORK, a New York banking corporation (herein called the
Depositary), and all Owners (as hereinafter defined) and holders from time to
time of American Depositary Receipts (as hereinafter defined) issued hereunder.
W I T N E S S E T H :
WHEREAS, the Issuer desires to provide, as hereinafter set forth in
this Deposit Agreement (as hereinafter defined), for the deposit of Shares (as
hereinafter defined) of the Issuer from time to time with the Depositary or with
the Custodian (as hereinafter defined) as agent of the Depositary for the
purposes set forth in this Deposit Agreement, for the creation of American
Depositary Shares (as hereinafter defined) entitling the Owners thereof to
receive the Shares so deposited and for the execution and delivery of American
Depositary Receipts (as hereinafter defined) evidencing the American Depositary
Shares; and
WHEREAS, the American Depositary Receipts are to be substantially in
the form of Exhibit A annexed hereto, with appropriate insertions, modifications
and omissions, as hereinafter provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the premises, it is agreed by and
between the parties hereto as follows:
ARTICLE I DEFINITIONS.
The following definitions shall for all purposes, unless otherwise
clearly indicated, apply to the respective terms used in this Deposit Agreement:
SECTION 1.1. AMERICAN DEPOSITARY SHARE.
The term "American Depositary Share" shall mean the security
entitling the Owner thereof to an undivided interest in the Deposited Securities
and evidenced by the Receipts issued hereunder. Each American Depositary Share
shall entitle the Owner thereof to receive the amount of Shares specified on the
face of the Receipt, until there
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shall occur a distribution upon Deposited Securities covered by Section 4.3 or a
change in Deposited Securities covered by Section 4.8 with respect to which
additional Receipts are not executed and delivered, and thereafter American
Depositary Shares shall entitle the Owner thereof to receive the amount of
Shares or Deposited Securities specified in such Sections.
SECTION 1.2. COMMISSION.
The term "Commission" shall mean the Securities and Exchange
Commission of the United States or any successor governmental agency in the
United States.
SECTION 1.3. CUSTODIAN.
The term "Custodian" shall mean, as of the date hereof, the
designated Paris offices of Banque Nationale de Paris, 14, Rue Bergere, 75009
Paris, France; Banque Paribas, 12 BD de la Madeleine, 75009 Paris, France;
Banque Worms, 45 Boulevard Haussmann, 75009 Paris, France; Credit Lyonnais, 19
Boulevard des Italiens BC, 75002 Paris, France; Banque Indosuez, 44 Rue de
Courcelles, 75008 Paris, France; and the designated Nantes Cedex office of
Societe Generale, France, 32, rue du Champ de Tir, Department Titres et Bourse,
BP 1135-44024 Nantes Cedex, France; in each case as agents of the Depositary for
the purposes of this Deposit Agreement, and, subject to the last paragraph of
Section 5.5, any other firm or corporation which may hereafter be appointed by
the Depositary pursuant to the terms of Section 5.5, as substitute or additional
custodian or custodians hereunder, as the context shall require and the terms
"Custodian(s)" and "Custodian" shall also mean all of them, collectively.
SECTION 1.4. DEPOSIT AGREEMENT.
The term "Deposit Agreement" shall mean this Agreement, as the
same may be amended from time to time in accordance with the provisions hereof
and all instruments supplemental thereto.
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SECTION 1.5. DEPOSITARY; CORPORATE TRUST OFFICE.
The term "Depositary" shall mean The Bank of New York, a New
York banking corporation and any successor as depositary hereunder. The term
"Corporate Trust Office," when used with respect to the Depositary, shall mean
the office of the Depositary which at the date of this Agreement is 101 Barclay
Street, New York, New York, 10286.
SECTION 1.6. DEPOSITED SECURITIES.
The term "Deposited Securities" as of any time shall mean
Shares at such time deposited or deemed to be deposited under this Deposit
Agreement and any and all other securities, property and cash received by the
Depositary or the Custodian in respect thereof and at such time held hereunder,
subject as to cash to the provisions of Section 4.5.
SECTION 1.7. DOLLARS; FRANCS.
The term "Dollars" shall mean United States dollars. The term
"Francs" or "FF" shall mean the lawful currency of France.
SECTION 1.8. FOREIGN REGISTRAR.
The term "Foreign Registrar" shall mean the accredited
financial intermediary in France appointed as agent of the Issuer for the
transfer and registration of Shares or any successor as registrar for the
Shares.
SECTION 1.9. ISSUER.
The term "Issuer" shall mean ActivCard S.A., a SOCIETE ANONYME
incorporated under the laws of The Republic of France, having its registered
office at 24-28 Avenue du General de Gaulle, 92156 Suresnes, Cedex France.
SECTION 1.10. OWNER.
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The term "Owner" shall mean the person in whose name a Receipt
is registered on the books of the Depositary maintained for such purpose.
SECTION 1.11. RECEIPT.
The term "Receipt" shall mean the American Depositary Receipts
issued hereunder evidencing American Depositary Shares.
SECTION 1.12. REGISTRAR.
The term "Registrar" shall mean any bank or trust company
having an office in the Borough of Manhattan, The City of New York, which shall
be appointed by the Depositary to register Receipts and transfers of Receipts as
herein provided and shall include any co-registrar appointed by the Depositary,
upon request or with the approval of the Issuer.
SECTION 1.13. RESTRICTED SECURITIES.
The term "Restricted Securities" shall mean Shares, or
Receipts entitling the Owner thereof to receive such Shares, which are acquired
directly or indirectly from the Issuer or its affiliates (as defined in Rule 144
under the Securities Act of 1933) in a transaction or chain of transactions not
involving any public offering or which are subject to resale limitations under
Regulation D or any other provision under that Act or both, or which are held by
an officer, director (or persons performing similar functions) or other
affiliate of the Issuer, or which are subject to other restrictions on sale,
transfer or deposit under the laws of the United States or The Republic of
France, or under a shareholder agreement or the STATUTS of the Issuer. All such
Restricted Securities shall have an appropriate legend in bold face stating that
such security is a restricted security and is subject to restrictions on sale,
transfer or deposit.
SECTION 1.14. SECURITIES ACT OF 1933.
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The term "Securities Act of 1933" shall mean the United States
Securities Act of 1933, as from time to time amended.
SECTION 1.15. SHARES.
The term "Shares" shall mean ordinary shares, nominal value
6.25 French Francs each, of the Issuer in administered registered form (TITRES
NOMINATIFS ADMINISTRES: I.E. shares which are registered in the Issuer's
shareholders' accounts and which are managed by the Custodian, an accredited
financial intermediary, acting as agent on behalf of such Owner), as permitted
by French law from time to time, heretofore validly issued and outstanding and
fully paid, nonassessable and free of any pre-emptive rights of the holders of
outstanding Shares or hereafter validly issued and outstanding and fully paid,
nonassessable and free of any pre-emptive rights of the holders of outstanding
Shares.
ARTICLE II FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND DELIVERY,
TRANSFER AND SURRENDER OF RECEIPTS.
SECTION 2.1. Form and Transferability of Receipts.
Definitive Receipts shall be substantially in the form set
forth in Exhibit A annexed to this Deposit Agreement, with appropriate
insertions, modifications and omissions, as hereinafter provided. No Receipt
shall be entitled to any benefits under this Deposit Agreement or be valid or
obligatory for any purpose, unless such Receipt shall have been executed by the
Depositary by the manual or facsimile signature of a duly authorized signatory
of the Depositary and, if a Registrar for the Receipts shall have been
appointed, countersigned by the manual or facsimile signature of a duly
authorized signatory of the Registrar. The Depositary shall maintain books on
which each Receipt so executed and delivered as hereinafter provided and the
transfer of each such Receipt shall be registered. Receipts bearing the manual
or facsimile signature of a duly authorized signatory of the Depositary who was
at any time a proper signatory of the Depositary shall bind the Depositary,
notwithstanding that such signatory has ceased to
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hold such office prior to the execution and delivery of such Receipts by the
Registrar or did not hold such office on the date of issuance of such Receipts.
The Receipts may be endorsed with or have incorporated in the
text thereof such legends or recitals or modifications not inconsistent with the
provisions of this Deposit Agreement as may be required by the Depositary or
required to comply with any applicable law or regulations thereunder or with the
rules and regulations of any securities exchange or market upon which American
Depositary Shares may be listed or to conform with any usage with respect
thereto, or to indicate any special limitations or restrictions to which any
particular Receipts are subject by reason of the date of issuance of the
underlying Deposited Securities or otherwise.
Title to a Receipt (and to the American Depositary Shares
evidenced thereby), when properly endorsed or accompanied by proper instruments
of transfer, shall be transferable by delivery with the same effect as in the
case of a negotiable instrument; provided, however, that the Issuer and
Depositary, notwithstanding any notice to the contrary, may treat the Owner
thereof as the absolute owner thereof for the purpose of determining the person
entitled to distribution of dividends or other distributions or to any notice
provided for in this Deposit Agreement and for all other purposes.
SECTION 2.2. DEPOSIT OF SHARES.
Subject to the terms and conditions of this Deposit Agreement,
Shares may be deposited by any person (including by electronic transfer thereof)
by inscription of ownership of such Shares in the name of the Depositary in an
account maintained by the Foreign Registrar and in an account maintained by the
Custodian as agent on behalf of the Depositary or Owner, pursuant to appropriate
instructions for transfer in a form satisfactory to the Issuer or the Foreign
Registrar or the Custodian, as the case may be, together with all such
certifications as may be required by the Depositary or the Custodian in
accordance with the provisions of this Deposit Agreement, and, if the
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Depositary requires, together with a written order directing the Depositary to
execute and deliver to, or upon the written order of, the person or persons
stated in such order a Receipt or Receipts for the number of American Depositary
Shares so deposited. The Custodian will, upon request by the Depositary, issue
or cause to be issued written confirmations as to holdings of Shares, it being
agreed and understood that such confirmations do not constitute documents of
title. No Shares shall be accepted for deposit unless accompanied by evidence
satisfactory to the Depositary that any necessary approval has been granted by
the governmental body in The Republic of France, if any, which is then
performing the function of the regulation of currency exchange or which has
jurisdiction over foreign investment or regulates foreign ownership of French
companies.
If required by the Depositary, Shares presented for deposit at
any time, whether or not the shareholders' accounts of the Issuer or the Foreign
Registrar are closed, shall also be accompanied by an agreement or assignment,
or other instrument satisfactory to the Depositary, which will provide for the
prompt transfer to the Depositary or the Custodian with respect to such Shares
of any dividend, or right to subscribe for additional Shares or to receive other
property which any person in whose name the Shares are or have been registered
may thereafter receive upon or in respect of such deposited Shares, or in lieu
thereof, such agreement of indemnity or other agreement as shall be satisfactory
to the Depositary.
At the request, risk and expense of any person proposing to
deposit Shares, and for the account of such person, the Depositary may receive
certificates for Shares to be deposited, together with the other instruments
herein specified, for the purpose of forwarding such Share certificates to the
Custodian for deposit hereunder.
Upon each delivery to a Custodian of a certificate or
certificates for Shares to be deposited hereunder, together with the other
documents above specified, such Custodian shall, as soon as transfer and
recordation can be accomplished, subsequent to
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receipt by the Depositary or its nominee or the Custodian of any required
government approvals, present such certificate or certificates to the Issuer or
the Foreign Registrar, if applicable, for transfer and recordation of the shares
being deposited in the name of the Depositary or its nominee or such Custodian
or its nominee.
Deposited Securities shall be held by the Depositary or by a
Custodian in the name of the Depositary, if applicable, for the benefit of the
Owners and Beneficial Owners or at such other place or places as the Depositary
shall determine.
As long as the Depositary holds any Shares pursuant to this
Deposit Agreement, the Depositary shall ensure that at least one Share is owned
in the name of the Depositary and one Share is owned in the name of the
Custodian, each in registered form. All other Shares may be held either in
registered or in bearer form as permitted by the laws of The Republic of France
and the STATUTS of the Issuer from time to time.
SECTION 2.3. EXECUTION AND DELIVERY OF RECEIPTS.
Upon receipt by the Custodian of any deposit pursuant to
Section 2.2 hereunder (and in addition, if the shareholders' accounts of the
Issuer or the Foreign Registrar or the transfer books of the Custodian, if
applicable, are open), the Depositary may in its sole discretion require a
proper acknowledgment or other evidence from the Issuer, or the Foreign
Registrar or the Custodian, as applicable, that any Deposited Securities have
been recorded upon the books of the Issuer or the Foreign Registrar or the
Custodian, if applicable, in the name of the Depositary or its nominee or such
Custodian or its nominee), together with the other documents required as above
specified, such Custodian shall notify the Depositary of such deposit and the
person or persons to whom or upon whose written order a Receipt or Receipts are
deliverable in respect thereof and the number of American Depositary Shares to
be evidenced thereby. Such notification shall be made by letter or, at the
request, risk and expense of the person making the deposit, by cable, telex or
facsimile transmission. Upon receiving such notice from such
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Custodian, the Depositary, subject to the terms and conditions of this Deposit
Agreement, shall execute and deliver at its Corporate Trust Office, to or upon
the order of the person or persons entitled thereto, a Receipt or Receipts,
registered in the name or names and evidencing any authorized number of American
Depositary Shares requested by such person or persons, but only upon payment to
the Depositary of the fees of the Depositary for the execution and delivery of
such Receipt or Receipts as provided in Section 5.9, and of all taxes and
governmental charges and fees payable in connection with such deposit and the
transfer of the Deposited Securities.
SECTION 2.4. TRANSFER OF RECEIPTS; COMBINATION AND SPLIT-UP OF
RECEIPTS.
The Depositary, subject to the terms and conditions of this
Deposit Agreement, shall register transfers of Receipts on its transfer books
promptly, upon any surrender of a Receipt, by the Owner in person or by a duly
authorized attorney, properly endorsed or accompanied by proper instruments of
transfer, and duly stamped as may be required by the laws of the State of New
York and of the United States of America. Thereupon the Depositary shall execute
a new Receipt or Receipts and deliver the same to or upon the order of the
person entitled thereto.
The Depositary, subject to the terms and conditions of this
Deposit Agreement, shall upon surrender of a Receipt or Receipts for the purpose
of effecting a split-up or combination of such Receipt or Receipts, execute and
deliver a new Receipt or Receipts for any authorized number of American
Depositary Shares requested, evidencing the same aggregate number of American
Depositary Shares as the Receipt or Receipts surrendered.
The Depositary shall ensure that it has on hand at all times a
sufficient supply of Receipts to meet the demands for transfer.
The Depositary may appoint one or more co-transfer agents
approved by the Issuer for the purpose of effecting transfers, combinations and
split-ups of Receipts at
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designated transfer offices on behalf of the Depositary. In carrying out its
functions, a co-transfer agent may require evidence of authority and compliance
with applicable laws and other requirements by Owners or persons entitled to
Receipts and will be entitled to rights and indemnity to the same extent as the
Depositary.
SECTION 2.5. SURRENDER OF RECEIPTS AND WITHDRAWAL OF SHARES.
Upon surrender at the Corporate Trust Office of the Depositary
of a Receipt for the purpose of withdrawal of the Deposited Securities which
correspond to the American Depositary Shares evidenced by such Receipt, and upon
payment of the fee of the Depositary for the surrender of Receipts as provided
in Section 5.9 and payment of all taxes and governmental charges payable in
connection with such surrender and withdrawal of the Deposited Securities, and
subject to the terms and conditions of this Deposit Agreement, the Issuer's
STATUTS and the Deposited Securities, the Owner of such Receipt shall be
entitled to the transfer of the Deposited Securities to an account registered in
the Issuer's shareholders' accounts and which is managed by the Custodian, as an
accredited financial intermediary, acting as agent on behalf of and in the name
of such Owner or such name as shall be designated by such Owner of the amount of
the Deposited Securities at the time corresponding to such Receipt. Such
transfer shall be made, as hereinafter provided, without unreasonable delay.
A Receipt surrendered for such purposes may be required by the
Depositary to be properly endorsed in blank or accompanied by proper instruments
of transfer in blank, and if the Depositary so requires, the Owner thereof shall
execute and deliver to the Depositary a written order directing the Depositary
to cause the Deposited Securities being withdrawn to be transferred to an
account registered in the Issuer's shareholders' accounts and which is managed
by the Custodian, as an accredited financial intermediary, acting as agent on
behalf of and in the name of such Owner or such name as shall be designated by
such Owner. Thereupon, the Depositary shall, in its discretion, effect the
transfer of, or direct one (or more) of the Custodians, subject to Sections 2.6,
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3.1 and 3.2, and to the other terms and conditions of this Deposit Agreement, to
effect the transfer of the amount of Deposited Securities which such Receipt
entitles the Owner to receive, except that the Depositary may make delivery to
such person or persons at the Corporate Trust Office of the Depositary of any
dividends or distributions with respect to the Deposited Securities which such
Receipt entitles the Owner to receive, or of any proceeds of sale of any
dividends or distributions which may at the time be held by the Depositary.
In the event any delivery of Deposited Securities under this
Section 2.5 would otherwise require delivery of fractional Deposited Securities,
the Depositary may sell the amount of Deposited Securities corresponding to the
aggregate of such fractions and distribute the net proceeds, all in the manner
and subject to the conditions described in Section 4.1. At the request, risk and
expense of any Owner so surrendering a Receipt, or Beneficial Owner submitting
such written instructions for delivery and for the account of such Owner, the
Depositary shall direct the Custodian to transfer or forward any cash, rights or
other property other than rights comprising, and forward a certificate or
certificates and other proper documents of title for, the Deposited Securities
represented by the American Depositary Shares evidenced by such Receipt or
beneficial interest to the Depositary for delivery at the Corporate Trust Office
of the Depositary. Such direction shall be given by letter or, at the request,
risk and expense of such Owner, by cable, telex or facsimile transmission.
SECTION 2.6. LIMITATIONS ON EXECUTION AND DELIVERY, TRANSFER AND
SURRENDER OF RECEIPTS.
As a condition precedent to the execution and delivery,
registration of transfer, split-up, combination or surrender of any Receipt or
withdrawal of any Deposited Securities, the Depositary, Custodian or Registrar
may require payment from the depositor of Shares or the presentor of the Receipt
of a sum sufficient to reimburse it for any tax or other governmental charge and
any stock transfer or registration fee with
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respect thereto (including any such tax or charge and fee with respect to Shares
being deposited or withdrawn) and payment of any applicable fees as herein
provided, may require the production of proof satisfactory to it as to the
identity and genuineness of any signature and may also require compliance with
any regulations the Depositary may establish consistent with the provisions of
this Deposit Agreement, including, without limitation, this Section 2.6.
The delivery of Receipts against deposits of Shares generally
or against deposits of particular Shares may be suspended, registration of or
the transfer of Receipts in particular instances may be refused, or the
registration of transfer of outstanding Receipts generally may be suspended,
during any period when the transfer books of the Depositary are closed, or if
any such action is deemed necessary or advisable by the Depositary or the Issuer
at any time or from time to time because of any requirement of law or of any
government or governmental body or commission, or under any provision of this
Deposit Agreement, or the STATUTS of the Issuer or for any other reason, subject
to the provisions of the following sentence. The surrender of outstanding
Receipts and withdrawal of Deposited Securities may not be suspended except as
permitted in General Instruction I(A)(1) to Form F-6 (as may be amended from
time to time) under the Securities Act of 1933, which currently permits
suspension only in connection with (i) temporary delays caused by closing the
transfer books of the Depositary or the Issuer (or the appointed agent for the
Issuer for the registration of transfer of such Shares) or the deposit of Shares
in connection with voting at a shareholders' meeting, or the payment of
dividends, (ii) the payment of fees, taxes and similar charges, and (iii)
compliance with any U.S. or foreign laws or governmental regulations relating to
the Receipts or to the withdrawal of the Deposited Securities. Without
limitation of the foregoing, the Depositary shall not knowingly accept for
deposit under this Deposit Agreement any Shares required to be registered under
the provisions of the Securities Act of 1933, unless a registration statement is
in effect as to such Shares. The Depositary shall comply with written
instructions from the Issuer requesting that the Depositary not accept for
deposit
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hereunder any Shares or rights reasonably identified in such instructions in
order to facilitate the Issuer's compliance with U.S. securities laws or the
laws of any state of the United States or the laws of The Republic of France.
SECTION 2.7. LOST RECEIPTS, ETC.
In case any Receipt shall be mutilated, destroyed, lost or
stolen, the Depositary shall execute and deliver a new Receipt of like tenor in
exchange and substitution for such mutilated Receipt upon cancellation thereof,
or in lieu of and in substitution for such destroyed, lost or stolen Receipt.
Before the Depositary shall execute and deliver a new Receipt in substitution
for a destroyed, lost or stolen Receipt, the Owner thereof shall have (a) filed
with the Depositary (i) a request for such execution and delivery before the
Depositary has notice that the Receipt has been acquired by a bona fide
purchaser and (ii) a sufficient indemnity bond and (b) satisfied any other
reasonable requirements imposed by the Depositary.
SECTION 2.8. CANCELLATION AND DESTRUCTION OF SURRENDERED RECEIPTS.
All Receipts surrendered to the Depositary shall be cancelled
by the Depositary and may not be reissued. The Depositary is authorized to
destroy Receipts so cancelled.
SECTION 2.9. PRE-RELEASE OF RECEIPTS.
Notwithstanding Section 2.3 hereof, the Depositary may execute
and deliver Receipts prior to the receipt of Shares pursuant to Section 2.2
("Pre-Release"). The Depositary may, pursuant to Section 2.5, deliver Shares
upon the receipt and cancellation of Receipts which have been Pre-Released,
whether or not such cancellation is prior to the termination of such Pre-Release
or the Depositary knows that such Receipt has been Pre-Released. The Depositary
may receive Receipts in lieu of Shares in satisfaction of a Pre-Release. Each
Pre-Release shall be (a) preceded or accompanied by a written representation
from the person to whom Receipts are to be delivered that such
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person, or its customer, owns the Shares or Receipts to be remitted, as the case
may be, (b) at all times fully collateralized with cash or such other collateral
as the Depositary deems appropriate, (c) terminable by the Depositary on not
more than five (5) business days notice, and (d) subject to such further
indemnities and credit regulations as the Depositary deems appropriate. The
number of American Depositary Shares which are outstanding at any time as a
result of Pre-Releases will not normally exceed thirty percent (30%) of the
Shares deposited hereunder; provided, however, that the Depositary reserves the
right to disregard such limit from time to time as it deems appropriate and may,
with the prior written consent of the Issuer, change such limit for purposes of
general application.
For purposes of enabling the Depositary to fulfill its
obligations to the owners and Beneficial Owners under the Deposit Agreement, the
collateral referred to in clause (b) above shall be held by the Depositary as
security for the performance of the Pre-Release transaction, including the
Pre-Release's obligation to deliver Shares or Receipts upon termination of a
Pre-Release transaction (and shall not, for the avoidance of doubt, constitute
Deposited Securities hereunder).
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
With respect to any Pre-Release (as defined in this Section
2.9), neither the Issuer nor the Custodian shall be responsible to any Owners or
holders of Receipts for any liabilities or expenses (a) which may be imposed
under any United States Federal, state or local income tax laws, (b) which may
arise out of the failure of the Depositary to deliver Deposited Securities when
required under the terms of Section 2.5 hereof, or (c) the non-performance by
the Depositary or the Custodian of any obligations relating to any Pre-Release
under this Section 2.9 or any other agreement between the Depositary and the
Issuer relating to Pre-Release. The preceding sentence shall not apply to any
liability or expense which may arise out of any misstatement or alleged
misstatement or
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omission or alleged omission in any registration statement, proxy statement,
prospectus (or placement memorandum), or preliminary prospectus (or preliminary
placement memorandum) relating to the offer of sale of American Depositary
Shares, except to the extent any such liability or expense arises out of (i)
information relating to the Depositary or the Custodian, as applicable,
furnished in writing expressly for use in any of the foregoing documents, or,
(ii) material omissions from such information furnished by the Depositary or the
Custodian.
SECTION 2.10. MAINTENANCE OF RECORDS.
The Depositary agrees to maintain records of all Receipts
surrendered and Deposited Securities withdrawn under Section 2.5, substitute
Receipts delivered under Section 2.7, and cancelled or destroyed Receipts under
Section 2.8, in keeping with procedures ordinarily followed by stock transfer
agents located in The City of New York.
ARTICLE III CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS.
SECTION 3.1. FILING PROOFS, CERTIFICATES AND OTHER INFORMATION.
Any person presenting Shares for deposit or any Owner of a
Receipt may be required from time to time to file with the Depositary or the
Custodian such proof of citizenship or residence, exchange control approval,
payment of applicable French or other taxes or governmental charges or proof of
the identity of any person legally or beneficially interested in the Receipt and
the nature of such interest or such information relating to the registration of
the Shares on the books of the Issuer or the Foreign Registrar, if applicable,
to execute such certificates and to make such representations and warranties, as
the Depositary may deem necessary or proper or the Issuer may reasonably require
upon written request to the Depositary or the Custodian. The Depositary may
withhold the delivery or registration of transfer of any Receipt or the
distribution of any dividend or sale or distribution of rights or of the
proceeds thereof or the delivery of any Deposited Securities until such proof or
other information is filed or such certificates are
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executed or such representations and warranties are made pertaining to the
Receipt. Each Owner agrees to provide any information requested by the Issuer or
the Depositary pursuant to this paragraph.
The Depositary shall provide the Issuer, upon the Issuer's
request and in a timely manner, with copies of any information or other material
which it receives pursuant to this Section 3.1.
SECTION 3.2. LIABILITY OF OWNER FOR TAXES.
If any tax or other governmental charge shall become payable
with respect to any Receipt or any Deposited Securities which any Receipt
entitles the Owner to receive, such tax or other governmental charge shall be
payable by the Owner of such Receipt to the Depositary. The Depositary may
refuse to effect any transfer of such Receipt or any withdrawal of Deposited
Securities corresponding to American Depositary Shares evidenced by such Receipt
until such payment is made, and may withhold any dividends or other
distributions, or may sell for the account of the Owner thereof any part or all
of the Deposited Securities corresponding to the American Depositary Shares
evidenced by such Receipt, and may apply such dividends or other distributions
or the proceeds of any such sale in payment of such tax or other governmental
charge and the Owner of such Receipt shall remain liable for any deficiency.
SECTION 3.3. WARRANTIES ON DEPOSIT OF SHARES.
Every person depositing Shares under this Deposit Agreement
shall be deemed thereby to represent and warrant that such Shares and each
certificate therefor are validly issued, fully paid, nonassessable and free of
any pre-emptive rights of the holders of outstanding Shares and that the person
making such deposit is duly authorized so to do. Every such person shall also be
deemed to represent that the deposit of such Shares and the sale of Receipts
evidencing American Depositary Shares entitling the Owner to receive such Shares
by that person are not restricted under the Securities Act of 1933 or
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under the laws of The Republic of France. Such representations and warranties
shall survive the deposit of Shares and issuance of Receipts in respect thereof.
SECTION 3.4. INFORMATION REQUESTS.
The Issuer may from time to time request Owners of Receipts to
provide information as to the capacity in which such Owners own or owned
Receipts and regarding the identity of any other persons then or previously
interested in such Receipts as to the nature of such interest and various other
matters. The Depositary agrees to use reasonable efforts to comply with written
instructions received from the Issuer requesting that the Depositary forward any
such requests to the Owner and to forward to the Issuer any responses to such
requests received by the Depositary.
SECTION 3.5. DISCLOSURE OF INTEREST.
Notwithstanding any other provisions of this Deposit
Agreement, each Owner and holder of Receipts agrees to comply with the Issuer's
STATUTS, as they may be amended from time to time, the laws of The Republic of
France and the laws of the Republic of Belgium, if applicable, with respect to
any disclosure requirements regarding ownership of Shares, all as if such
Receipts were, for this purpose, the Shares corresponding thereto.
In order to facilitate compliance with the notification
requirements, an Owner or holder of Receipts may deliver any notification to the
Depositary with respect to Shares to which American Depositary Shares evidenced
by such Receipts relate, and the Depositary shall, as soon as practicable,
forward such notification to the Issuer and, if applicable, the EASDAQ authority
or any other authorities in The Republic of Belgium.
Pursuant to Section 4.10, the Depositary agrees to furnish to
the Issuer upon request a list of the names, addresses and holdings of American
Depositary Shares by all persons in whose names Receipts are registered on the
books of the Depositary maintained for such purpose.
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ARTICLE IV THE DEPOSITED SECURITIES.
SECTION 4.1. CASH DISTRIBUTIONS.
Whenever the Depositary or the Custodian shall receive any
cash dividend or other cash distribution on any Deposited Securities, the
Depositary shall, subject to the provisions of Section 4.5, as promptly as
practicable convert such dividend or distribution into Dollars and shall
distribute the amount thus received (net of the fees of the Depositary as
provided in Section 5.9 hereof, if applicable) to the Owners entitled thereto,
in proportion to the number of American Depositary Shares corresponding to such
Deposited Securities held by them respectively; provided, however, that in the
event that the Issuer, the Custodian or the Depositary shall be required to
withhold and does withhold from such cash dividend or such other cash
distribution in respect of any Deposited Securities an amount on account of
taxes or other governmental charges, the amount distributed to the Owner of the
Receipts evidencing American Depositary Shares corresponding to such Deposited
Securities shall be reduced accordingly. Any fractional amounts shall be rounded
to the nearest whole cent and distributed to Owners entitled thereto. The Issuer
or its agent or the Depositary or its agent will remit to the appropriate
governmental authority or agency in The Republic of France all amounts withheld
and owing to such authority or agency. The Depositary shall forward to the
Issuer or its agent such information from its records as the Issuer may
reasonably request to enable the Issuer or its agent to file necessary reports
with governmental authorities or agencies, and the Depositary or the Issuer or
its agent may file any such reports necessary to obtain benefits under the
applicable tax treaties for the Owners of Receipts.
SECTION 4.2. DISTRIBUTIONS OTHER THAN CASH, SHARES OR RIGHTS.
Subject to the provisions of Sections 4.11 and 5.9, whenever
the Depositary or the Custodian shall receive any distribution other than a
distribution described in Sections 4.1, 4.3 or 4.4, the Depositary shall cause
the securities or property received by the Depositary or the Custodian to be
distributed to the Owners entitled
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thereto, in proportion to the number of American Depositary Shares corresponding
to such Deposited Securities held by them respectively, in any manner that the
Depositary, after consultation with the Issuer, may deem equitable and
practicable for accomplishing such distribution; provided, however, that if in
the opinion of the Depositary such distribution cannot be made proportionately
among the Owners entitled thereto, or if for any other reason (including, but
not limited to, any requirement that the Issuer or the Depositary withhold an
amount on account of taxes or other governmental charges or that such securities
must be registered under the Securities Act of 1933 in order to be distributed
to Owners or holders) the Depositary deems such distribution not to be feasible,
the Depositary may adopt such method as it may deem equitable and practicable
for the purpose of effecting such distribution, including, but not limited to,
the public or private sale of the securities or property thus received, or any
part thereof, and the net proceeds of any such sale (net of the fees of the
Depositary as provided in Section 5.9) shall be distributed by the Depositary to
the Owners entitled thereto as in the case of a distribution received in cash.
SECTION 4.3. DISTRIBUTIONS IN SHARES.
Subject to applicable U.S. and French law, and to the other
terms of this Deposit Agreement, in the event that the holders of Shares are
granted the option to receive dividends on such Shares in the form of cash or
additional Shares, Owners of Receipts shall be entitled to receive such
option only with the consent of the Depositary. If any distribution upon any
Deposited Securities consists of a dividend in, or free distribution of,
Shares, the Depositary may, upon prior consultation with the Issuer,
distribute to the Owners of outstanding Receipts entitled thereto, in
proportion to the number of American Depositary Shares corresponding to such
Deposited Securities held by them respectively, additional Receipts
evidencing an aggregate number of American Depositary Shares corresponding to
the amount of Shares received as such
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dividend or free distribution, subject to the terms and conditions of the
Deposit Agreement with respect to the deposit of Shares and the issuance of
American Depositary Shares evidenced by Receipts, including the withholding of
any tax or other governmental charge as provided in Section 4.11 and the payment
of fees of the Depositary as provided in Section 5.9. In lieu of delivering
Receipts for fractional American Depositary Shares in any such case, the
Depositary shall sell the amount of Shares corresponding to the aggregate of
such fractions and distribute the net proceeds, all in the manner and subject to
the conditions described in Section 4.1. If additional Receipts are not so
distributed, each American Depositary Share shall thenceforth also entitle the
Owner thereof to receive the additional Shares distributed upon the Deposited
Securities corresponding thereto.
SECTION 4.4. RIGHTS.
In the event that the Issuer shall offer or cause to be
offered to the holders of any Deposited Securities any rights to subscribe
for additional Shares or any rights of any other nature, the Depositary shall
have discretion, after consultation with the Issuer, as to the procedure to
be followed in making such rights available to any Owners including the
distribution of warrants or other instruments therefor as it deems
appropriate or in disposing of such rights on behalf of any Owners and making
the net proceeds available to such Owners or, if by the terms of such rights
offering or for any other reason, the Depositary may not either make such
rights available to any Owners or dispose of such rights and make the net
proceeds available to such Owners, then the Depositary shall allow the rights
to lapse. If at the time of the offering of any rights the Depositary
determines in its discretion that it is lawful and feasible to make such
rights available to all Owners or to certain Owners but not to other Owners,
the Depositary may distribute to any Owner to whom it determines the
distribution to be lawful and feasible, in proportion to the number of
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American Depositary Shares held by such Owner, warrants or other instruments
therefor in such form as it deems appropriate.
In circumstances in which rights would otherwise not be
distributed, if an Owner of Receipts requests the distribution of warrants or
other instruments in order to exercise the rights allocable to the American
Depositary Shares of such Owner hereunder, the Depositary will make such
rights available to such Owner upon written notice from the Issuer to the
Depositary that such Owner has executed such documents as the Issuer has
determined in its sole discretion are reasonably required under applicable
law.
If the Depositary has distributed warrants or other
instruments for rights to all or certain Owners, then upon instruction from such
an Owner pursuant to such warrants or other instruments to the Depositary from
such Owner to exercise such rights, upon payment by such Owner to the Depositary
for the account of such Owner of an amount equal to the purchase price of the
Shares to be received upon the exercise of the rights, and upon payment of the
fees of the Depositary and any other charges as set forth in such warrants or
other instruments, the Depositary shall, on behalf of such Owner, exercise the
rights and purchase the Shares, and the Issuer shall cause the Shares so
purchased to be delivered to the Depositary on behalf of such Owner. As agent
for such Owner, the Depositary will cause the Shares so purchased to be
deposited pursuant to Section 2.2 of this Deposit Agreement, and shall, pursuant
to Section 2.3 of this Deposit Agreement, execute and deliver Receipts to such
Owner. In the case of a distribution pursuant to the second paragraph of this
section, such Receipts shall be legended in accordance with applicable U.S.
laws, and shall be subject to the appropriate restrictions on sale, deposit,
cancellation, and transfer under such laws.
If the Depositary determines in its discretion that it is not
lawful and feasible to make such rights available to all or certain Owners, it
shall, if possible, sell the rights, warrants or other instruments in proportion
to the number of American Depositary
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Shares held by the Owners to whom it has determined it may not lawfully or
feasibly make such rights available, and allocate the net proceeds of such sales
(net of the fees of the Depositary as provided in Section 5.9 and all taxes and
governmental charges payable in connection with such rights and subject to the
terms and conditions of this Deposit Agreement) for the account of such Owners
otherwise entitled to such rights, warrants or other instruments, upon an
averaged or other practical basis without regard to any distinctions among such
Owners because of exchange restrictions or the date of delivery of any Receipt
or otherwise.
The Depositary will not offer rights to Owners unless both the
rights and the securities to which such rights relate are either exempt from
registration under the Securities Act of 1933 with respect to a distribution to
Owners or are registered under the provisions of such Act. If an Owner of
Receipts requests distribution of warrants or other instruments, notwithstanding
that there has been no such registration under such Act, the Depositary shall
not effect such distribution unless it has received an opinion from recognized
counsel in the United States for the Issuer upon which the Depositary may rely
that such distribution to such Owner is exempt from such registration, it being
understood that the Issuer shall have no obligation to furnish any such opinion.
The Depositary shall not be responsible for any failure to
determine that it may be lawful or feasible to make such rights available to
Owners in general or any Owner in particular.
SECTION 4.5. CONVERSION OF FOREIGN CURRENCY.
Whenever the Depositary shall receive foreign currency, by way
of dividends or other distributions or the net proceeds from the sale of
securities, property or rights, and if at the time of the receipt thereof the
foreign currency so received can in the judgment of the Depositary be converted
on a reasonable basis into Dollars and the resulting Dollars transferred to the
United States, the Depositary shall convert or cause to
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be converted, by sale or in any other manner that it may determine, such foreign
currency into Dollars, and such Dollars shall be distributed to the Owners
entitled thereto or, if the Depositary shall have distributed any warrants or
other instruments which entitle the holders thereof to such Dollars, then to the
holders of such warrants and/or instruments upon surrender thereof for
cancellation. Such distribution may be made upon an averaged or other
practicable basis without regard to any distinctions among Owners on account of
exchange restrictions, the date of delivery of any Receipt or otherwise and
shall be net of any expenses of conversion into Dollars incurred by the
Depositary as provided in Section 5.9.
If such conversion or distribution with regard to one or more
Owners can be effected only with the approval or license of any government or
agency thereof, the Depositary shall file such application for approval or
license, if any, as it may deem desirable; PROVIDED, HOWEVER, that the Issuer
shall not be obligated to make any such filing.
If at any time the Depositary shall determine that in its
judgment any foreign currency received by the Depositary is not convertible on a
reasonable basis into Dollars transferable to the United States and/or to one or
more Owners of Receipts, or if any approval or license of any governmental
authority or agency thereof which is required for such conversion is denied or
in the opinion of the Depositary is not obtainable, or if any such approval or
license is not obtained within a reasonable period as determined by the
Depositary, the Depositary may distribute the foreign currency (or an
appropriate document evidencing the right to receive such foreign currency)
received by the Depositary to, or in its discretion may hold such foreign
currency uninvested and without liability for interest thereon for the
respective accounts of, the Owners entitled to receive the same.
If any such conversion of foreign currency, in whole or in
part, cannot be effected for distribution to some of the Owners entitled
thereto, the Depositary may in its
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discretion make such conversion and distribution in Dollars to the extent
permissible to the Owners entitled thereto and may distribute the balance of the
foreign currency received by the Depositary to, or hold such balance uninvested
and without liability for interest thereon for the respective accounts of, the
Owners entitled thereto for whom such conversion is not practicable.
SECTION 4.6. FIXING OF RECORD DATE.
Whenever any cash dividend or other cash distribution shall
become payable or any distribution other than cash shall be made, or whenever
rights shall be issued with respect to the Deposited Securities, or whenever for
any reason the Depositary gives effect to a change in the number of Shares that
correspond to each American Depositary Share, or whenever the Depositary shall
receive notice of any meeting of holders of Deposited Securities other than
Shares, or whenever for any administrative purpose the Depositary deems it
necessary to do so, the Depositary shall fix a record date, after consultation
with the Issuer, when practicable, (which shall be to the extent practicable,
the same record date fixed by the Issuer), and with the prior approval of the
Issuer, when practicable, (a) for the determination of the Owners who shall be
(i) entitled to receive such dividend, distribution or rights or the net
proceeds of the sale thereof or (ii) entitled to give instructions for the
exercise of voting rights at any such meeting, (b) on or after which each
American Depositary Share will correspond to the changed number of Shares or (c)
to facilitate the administrative purpose for which the record date was set.
Subject to the provisions of Sections 4.1 through 4.5 and to the other terms and
conditions of this Deposit Agreement, the Owners on such record date shall be
entitled, as the case may be, to receive the amount distributable by the
Depositary with respect to such dividend or other distribution or such rights or
the net proceeds of sale thereof in proportion to the number of American
Depositary Shares held by them respectively and to give voting instructions and
to act in respect of any other such matter.
SECTION 4.7. VOTING OF SHARES.
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Upon receipt of notice of any meeting of holders of Shares
or other Deposited Securities sent by the Issuer prior to the date of the
meeting, the Depositary shall, as soon as practicable thereafter, mail to the
Owners as of the close of business on a record date established by the
Depositary pursuant to Section 4.6 (a) a summary in English or an English
version of the notice of such meeting sent by the Issuer to the Depositary
pursuant to Section 5.6, (b) a statement in a form provided by the Issuer
that the Owners and holders of Receipts who hold the right to instruct the
Depositary with respect to the voting rights, if any, pertaining to the
Shares or Deposited Securities which correspond to their American Depositary
Shares ("Voters") will be entitled, subject to any applicable provisions of
French law, the STATUTS of the Issuer and the Deposited Securities (which
provisions, if any, shall be summarized in pertinent part in such statement),
to exercise the voting rights (subject to the restrictions detailed below),
if any, provided that any such Voter takes such steps as may be required to
become the Owner as shown on the books of the Depositary on or before the
Receipt Date (as defined below), (c) summaries in English of any materials or
other documents provided by the Issuer for the purpose of enabling such
Voters who are Owners to exercise such voting rights, by means of voting by
mail (FORMULAIRE DE VOTE PAR CORRESPONDANCE) or by proxy (FORMULAIRE DE VOTE
PAR PROCURATION), which may be delivered EN BLANC, (d) a voting instruction
card (including a FORMULAIRE DE VOTE PAR CORRESPONDANCE or PROCURATION EN
BLANC (when applicable) and all other information, authorizations and
certifications required under French law to vote Shares in registered form)
to be prepared by the Depositary and the Issuer (a "Voting Instruction
Card"), and (e) a statement that Voters who are not registered holders of the
related American Depositary Shares on the books of the Depositary must,
before being provided with a Voting Instruction Card, contact the Depositary
by telephone, mail or fax in order to cause, or indicate that they intend to
cause, their American Depositary Shares to be registered on the books of the
Depositary in their name prior to the Receipt Date. Upon the Depositary's
receipt of the contact referred to in (e) above, the Depositary shall
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promptly mail or fax to the Voters so contacting the Depositary a Voting
Instruction Card. "Receipt Date" shall mean, with respect to any shareholders'
meeting, the latest date which is (A) at least two New York Business Days (as
defined below) prior to the date of such meeting and (B) preceding a Paris
Business Day (as defined below) prior to the date of such meeting. "New York
Business Day" and "Paris Business Day" shall mean a date on which banks are not
authorized or required by law or executive order to close in New York or Paris,
respectively. Holders of ADSs will not pay any fee in connection with the
required steps to become the registered holders of ADSs on the books of the
Depositary as described in (b) above. Upon the Depositary's receipt of a Voting
Instruction Card from any Voter who is an Owner, duly competed and executed, on
or before the Receipt Date and subject to the other restrictions set forth in
this Section 4.7, the Depositary shall forward such materials or documents as
soon as practicable to the Custodian.
In accordance with French company law and the STATUTS of the
Issuer, a precondition for exercising any voting rights is that a holder of
Shares be registered in the shareholders' accounts of the Issuer at least one
(1) Paris Business Day prior to the date of the shareholders' meeting.
Pursuant to these requirements, any Voter who is an Owner or
holder of a Receipt corresponding to Shares in registered form on the Receipt
Date that desires to exercise its voting rights is required to instruct the
Depositary to block the transfer of its Receipt or Receipts and to instruct the
Depositary to request that the Custodian (a) register the names and addresses of
such Voter in the shareholders' accounts of the Issuer and any other information
required in accordance with French law or the Issuer's STATUTS and (b) deposit
the FORMULAIRE de vote par correspondance or the FORMULAIRE DE VOTE PAR
PROCURATION with the Issuer, at least one (1) Paris Business Day prior to the
date of the shareholders' meeting.
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The Voting Instruction Card described in (d) in the first
paragraph of this Section 4.7 above shall provide, among other things, for
certifications by the Voter as follows:
(i) setting forth such Voter's full name, address and number
of American Depositary Shares owned and any other information required in
accordance with French law or the Issuer's STATUTS, (ii) if such Voter was not
the registered holder of such American Depositary Shares as of the date the
Depositary mailed the materials described above, confirming that it has
instructed the Depositary to reregister such Voter's name in its books as the
Owner of such American Depositary Shares, (iii) instructing the Depositary not
to permit any transfers of any American Depositary Shares evidenced by such
Receipts on its books for a period beginning one (1) business day prior to the
date the meeting of holders of Shares set forth in the notice described in (a)
in the first paragraph of this Section 4.7 above and ending at the end of the
day of the date of such meeting, provided always that if the meeting is
adjourned upon first call for a lack of quorum and unless the Depositary is
otherwise instructed by the Voter, such restriction on transfers of ADSs shall
recommence one business day prior to the date set for the reconvened meeting
(the "Blocked Period"), and (iv) instructing the Depositary to request the
Custodian to (a) cause the name and address and any other information required
in accordance with French law or the Issuer's STATUTS of such Voter to be
registered in the shareholders' accounts of the Issuer during the Blocked Period
in respect of the number of Shares corresponding to such Voter's American
Depositary Shares, and (b) deposit the FORMULAIRE DE VOTE PAR CORRESPONDANCE or
the PROCURATION, at least one (1) business day prior to the date of the
shareholders' meeting if such Shares are held in registered form.
Upon receipt by the Depositary of a properly completed Voting
Instruction Card, on or before the Receipt Date, and provided that the Voter
instructing the Depositary with respect to voting the Shares has become, on or
before the Receipt Date, the Owner of such Receipts on the books of the
Depositary, the Depositary shall
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endeavor, insofar as practicable and permitted under any applicable provisions
of French law, the STATUTS of the Issuer and the Deposited Securities, to vote
or cause to be voted (including instructing the Custodian to perform all
applicable duties set forth in the Voting Instruction Card and in this Section
4.7 and restricting transfer of American Depositary Shares as set forth in the
Voting Instruction Card and in this Section 4.7), by its employee or by the
Custodian or its employee, the Shares or other Deposited Securities in
accordance with any nondiscretionary instructions set forth in such request. The
Depositary shall not vote or attempt to exercise the right to vote that attaches
to the Shares or other Deposited Securities other than in accordance with such
instructions. The Depositary shall not comply with any instructions set forth on
any Voting Instruction Card, except with respect to, and only to the extent of,
the number of American Depositary Shares registered in the name of the Voter
giving such instructions on the books of the Depositary on the Receipt Date.
The Depositary will take no action to impair its ability to
vote or cause to be voted the number of Shares necessary to carry out the
instructions of all Voters under this Section 4.7.
The Depositary will not charge any fees in connection with the
foregoing transactions to enable any Voter to exercise its voting rights under
this Section 4.7.
Under French company law, shareholders holding a defined
percentage of the Issuer's share capital, which varies depending on the absolute
amount of such share capital, may propose new resolutions or modifications to
the resolutions presented by the Board of Directors to the shareholders for
their approval within 10 days of the publication of the notice in the BULLETIN
DES ANNONCES OFFICIELLES concerning the shareholders' meeting. In such case,
Voters who have given prior instructions to vote on such resolution shall be
deemed to have voted against the revised resolution; provided however, that in
the event such revised resolutions have been approved by the Board of Directors
of the Issuer during a suspension of the shareholders' meeting, Voters who have
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sent a proxy (PROCURATION EN BLANC) shall be deemed to have voted in favor of
such revised resolutions approved by the Board.
The Depositary and the Issuer and their respective directors,
employees, agents and controlling persons (as defined in the Securities Act of
1933) assume no obligation nor shall they be subject to any liability under this
Deposit Agreement to any Owner or holder of Receipts with respect to (i) whether
an Owner or holder of Receipts is a Voter or (ii) whether the name, address and
number of Shares corresponding to American Depositary Shares of any Owner or
holder of Receipts is properly entered into the Issuer's Share registry in a
timely manner or as to the manner of such entry, if any, except that the
Depositary and the Issuer agree to perform their respective obligations
specifically set forth in this Section 4.7 without negligence or bad faith.
SECTION 4.8. CHANGES AFFECTING DEPOSITED SECURITIES.
In circumstances where the provisions of Section 4.3 do not
apply, upon any change in nominal value, change in par value, split-up,
consolidation or any other reclassification of Deposited Securities, or upon any
recapitalization, reorganization, merger or consolidation or sale of assets
affecting the Issuer or to which it is a party, any securities which shall be
received by the Depositary or a Custodian in exchange for or in conversion of or
in respect of Deposited Securities, shall be treated as new Deposited Securities
under this Deposit Agreement, and American Depositary Shares shall thenceforth
entitle the Owners thereof to receive the new Deposited Securities so received
in exchange or conversion, unless additional Receipts are delivered pursuant to
the following sentence. In any such case the Depositary may with the Issuer's
approval, and shall if the Issuer shall so request, execute and deliver
additional Receipts as in the case of a dividend in Shares, or call for the
surrender of outstanding Receipts to be exchanged for new Receipts specifically
describing such new Deposited Securities.
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Immediately upon the occurrence of any such change, conversion
or exchange covered by this Section in respect of the Deposited Securities, the
Issuer shall notify the Depositary in writing of such occurrence and, as soon as
practicable after receipt of such notice from the Issuer, the Depositary shall
give notice thereof in writing to all Owners of Receipts.
SECTION 4.9. REPORTS.
The Depositary shall make available for inspection by Owners
at its Corporate Trust Office any reports and communications, including any
proxy soliciting material, received from the Issuer which are both (a) received
by the Depositary as the holder of the Deposited Securities and (b) made
generally available to the holders of such Deposited Securities by the Issuer.
The Depositary shall also send to the Owners copies of such reports when
furnished by the Issuer pursuant to Section 5.6. Any such reports and
communications, including any such proxy solicitation material furnished to the
Depositary by the Issuer, will be furnished in French, unless the Issuer
determines in its discretion to furnish such materials or any of them in English
or unless such materials are required to be furnished in English as provided in
Section 5.6.
SECTION 4.10. LISTS OF OWNERS.
Promptly upon request by the Issuer, the Depositary shall, at
the expense of the Issuer (unless otherwise agreed to by the Issuer and the
Depositary), furnish to it a list, as of a recent date, of the names, addresses
and holdings of American Depositary Shares by all persons in whose names
Receipts are registered on the books of the Depositary.
SECTION 4.11. WITHHOLDING.
In the event that the Depositary determines that any
distribution in property (including Shares and rights to subscribe therefor) is
subject to any tax or other governmental charge which the Depositary is
obligated to withhold, the Depositary may
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by public or private sale dispose of all or a portion of such property
(including Shares and rights to subscribe therefor) in such amounts and in such
manner as the Depositary deems necessary and practicable to pay any such taxes
or charges and the Depositary shall distribute the net proceeds of any such sale
after deduction of such taxes or charges to the Owners entitled thereto in
proportion to the number of American Depositary Shares held by them
respectively.
The Depositary will use reasonable efforts to follow the
procedures established by the French Treasury for eligible United States Owners
to benefit from the reduced withholding tax rate upon payment of any dividend
and to receive the payment of any AVOIR FISCAL. To effect such recovery and
receipt, the Depositary shall provide U.S. resident Owners, and any other
holders, upon request, with the appropriate French tax forms and instructions
for completing such forms, which shall be provided by the Issuer to the
Depositary, and shall advise such U.S. resident Owners to return such forms to
it properly completed and executed. Upon receipt of such forms properly
completed and executed by U.S. resident Owners, the Depositary shall promptly
cause them to be filed with the appropriate French tax authorities, and upon
receipt of any resulting remittance, the Depositary shall distribute to the
Owners entitled thereto, as soon as practicable, the proceeds thereof in Dollars
in accordance with Section 4.5.
SECTION 4.12. RECEIPTS FOR TAXES PAID.
The Issuer shall as soon as practical after the due date for
any payment of any tax or other governmental charge to the government of the
Republic of France with respect to any distribution with respect to deposited
Securities provide the Depositary with a form of receipt setting forth the
amounts, if any, of tax or other government charge so paid to the government of
the Republic of France. The Depositary shall for a period of five years after
the date of any such payment of tax, or other government charge, maintain such
receipt, or other documentation, in its files and shall provide a copy of such
receipt, or other documentation, to the holder of the American Depositary Shares
representing
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such Deposited Securities evidenced by Receipts at the time of such distribution
upon the request made by such or its agent to the Depositary.
ARTICLE V THE DEPOSITARY, THE CUSTODIANS AND THE ISSUER.
SECTION 5.1. MAINTENANCE OF OFFICE AND TRANSFER BOOKS BY THE
DEPOSITARY.
Until termination of this Deposit Agreement in accordance with
its terms, the Depositary shall maintain in the Borough of Manhattan, The City
of New York, facilities for the execution and delivery, registration,
registration of transfers and surrender of Receipts in accordance with the
provisions of this Deposit Agreement.
The Depositary shall keep books for the registration of
Receipts and transfers of Receipts which at all reasonable times shall be open
for inspection by the Owners and the Issuer, provided that such inspection shall
not be for the purpose of communicating with Owners in the interest of a
business or object other than the business of the Issuer or a matter related to
this Deposit Agreement or the Receipts.
The Depositary may close the transfer books, at any time or
from time to time, when deemed expedient by it in connection with the
performance of its duties hereunder or at the request of the Issuer.
If any Receipts or the American Depositary Shares evidenced
thereby are listed on one or more stock exchanges in the United States, the
Depositary shall act as Registrar or with the approval of the Issuer appoint a
Registrar or one or more co-registrars for registry of such Receipts in
accordance with any requirements of such exchange or exchanges. Such Registrar
or co-registrars may be removed and a substitute or substitutes appointed by the
Depositary upon the request or with the approval of the Issuer.
The Issuer shall have the right on reasonable notice to the
Depositary and during the Depositary's normal business hours to inspect the
transfer and registration
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records of the Depositary relating to the Receipts, to take copies thereof and
to require the Registrar, and any co-Registrars, at the Issuer's expense, to
supply copies of such portions of such records as the Issuer may reasonably
request.
SECTION 5.2. PREVENTION OR DELAY IN PERFORMANCE BY THE DEPOSITARY OR
THE ISSUER.
Neither the Depositary nor the Issuer nor any of their
directors, employees, agents or controlling persons (as defined under the
Securities Act of 1933) shall incur any liability to any Owner or holder of any
Receipt, if by reason of any provision of any present or future law or
regulation of the United States, The Republic of France or any other country, or
of any governmental or regulatory authority or stock exchange, or by reason of
any provision, present or future, of the STATUTS of the Issuer, or the Deposited
Securities or by reason of any act of God or war or other circumstances beyond
its control, the Depositary or the Issuer nor any of their directors, employees,
agents or controlling persons (as defined under the Securities Act of 1933)
shall be prevented or forbidden from, or delayed in or be subject to any civil
or criminal penalty on account of, doing or performing any act or thing which by
the terms of this Deposit Agreement it is provided shall be done or performed;
nor shall the Depositary or the Issuer nor any of their directors, employees,
agents or controlling persons (as defined under the Securities Act of 1933)
incur any liability to any Owner or of any Receipt by reason of any
non-performance or delay, caused as aforesaid, in the performance of any act or
thing which by the terms of this Deposit Agreement it is provided shall or may
be done or performed, or by reason of any exercise of, or failure to exercise,
any discretion provided for in this Deposit Agreement. Where, by the terms of a
distribution pursuant to Sections 4.1, 4.2, or 4.3 of the Deposit Agreement, or
an offering or distribution pursuant to Section 4.4 of the Deposit Agreement, or
for any other reason, such distribution or offering may not be made available to
Owners, and the Depositary may not dispose of such distribution or offering on
behalf of such Owners and make the net proceeds
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available to such Owners, then the Depositary shall not make such distribution
or offering, and shall allow any rights, if applicable, to lapse.
SECTION 5.3. OBLIGATIONS OF THE DEPOSITARY, THE CUSTODIAN AND THE
ISSUER.
The Issuer and its directors, employees, agents and
controlling persons (as defined under the Securities Act of 1933) assume no
obligation nor shall they be subject to any liability under this Deposit
Agreement to Owners or holders of Receipts, except that the Issuer agrees to
perform its obligations specifically set forth in this Deposit Agreement without
negligence or bad faith.
The Depositary and its directors, employees, agents and
controlling persons (as defined under the Securities Act of 1933) assume no
obligation nor shall they be subject to any liability under this Deposit
Agreement to any Owner or holder of any Receipt (including, without limitation,
liability with respect to the validity or worth of the Deposited Securities),
except that the Depositary agrees to perform its obligations specifically set
forth in this Deposit Agreement without negligence or bad faith.
Neither the Depositary nor the Issuer nor any of their
directors, employees, agents and controlling persons (as defined under the
Securities Act of 1933) shall be under any obligation to appear in, prosecute or
defend any action, suit or other proceeding in respect of any Deposited
Securities or in respect of the Receipts, which in their opinions may involve
them in expense or liability, unless indemnity satisfactory to them against all
expense and liability shall be furnished as often as may be required, and the
Custodian shall not be under any obligation whatsoever with respect to such
proceedings, the responsibility of the Custodian being solely to the Depositary.
Neither the Depositary nor the Issuer nor any of their
directors, employees, agents and controlling persons (as defined under the
Securities Act of 1933) shall be liable for any action or nonaction by them in
reliance upon the advice of or information from legal counsel, accountants, any
person presenting Shares for deposit, any Owner or
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any other person believed by it in good faith to be competent to give such
advice or information.
Each of the Depositary, the Issuer and their respective
directors, employees, agents and controlling persons (as defined under the
Securities Act of 1933) may rely and shall be protected in acting upon any
written notice, request, direction or other document believed by such person to
be genuine and to have been signed or presented by the proper party or parties.
The Depositary shall not be liable for any acts or omissions
made by a successor depositary whether in connection with a previous act or
omission of the Depositary or in connection with any matter arising wholly after
the removal or resignation of the Depositary, provided that in connection with
the issue out of which such potential liability arises the Depositary performed
its obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be responsible for any failure to
carry out any instructions to vote any of the Deposited Securities, or for the
manner in which any such vote is cast or the effect of any such vote, provided
that any such action or omission to act is in good faith.
No disclaimer of liability under the Securities Act of 1933 is
intended by any provision of this Deposit Agreement.
SECTION 5.4. RESIGNATION AND REMOVAL OF THE DEPOSITARY.
The Depositary may at any time resign as Depositary hereunder
by written notice of its election so to do delivered to the Issuer, such
resignation to take effect upon the appointment of a successor depositary by the
Issuer and its acceptance of such appointment as hereinafter provided.
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The Depositary may at any time be removed by the Issuer by
written notice of such removal effective upon the appointment of a successor
depositary and its acceptance of such appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall
resign or be removed, the Issuer shall use its best efforts to appoint a
successor depositary, which shall be a bank or trust company having an office in
the Borough of Manhattan, The City of New York. Every successor depositary shall
execute and deliver to its predecessor and to the Issuer an instrument in
writing accepting its appointment hereunder, and thereupon such successor
depositary, without any further act or deed, shall become fully vested with all
the rights, powers, duties and obligations of its predecessor; but such
predecessor, nevertheless, upon payment of all sums due it and on the written
request of the Issuer shall execute and deliver an instrument transferring to
such successor all rights and powers of such predecessor hereunder, shall duly
assign, transfer and deliver all right, title and interest in the Deposited
Securities to such successor, and shall deliver to such successor a list of the
Owners of all outstanding Receipts. Any such successor depositary shall promptly
mail notice of its appointment to the Owners.
Any corporation into or with which the Depositary may be
merged or consolidated shall be the successor of the Depositary without the
execution or filing of any document or any further act.
SECTION 5.5. THE CUSTODIANS.
The Depositary has appointed the principal Paris office of the
Custodians as agent of the Depositary for the purposes of this Deposit
Agreement. The Custodians or their successors, which shall be accredited
financial intermediaries acting through a specified office located in The
Republic of France, in acting hereunder shall be subject at all times and in all
respects to the directions of the Depositary and shall be responsible solely to
it. The Custodians may resign and be discharged from their duties hereunder by
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notice of such resignation delivered to the Depositary at least 30 days prior to
the date on which such resignation is to become effective. If upon such
resignation there shall be no Custodian acting hereunder, the Depositary shall,
promptly after receiving such notice, and with the prior approval of the Issuer,
appoint a substitute custodian or custodians which shall be an accredited
financial intermediary acting through a specified office located in The Republic
of France, approved by the Issuer, such approval not to be unreasonably
withheld, each of which shall thereafter be a Custodian hereunder. Whenever the
Depositary in its discretion determines that it is in the best interest of the
Owners to do so, it may, with the prior approval of the Issuer, appoint
substitute or additional custodian or custodians, which shall be an accredited
intermediary acting through a specified office located in The Republic of
France, approved by the Issuer, such approval not to be unreasonably withheld,
each of which shall thereafter be one of the Custodians hereunder. Upon demand
of the Depositary, the Custodians shall deliver such of the Deposited Securities
held by it as are requested of it to any other Custodian or such substitute or
additional custodian or custodians. Each such substitute or additional custodian
shall deliver to the Depositary, forthwith upon its appointment, an acceptance
of such appointment satisfactory in form and substance to the Depositary.
Immediately upon any such change, the Depositary shall give notice thereof in
writing to all Owners of Receipts.
Upon the appointment of any successor depositary hereunder,
each Custodian then acting hereunder shall forthwith become, without any further
act or writing, the agent hereunder of such successor depositary and the
appointment of such successor depositary shall in no way impair the authority of
the Custodian hereunder; but the successor depositary so appointed shall,
nevertheless, on the written request of the Custodians or as required by the
laws of The Republic of France, execute and deliver to such Custodian all such
instruments as may be proper to give to such Custodian full and complete power
and authority as agent hereunder of such successor depositary.
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SECTION 5.6. NOTICES AND REPORTS.
On or before the first date on which the Issuer gives notice,
by publication or otherwise, of any meeting of holders of Shares or other
Deposited Securities, or of any adjourned meeting of such holders, or of the
taking of any action in respect of any cash or other distributions or the
offering of any rights, the Issuer agrees to transmit to the Depositary and the
Custodian a copy of the notice thereof in the form given or to be given to
holders of Shares or other Deposited Securities.
The Issuer shall furnish to the Depositary in English annual
reports (including audited consolidated financial statements), quarterly reports
(including certain unaudited summary financial information), summaries in
English or English versions (except as provided in Section 4.9) of notices of
shareholders' meetings and other reports and communications that are made
generally available by the Issuer to holders of Deposited Securities. Unless
otherwise instructed in writing by the Issuer, the Depositary will arrange for
the mailing of copies of such reports and summaries so furnished to the
Depositary to all Owners at the Issuer's expense. The Issuer will timely provide
the Depositary with the quantity of such notices, reports, and communications,
translated into English (except as provided in Section 4.9), as may be requested
by the Depositary from time to time in order for the Depositary to effect such
mailings.
SECTION 5.7. DISTRIBUTION OF ADDITIONAL SHARES, RIGHTS, ETC.
The Issuer agrees that in the event of any issuance or
distribution by the Issuer of (1) additional Shares, (2) rights to subscribe for
Shares, (3) securities convertible into Shares, or (4) rights to subscribe for
such securities, (each a "Distribution") the Issuer will promptly furnish to the
Depositary a written opinion from U.S. counsel for the Issuer, which counsel
shall be reasonably satisfactory to the Depositary, stating whether or not the
Distribution requires a Registration Statement under the Securities Act of 1933
to be in effect prior to making such Distribution available to Owners entitled
thereto. If in the opinion of such counsel a Registration
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Statement is required, such counsel shall furnish to the Depositary a written
opinion as to whether or not there is a Registration Statement in effect which
will cover such Distribution.
The Issuer agrees with the Depositary that neither the Issuer
nor any company controlled by, controlling or under common control with the
Issuer will at any time deposit any Shares, either originally issued or
previously issued and reacquired by the Issuer or any such affiliate, unless a
Registration Statement is in effect as to such Shares under the Securities Act
of 1933. Nothing in this Section 5.7 or elsewhere in this Deposit Agreement
shall create any obligation on the part of the Issuer or the Depositary to file
a registration statement in respect of any such securities or rights.
SECTION 5.8. INDEMNIFICATION.
The Issuer agrees to indemnify the Depositary, its directors,
employees, agents and affiliates and the Custodian against, and hold each of
them harmless from, any liability or expense (including, but not limited to, the
reasonable fees and expenses of counsel) which may arise out of acts performed
or omitted, in accordance with the provisions of this Deposit Agreement and of
the Receipts, as the same may be amended, modified or supplemented from time to
time, (i) by either the Depositary or a Custodian or their respective directors,
employees, agents and affiliates, except for any liability or expense arising
out of the negligence or bad faith of either of them, or (ii) by the Issuer or
any of its directors, employees, agents and affiliates.
The indemnities contained in the preceding paragraph shall not
extend to any liability or expense which may arise out of any Pre-Release (as
defined in Section 2.9) to the extent that any such liability or expense arises
in connection with (a) any United States Federal, state or local income tax
laws, (b) the failure of the Depositary to deliver Deposited Securities when
required under the terms of Section 2.5 hereof or (c) the non-performance by the
Depositary or the Custodian of any obligations relating to
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any Pre-Release under Section 2.9 of this Deposit Agreement or any other
agreement between the Depositary and the Issuer relating to Pre-Release.
However, the indemnities contained in the preceding paragraph shall apply to any
liability or expense which may arise out of any misstatement or alleged
misstatement or omission or alleged omission in any registration statement,
proxy statement, prospectus (or placement memorandum) or preliminary prospectus
(or preliminary placement memorandum) relating to the offer or sale of American
Depositary Shares, except to the extent any such liability or expense arises out
of (i) information relating to the Depositary or the Custodian, as applicable,
furnished in writing to the Issuer by the Depositary or the Custodian, as
applicable, expressly for use in any of the foregoing documents, or, (ii)
material omissions from such information furnished by the Depositary or the
Custodian.
The Depositary agrees to indemnify the Issuer, its directors,
employees, agents and affiliates and hold them harmless from any liability or
expense which may arise out of acts performed or omitted by the Depositary or
its Custodian or their respective directors, employees, agents and affiliates
due to their negligence or bad faith.
The obligations set forth in this Section 5.8 shall survive
the termination of this Deposit Agreement and the succession or substitution of
any indemnified person.
Any person seeking indemnification hereunder (an "Indemnified
Person") shall notify the person from whom it is seeking indemnification (the
"Indemnifying Person") of the commencement of any indemnifiable action or claim
promptly after such Indemnified Person becomes aware of such commencement and
shall consult in good faith with the Indemnifying Person as to the conduct of
the defense of such action or claim, which defense shall be reasonable under the
circumstances. No Indemnified Person shall compromise or settle any such action
or claim without the consent in writing of the Indemnifying Person.
SECTION 5.9. CHARGES OF DEPOSITARY.
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The Issuer agrees to pay the reasonable fees, expenses and
out-of-pocket charges of the Depositary and those of any Registrar only in
accordance with agreements in writing entered into between the Depositary and
the Issuer from time to time. The Depositary shall present its statement for
such charges and expenses to the Issuer once every three months. The charges and
expenses of the Custodian are for the sole account of the Depositary. Any
written agreement signed by the Issuer and the Depositary relating to the
Depositary's fees and expenses under this Deposit Agreement shall be binding
upon the Issuer and the Depositary until it is expressly amended or superseded
by a subsequent written agreement, irrespective of whether such agreement was
entered into prior to, simultaneously with or subsequent to this Deposit
Agreement, and notwithstanding any provision of this Deposit Agreement that
might be construed to be inconsistent with such agreement.
The following charges shall be incurred by any party
depositing or withdrawing Shares or by any party surrendering Receipts or to
whom Receipts are issued (including, without limitation, issuance pursuant to a
stock dividend or stock split declared by the Issuer or an exchange of stock
regarding the Receipts or Deposited Securities or a distribution of Receipts
pursuant to Section 4.3 hereof), whichever applicable: (1) taxes and other
governmental charges, (2) such registration fees as may from time to time be in
effect for the registration of transfers of Shares generally on the share
register of the Issuer or Foreign Registrar and applicable to transfers of
Shares to the name of the Depositary or its nominee or the Custodian or its
nominee on the making of deposits or withdrawals hereunder, (3) such cable,
telex and facsimile transmission expenses as are expressly provided in this
Deposit Agreement, (4) such reasonable expenses as are incurred by the
Depositary in the conversion of foreign currency pursuant to Section 4.5, (5) a
fee of $5.00 or less per 100 American Depositary Shares (or portion thereof) for
the execution and delivery of Receipts pursuant to Section 2.3, 4.3 and 4.4 and
the surrender of Receipts pursuant to Section 2.5 or 6.2, (6) a fee of $.02 or
less per American Depositary Share (or portion thereof) for any cash
distribution made pursuant
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to the Deposit Agreement, including, but not limited to, Sections 4.1 through
4.4 hereof and (7) a fee for the distribution of securities pursuant to Section
4.2, such fee being in an amount equal to the fee for the execution and delivery
of American Depositary Shares referred to above which would have been charged as
a result of the deposit of such securities (for purposes of this clause 7
treating all such securities as if they were Shares) but which securities are
instead distributed by the Depositary to Owners.
The Depositary, subject to Section 2.9 hereof, may own and
deal in any class of securities of the Issuer and its affiliates and in
Receipts.
SECTION 5.10. RETENTION OF DEPOSITARY DOCUMENTS.
The Depositary is authorized to destroy those documents,
records, bills and other data compiled during the term of this Deposit Agreement
at the times permitted by the laws or regulations governing the Depositary
unless the Issuer requests that such papers be retained for a longer period or
turned over to the Issuer or to a successor depositary.
SECTION 5.11. EXCLUSIVITY.
Subject to the provisions of Section 5.04, the Issuer agrees
not to appoint any other depositary for issuance of American Depositary Receipts
issued pursuant to this Deposit Agreement so long as The Bank of New York is
acting as Depositary hereunder.
SECTION 5.12. LIST OF RESTRICTED SECURITIES OWNERS.
From time to time, upon the written request of the Depositary,
the Issuer shall provide to the Depositary a list setting forth, to the actual
knowledge of the Issuer, those persons or entities who beneficially own
Restricted Securities and the Issuer shall update that list on a regular basis.
The Issuer agrees to advise in writing each of the persons or entities so listed
that such Restricted Securities are ineligible for deposit hereunder except in
accordance with all applicable laws and regulations and contractual
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restrictions, as the case may be. The Depositary may rely on such a list or
update but shall not be liable for any action or omission made in reliance
thereon.
ARTICLE VI AMENDMENT AND TERMINATION.
SECTION 6.1. AMENDMENT.
The form of the Receipts and any provisions of this Deposit
Agreement may at any time and from time to time be amended by agreement between
the Issuer and the Depositary in any respect which they may deem necessary or
desirable. Any amendment which shall impose or increase any fees or charges
(other than taxes and other governmental charges, registration fees, cable,
telex or facsimile transmission costs, delivery costs or other such expenses),
or which shall otherwise prejudice any substantial existing right of Owners,
shall, however, not become effective as to outstanding Receipts until the
expiration of thirty days after notice of such amendment shall have been given
to the Owners of outstanding Receipts. Every Owner at the time any amendment so
becomes effective shall be deemed, by continuing to hold such Receipt, to
consent and agree to such amendment and to be bound by the Deposit Agreement or
Receipts as amended thereby. In no event shall any amendment impair the right of
the Owner of any Receipt to surrender such Receipt and receive therefor the
Deposited Securities corresponding thereto, except in order to comply with
mandatory provisions of applicable law.
SECTION 6.2. TERMINATION.
The Depositary shall at any time at the direction of the
Issuer terminate this Deposit Agreement by mailing notice of such termination to
the Owners of all Receipts then outstanding at least 90 days prior to the date
fixed in such notice for such termination. The Depositary may likewise terminate
this Deposit Agreement by mailing notice of such termination to the Issuer and
the Owners of all Receipts then outstanding if at any time 90 days shall have
expired after the Depositary shall have delivered to the
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Issuer a written notice of its election to resign and a successor depositary
shall not have been appointed and accepted its appointment as provided in
Section 5.4. On and after the date of termination, the Owner of a Receipt will,
upon (a) surrender of such Receipt at the Corporate Trust Office of the
Depositary, (b) payment of the fee of the Depositary for the surrender of
Receipts referred to in Section 2.5, and (c) payment of any applicable taxes or
governmental charges, be entitled to delivery, to him or upon his order, of the
amount of Deposited Securities corresponding to the American Depositary Shares
evidenced by such Receipt. If any Receipts shall remain outstanding after the
date of termination, the Depositary thereafter shall discontinue the
registration of transfers of Receipts, shall suspend the distribution of
dividends to the Owners thereof, and shall not give any further notices or
perform any further acts under this Deposit Agreement, except that the
Depositary shall continue to collect dividends and other distributions
pertaining to Deposited Securities, shall sell rights as provided in this
Deposit Agreement, and shall continue to deliver Deposited Securities, together
with any dividends or other distributions received with respect thereto and the
net proceeds of the sale of any rights or other property, in exchange for
Receipts surrendered to the Depositary (after deducting, in each case, the fee
of the Depositary for the surrender of a Receipt, any expenses for the account
of the Owner of such Receipt in accordance with the terms and conditions of this
Deposit Agreement, and any applicable taxes or governmental charges). At any
time after the expiration of one year from the date of termination, the
Depositary may sell the Deposited Securities then held hereunder and may
thereafter hold uninvested the net proceeds of any such sale, together with any
other cash then held by it hereunder, unsegregated and without liability for
interest, for the pro rata benefit of the Owners of Receipts which have not
theretofore been surrendered, such Owners thereupon becoming general creditors
of the Depositary with respect to such net proceeds. After making such sale, the
Depositary shall be discharged from all obligations under this Deposit
Agreement, except to account for claims of Owners as Creditors of the Depositary
for such net proceeds and other cash (after deducting, in each case, the fee of
the Depositary
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for the surrender of a Receipt, any expenses for the account of the Owner of
such Receipt in accordance with the terms and conditions of this Deposit
Agreement, and any applicable taxes or governmental charges). Upon the
termination of this Deposit Agreement, the Issuer shall be discharged from all
obligations under this Deposit Agreement except for its obligations to the
Depositary under Sections 5.8 and 5.9 hereof which shall survive the termination
of this Deposit Agreement.
ARTICLE VII MISCELLANEOUS.
SECTION 7.1. COUNTERPARTS.
This Deposit Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of such
counterparts shall constitute one and the same instrument. Copies of this
Deposit Agreement shall be filed with the Depositary and the Custodians and
shall be open to inspection by any holder or Owner of a Receipt during business
hours at the principal office of the Depositary and the principal Paris office
of the Custodian.
SECTION 7.2. NO THIRD PARTY BENEFICIARIES.
This Deposit Agreement is for the exclusive benefit of the
parties hereto and shall not be deemed to give any legal or equitable right,
remedy or claim whatsoever to any other person.
SECTION 7.3. SEVERABILITY.
In case any one or more of the provisions contained in this
Deposit Agreement or in the Receipts should be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall in no way be affected,
prejudiced or disturbed thereby.
SECTION 7.4. HOLDERS AND OWNERS AS PARTIES; BINDING EFFECT.
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The holders and Owners of Receipts from time to time shall be
parties to this Deposit Agreement and shall be bound by all of the terms and
conditions hereof and of the Receipts by acceptance thereof.
SECTION 7.5. NOTICES.
Any and all notices to be given to the Issuer shall be deemed
to have been duly given if personally delivered or sent by mail or cable, telex
or facsimile transmission confirmed by letter, addressed to ActivCard S.A.,
24-28 Avenue du General de Gaulle, 92156 Suresnes Cedex, France, or any other
place to which the Issuer may have transferred its principal office.
Any and all notices to be given to the Depositary shall be
deemed to have been duly given if in English and personally delivered or sent by
mail or cable, telex or facsimile transmission confirmed by letter, addressed to
The Bank of New York, 101 Barclay Street, New York, New York 10286, Attention:
American Depositary Receipt Administration, or any other place to which the
Depositary may have transferred its Corporate Trust Office.
Any and all notices to be given to any Owner shall be deemed
to have been duly given if personally delivered or sent by mail or cable, telex
or facsimile transmission confirmed by letter, addressed to such Owner at the
address of such Owner as it appears on the transfer books for Receipts of the
Depositary, or, if such Owner shall have filed with the Depositary a written
request that notices intended for such Owner be mailed to some other address, at
the address designated in such request.
Delivery of a notice sent by mail or cable, telex or facsimile
transmission shall be deemed to be effected at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a cable,
telex or facsimile transmission) is deposited, postage prepaid, in a post-office
letter box. The Depositary or the Issuer may, however, act upon any cable, telex
or facsimile transmission received by it,
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notwithstanding that such cable, telex or facsimile transmission shall not
subsequently be confirmed by letter as aforesaid.
SECTION 7.6. GOVERNING LAW.
This Deposit Agreement and the Receipts shall be interpreted
and all rights hereunder and thereunder and provisions hereof and thereof shall
be governed by the laws of the State of New York. The terms of any Shares held
hereunder, however, shall be governed by the laws of The Republic of France.
SECTION 7.7. COMPLIANCE WITH U.S. SECURITIES LAWS.
Notwithstanding anything in this Deposit Agreement to the
contrary, the Issuer and the Depositary each agrees that it will not exercise
any rights it has under this Deposit Agreement to prevent the withdrawal or
delivery of Deposited Securities in a manner which would violate the U.S.
securities laws, including, but not limited to, Section I.A.(1) of the General
Instructions to the Form F-6 Registration Statement, as amended from time to
time, under the Securities Act of 1933.
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IN WITNESS WHEREOF, ACTIVCARD S.A. and THE BANK OF NEW YORK have duly
executed this agreement as of the day and year first set forth above and all
Owners shall become parties hereto upon acceptance by them of Receipts issued in
accordance with the terms hereof.
ACTIVCARD S.A.
By: _______________________
George Wikle
Chief Financial Officer
THE BANK OF NEW YORK,
as Depositary
By: _______________________
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------------------------------------------------
No. AMERICAN DEPOSITARY SHARES (Each American
Depositary Share entitles the Owner to receive
one deposited Share)
THE BANK OF NEW YORK
AMERICAN DEPOSITARY RECEIPT
FOR ORDINARY SHARES OF THE
NOMINAL VALUE OF 6.25 FRENCH FRANCS
EACH OF ACTIVCARD S.A.
(INCORPORATED UNDER THE LAWS THE REPUBLIC OF FRANCE)
The Bank of New York as depositary (hereinafter called the
"Depositary"), hereby certifies that ______________, or registered assigns IS
THE OWNER OF __________________
AMERICAN DEPOSITARY SHARES
entitling the Owner to receive deposited ordinary shares, nominal value 6.25
French Francs each (herein called "Shares"), of ActivCard S.A., incorporated
under the laws The Republic of France (herein called the "Company"). At the date
hereof, each American Depositary Share entitles the Owner thereof to receive one
Share which are either deposited or subject to deposit under the deposit
agreement at the designated Paris offices of Banque Nationale De Paris, 14, Rue
Bergere, 75009 Paris, France; Banque Paribas, 12 BD de la Madeleine, 75009
Paris, France; Banque Worms, 45 Boulevard Haussmann, 75009 Paris, France; Credit
Lyonnais, 19 Boulevard des Italiens BC, 75002 Paris, France; Banque Indosuez, 44
Rue de Courcelles, 75008 Paris, France; and at the designated Nantes Cedex
office of Societe Generale, France, 32, rue du Champ de Tir, Department Titres
et Bourse, BP 1135-44024 Nantes Cedex, France (herein collectively called the
"Custodian"). The Depositary's Corporate Trust Office is located at a different
address than its principal executive office. Its Corporate Trust Office is
located at 101 Barclay Street, New York, N.Y. 10286, and its principal executive
office is located at One Wall Street, New York, N.Y. 10286.
THE DEPOSITARY'S CORPORATE TRUST OFFICE ADDRESS IS
101 BARCLAY STREET, NEW YORK, N.Y. 10286
<PAGE>
1. THE DEPOSIT AGREEMENT.
This American Depositary Receipt is one of an issue (herein called
"Receipts"), all issued and to be issued upon the terms and conditions set forth
in the deposit agreement, dated as of _________, 2000 (herein called the
"Deposit Agreement"), by and among the Company, the Depositary, and all Owners
and holders from time to time of Receipts issued thereunder, each of whom by
accepting a Receipt agrees to become a party thereto and become bound by all the
terms and conditions thereof. The Deposit Agreement sets forth the rights of
Owners and holders of the Receipts and the rights and duties of the Depositary
in respect of the Shares deposited thereunder and any and all other securities,
property and cash from time to time received in respect of such Shares and held
thereunder (such Shares, securities, property, and cash are herein called
"Deposited Securities"). Copies of the Deposit Agreement are on file at the
Depositary's Corporate Trust Office in New York City and at the office of the
Custodian.
The statements made on the face and reverse of this Receipt are
summaries of certain provisions of the Deposit Agreement and are qualified by
and subject to the detailed provisions of the Deposit Agreement, to which
reference is hereby made. Capitalized terms not defined herein shall have the
meanings set forth in the Deposit Agreement.
2. SURRENDER OF RECEIPTS AND WITHDRAWAL OF SHARES.
Upon surrender at the Corporate Trust Office of the Depositary of this
Receipt, and upon payment of the fee of the Depositary provided in this Receipt,
and subject to the terms and conditions of the Deposit Agreement, the Company's
STATUTS and the Deposited Securities, the Owner hereof is entitled to the
transfer of the Deposited Securities to an account registered in the Company's
shareholders' accounts and which is managed by the Custodian, as an accredited
financial intermediary, acting as agent on behalf of and in the name of such
Owner or such name as shall be designated by such Owner, of the amount of the
Deposited Securities at the time corresponding to such Receipt. Such transfer
shall be made, as hereinafter provided, without unreasonable delay.
In the event any delivery of Deposited Securities under Section 2.5 of
the Deposit Agreement would otherwise require delivery of fractional Deposited
Securities, the Depositary may sell the amount of Deposited Securities
corresponding to the aggregate of such fractions and distribute the net
proceeds, all in the manner and subject to the conditions described in Section
4.1 of the Deposit Agreement.
3. TRANSFERS, SPLIT-UPS, AND COMBINATIONS OF RECEIPTS.
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The transfer of this Receipt is promptly registrable on the books of
the Depositary at its Corporate Trust Office by the Owner hereof in person or by
a duly authorized attorney, upon any surrender of this Receipt properly endorsed
for transfer or accompanied by proper instruments of transfer and funds
sufficient to pay any applicable transfer taxes and the expenses of the
Depositary, and duly stamped as may be required by the laws of the State of New
York and of the United States of America, and upon compliance with such
regulations, if any, as the Depositary may establish for such purpose. This
Receipt may be split into other such Receipts, or may be combined with other
such Receipts into one Receipt, evidencing the same aggregate number of American
Depositary Shares as the Receipt or Receipts surrendered. The Depositary shall
ensure that it has on hand at all times a sufficient supply of Receipts to meet
the demands for transfer. As a condition precedent to the execution and
delivery, registration of transfer, split-up, combination, or surrender of any
Receipt or withdrawal of any Deposited Securities, the Depositary, the
Custodian, or Registrar may require payment from the depositor of Shares or the
presentor of the Receipt of a sum sufficient to reimburse it for any tax or
other governmental charge and any stock transfer or registration fee with
respect thereto (including any such tax or charge and fee with respect to Shares
being deposited or withdrawn) and payment of any applicable fees as provided in
this Receipt, may require the production of proof satisfactory to it as to the
identity and genuineness of any signature and may also require compliance with
any regulations the Depositary may establish consistent with the provisions of
the Deposit Agreement or this Receipt, including, without limitation, paragraph
24 of this Receipt.
The delivery of Receipts against deposits of Shares generally or
against deposits of particular Shares may be suspended, registration of or the
transfer of Receipts in particular instances may be refused, or the registration
of transfer of outstanding Receipts generally may be suspended, during any
period when the transfer books of the Depositary are closed, or if any such
action is deemed necessary or advisable by the Depositary or the Company at any
time or from time to time because of any requirement of law or of any government
or governmental body or commission, or under any provision of the Deposit
Agreement, the STATUTS of the Company or this Receipt, or for any other reason,
subject to the provisions of the following sentence. The surrender of
outstanding Receipts and withdrawal of Deposited Securities may not be suspended
except as permitted in General Instruction I(A)1 to Form F-6 (as may be amended
from time to time) under the Securities Act of 1933, which currently permits
suspension only in connection with (i) temporary delays caused by closing the
transfer books of the Depositary or the Company or the appointed agent for the
Company for the registration of transfer of such Shares or the deposit of Shares
in connection with voting at a shareholders' meeting, or the payment of
dividends, (ii) the payment of fees, taxes and similar charges, and (iii)
compliance with any U.S. or foreign laws or governmental regulations relating to
the Receipts or to the withdrawal of the Deposited Securities. Without
limitation of the foregoing, the Depositary shall not knowingly accept for
deposit
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under the Deposit Agreement any Shares required to be registered under the
provisions of the Securities Act of 1933, unless a registration statement is in
effect as to such Shares.
4. LIABILITY OF OWNER FOR TAXES.
If any tax or other governmental charge shall become payable with
respect to any Receipt or any Deposited Securities corresponding hereto, such
tax or other governmental charge shall be payable by the Owner hereof to the
Depositary. The Depositary may refuse to effect any transfer of this Receipt or
any withdrawal of Deposited Securities corresponding to American Depositary
Shares evidenced by such Receipt until such payment is made, and may withhold
any dividends or other distributions, or may sell for the account of the Owner
hereof any part or all of the Deposited Securities corresponding to the American
Depositary Shares evidenced by this Receipt, and may apply such dividends or
other distributions or the proceeds of any such sale in payment of such tax or
other governmental charge and the Owner hereof shall remain liable for any
deficiency.
5. WARRANTIES OF DEPOSITORS.
Every person depositing Shares under the Deposit Agreement shall be
deemed thereby to represent and warrant that such Shares and each certificate
therefor are validly issued, fully paid, nonassessable, and free of any
pre-emptive rights of the holders of outstanding Shares and that the person
making such deposit is duly authorized so to do. Every such person shall also be
deemed to represent that the deposit of such Shares and the sale of Receipts
evidencing American Depositary Shares corresponding to such Shares by that
person are not restricted under the Securities Act of 1933 or under the laws of
the Republic of France. Such representations and warranties shall survive the
deposit of Shares and issuance of Receipts.
6. FILING PROOFS, CERTIFICATES, AND OTHER INFORMATION.
Any person presenting Shares for deposit or any Owner of a Receipt may
be required from time to time to file with the Depositary or the Custodian such
proof of citizenship or residence, exchange control approval, payment of
applicable French or other taxes or governmental charges or proof of the
identity of any person legally or beneficially interested in the Receipt and the
nature of such interest or such information relating to the registration of the
Shares on the books of the Company or the Foreign Registrar, if applicable, to
execute such certificates and to make such representations and warranties, as
the Depositary may deem necessary or proper or the Company may reasonably
require upon written request to the Depositary or the Custodian. The Depositary
may withhold the delivery or registration of transfer of any Receipt or the
distribution of any dividend or sale or distribution of rights or of the
proceeds thereof or the delivery of any Deposited Securities until such proof or
other information is filed or such certificates are executed or such
representations and warranties are made pertaining
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to the Receipt. Each Owner agrees to provide any information requested by the
Company or the Depositary pursuant to this paragraph. No Shares shall be
accepted for deposit unless accompanied by evidence satisfactory to the
Depositary that any necessary approval has been granted by the governmental body
in The Republic of France, if any, which is then performing the function of the
regulation of currency exchange or which has jurisdiction over foreign
investment.
7. CHARGES OF DEPOSITARY.
The Company agrees to pay the reasonable fees, expenses and
out-of-pocket charges of the Depositary and those of any Registrar only in
accordance with agreements in writing entered into between the Depositary and
the Company from time to time. The Depositary shall present its statement for
such charges and expenses to the Company once every three months. The charges
and expenses of the Custodian are for the sole account of the Depositary. Any
written agreement signed by the Company and the Depositary relating to the
Depositary's fees and expenses under the Deposit Agreement shall be binding upon
the Company and the Depositary until it is expressly amended or superseded by a
subsequent written agreement, irrespective of whether such agreement was entered
into prior to, simultaneously with or subsequent to the Deposit Agreement, and
notwithstanding any provision of the Deposit Agreement that might be construed
to be inconsistent with such agreement.
The following charges shall be incurred by any party depositing or
withdrawing Shares or by any party surrendering Receipts or to whom Receipts are
issued (including, without limitation, issuance pursuant to a stock dividend or
stock split declared by the Company or an exchange of stock regarding the
Receipts or Deposited Securities or a distribution of Receipts pursuant to
Section 4.3 of the Deposit Agreement), whichever applicable: (1) taxes and other
governmental charges, (2) such registration fees as may from time to time be in
effect for the registration of transfers of Shares generally on the share
register of the Company or Foreign Registrar and applicable to transfers of
Shares to the name of the Depositary or its nominee or the Custodian or its
nominee on the making of deposits or withdrawals under the Deposit Agreement,
(3) such cable, telex and facsimile transmission expenses as are expressly
provided in the Deposit Agreement, (4) such reasonable expenses as are incurred
by the Depositary in the conversion of foreign currency pursuant to Section 4.5
of the Deposit Agreement, (5) a fee of $5.00 or less per 100 American Depositary
Shares (or portion thereof) for the execution and delivery of Receipts pursuant
to Section 2.3 Section 4.3 and 4.4 of the Deposit Agreement and the surrender of
Receipts pursuant to Section 2.5 or 6.2 of the Deposit Agreement, (6) a fee of
$.02 or less per American Depositary Share (or portion thereof) for any cash
distribution made pursuant to Sections 4.1 through 4.4 of the Deposit Agreement
and (7) a fee for the distribution of securities pursuant to Section 4.2 of the
Deposit Agreement, such fee being in an amount equal to the fee for the
execution and delivery of American Depositary Shares referred to above which
would have been
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<PAGE>
charged as a result of the deposit of such securities (for purposes of this
clause 7 treating all such securities as if they were Shares), but which
securities are instead distributed by the Depositary to Owners.
The Depositary, subject to Section 2.9 of the Deposit Agreement, may
own and deal in any class of securities of the Company and its affiliates and in
Receipts.
8. LOANS AND PRE-RELEASE OF SHARES AND RECEIPTS.
Notwithstanding Section 2.3 of the Deposit Agreement, the Depositary
may execute and deliver Receipts prior to the receipt of Shares pursuant to
Section 2.2 of the Deposit Agreement ("Pre-Release"). The Depositary may,
pursuant to Section 2.5 of the Deposit Agreement, deliver Shares upon the
receipt and cancellation of Receipts which have been Pre-Released, whether or
not such cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such Receipt has been Pre-Released. The Depositary may
receive Receipts in lieu of Shares in satisfaction of a Pre-Release. Each
Pre-Release shall be (a) preceded or accompanied by a written representation
from the person to whom Receipts are to be delivered that such person, or its
customer, owns the Shares or Receipts to be remitted, as the case may be, (b) at
all times fully collateralized with cash or such other collateral as the
Depositary deems appropriate, (c) terminable by the Depositary on not more than
five (5) business days notice, and (d) subject to such further indemnities and
credit regulations as the Depositary deems appropriate. The number of American
Depositary Shares which are outstanding at any time as a result of Pre-Releases
will not normally exceed thirty percent (30%) of the Shares deposited under the
Deposit Agreement; provided, however, that the Depositary reserves the right to
disregard such limit from time to time as it deems appropriate and may, with the
prior written consent of the Company, change such limit for purposes of general
application.
For purposes of enabling the Depositary to fulfill its obligations to
the owners and Beneficial Owners under the Deposit Agreement, the collateral
referred to in clause (b) above shall be held by the Depositary as security for
the performance of the Pre-Release's obligation to the Depositary in connection
with a Pre-Release transaction, including the Pre-Releasee's obligation to
deliver Shares or Receipts upon termination of a Pre-Release transaction (and
shall not, for the avoidance of doubt, constitute Deposited Securities under the
Deposit Agreement).
The Depositary may retain for its own account any compensation received
by it in connection with the foregoing.
With respect to any Pre-Release (as defined in Section 2.9 of the
Deposit Agreement), neither the Company nor the Custodian shall be responsible
to any Owners or holders of Receipts for any liabilities or expenses (a) which
may be imposed under any United States Federal, state or local income tax laws,
(b) which may arise out of the
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<PAGE>
failure of the Depositary to deliver Deposited Securities when required under
the terms of Section 2.5 of the Deposit Agreement, or (c) the non-performance by
the Depositary or the Custodian of any obligations relating to any Pre-Release
under Section 2.9 of the Deposit Agreement or any other agreement between the
Depositary and the Company relating to Pre-Release. The preceding sentence shall
not apply to any liability or expense which may arise out of any misstatement or
alleged misstatement or omission or alleged omission in any registration
statement, proxy statement, prospectus (or placement memorandum), or preliminary
prospectus (or preliminary placement memorandum) relating to the offer of sale
of American Depositary Shares, except to the extent any such liability or
expense arises out of (i) information relating to the Depositary or the
Custodian, as applicable, furnished in writing expressly for use in any of the
foregoing documents, or, (ii) material omissions from such information furnished
by the Depositary or the Custodian.
9. TITLE TO RECEIPTS.
It is a condition of this Receipt and every successive holder and Owner
of this Receipt by accepting or holding the same consents and agrees, that title
to this Receipt (and to the American Depositary Shares evidenced thereby), when
properly endorsed or accompanied by proper instruments of transfer, is
transferable by delivery with the same effect as in the case of a negotiable
instrument, provided, however, that the Company and Depositary, notwithstanding
any notice to the contrary, may treat the person in whose name this Receipt is
registered on the books of the Depositary as the absolute owner hereof for the
purpose of determining the person entitled to distribution of dividends or other
distributions or to any notice provided for in the Deposit Agreement or for all
other purposes.
10. VALIDITY OF RECEIPT.
This Receipt shall not be entitled to any benefits under the Deposit
Agreement or be valid or obligatory for any purpose, unless this Receipt shall
have been executed by the Depositary by the manual or facsimile signature of a
duly authorized signatory of the Depositary and, if a Registrar for the Receipts
shall have been appointed, countersigned by the manual or facsimile signature of
a duly authorized officer of the Registrar.
11. REPORTS; INSPECTION OF TRANSFER BOOKS.
The Company currently is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934 and, accordingly, files certain reports
with the Securities and Exchange Commission (hereinafter called the
"Commission"). Such reports will be available for inspection and copying by
holders and Owners at the public reference facilities maintained by the
Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549.
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<PAGE>
The Depositary will make available for inspection by Owners of Receipts
at its Corporate Trust Office any reports and communications, including any
proxy soliciting material, received from the Company which are both (a) received
by the Depositary as the holder of the Deposited Securities and (b) made
generally available to the holders of such Deposited Securities by the Company.
The Depositary will also send to Owners of Receipts copies of such reports when
furnished by the Company pursuant to Section 5.6 of the Deposit Agreement. Any
such reports and communications, including any such proxy solicitation material
furnished to the Depositary by the Company, will be furnished in French, unless
the Company determines in its discretion to furnish such materials or any of
them in English or unless such materials are required to be furnished in English
as provided in Section 5.6 of the Deposit Agreement.
The Depositary shall keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners of Receipts and the Company provided that such inspection shall
not be for the purpose of communicating with Owners of Receipts in the interest
of a business or object other than the business of the Company or a matter
related to the Deposit Agreement or the Receipts.
12. DIVIDENDS AND DISTRIBUTIONS.
Whenever the Depositary or the Custodian receives any cash dividend or
other cash distribution on any Deposited Securities, the Depositary shall,
subject to the terms of the Deposit Agreement, as promptly as practicable
convert such dividend or distribution into Dollars and shall distribute the
amount thus received (net of the fees of the Depositary as provided in Section
5.9 of the Deposit Agreement, if applicable) to the Owners of Receipts entitled
thereto, in proportion to the number of American Depositary Shares corresponding
to such Deposited Securities held by them respectively; provided, however, that
in the event that the Company, the Custodian or the Depositary shall be required
to withhold and does withhold from such cash dividend or such other cash
distribution in respect of any Deposited Securities an amount on account of
taxes or other governmental charges, the amount distributed to the Owners of the
Receipts evidencing American Depositary Shares corresponding to such Deposited
Securities shall be reduced accordingly.
Subject to the provisions of Sections 4.11 and 5.9 of the Deposit
Agreement, whenever the Depositary or the Custodian receives any distribution
other than a distribution described in Sections 4.1, 4.3 or 4.4 of the Deposit
Agreement, the Depositary shall cause the securities or property received by the
Depositary or the Custodian to be distributed to the Owners of Receipts entitled
thereto, in proportion to the number of American Depositary Shares corresponding
to such Deposited Securities held by them respectively, in any manner that the
Depositary, after consultation with the Company, may deem equitable and
practicable for accomplishing such distribution;
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<PAGE>
provided, however, that if in the opinion of the Depositary such distribution
cannot be made proportionately among the Owners of Receipts entitled thereto, or
if for any other reason (including, but not limited to, any requirement that the
Company or the Depositary withhold an amount on account of taxes or other
governmental charges or that such securities must be registered under the
Securities Act of 1933 in order to be distributed to Owners or holders) the
Depositary deems such distribution not to be feasible, the Depositary may adopt
such method as it may deem equitable and practicable for the purpose of
effecting such distribution, including, but not limited to, the public or
private sale of the securities or property thus received, or any part thereof,
and the net proceeds of any such sale (net of the fees of the Depositary as
provided in Section 5.9 of the Deposit Agreement) shall be distributed by the
Depositary to the Owners of Receipts entitled thereto as in the case of a
distribution received in cash.
Subject to applicable U.S. and French law, and to the other terms of
the Deposit Agreement, in the event that the holders of Shares are granted
the option to receive dividends on such Shares in the form of cash or
additional Shares, Owners of Receipts shall be entitled to receive such
option only with consent of the Depositary. If any distribution upon any
Deposited Securities consists of a dividend in, or free distribution of,
Shares, the Depositary may, upon prior consultation with the Company,
distribute to the Owners of outstanding Receipts entitled thereto, in
proportion to the number of American Depositary Shares corresponding to such
Deposited Securities held by them respectively, additional Receipts
evidencing an aggregate number of American Depositary Shares entitling the
Owner thereof to receive the amount of Shares received as such dividend or
free distribution, subject to the terms and conditions of the Deposit
Agreement with respect to the deposit of Shares and the issuance of American
Depositary Shares evidenced by Receipts, including the withholding of any tax
or other governmental charge as provided in Section 4.11 of the Deposit
Agreement and the payment of the fees of the Depositary as provided in
Section 5.9 of the Deposit Agreement. In lieu of delivering Receipts for
fractional American Depositary Shares in any such case, the Depositary shall
sell the amount of Shares corresponding to the aggregate of such fractions
and distribute the net proceeds, all in the manner and subject to the
conditions set forth in Section 4.1 of the Deposit Agreement. If additional
Receipts are not so distributed, each American Depositary Share shall
thenceforth also entitle the Owner thereof to receive the additional Shares
distributed upon the Deposited Securities corresponding thereto.
In the event that the Depositary determines that any distribution in
property (including Shares and rights to subscribe therefor) is subject to any
tax or other governmental charge which the Depositary is obligated to withhold,
the Depositary may by public or private sale dispose of all or a portion of such
property (including Shares and rights to subscribe therefor) in such amounts and
in such manner as the Depositary deems
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<PAGE>
necessary and practicable to pay any such taxes or charges, and the Depositary
shall distribute the net proceeds of any such sale after deduction of such taxes
or charges to the Owners of Receipts entitled thereto.
The Depositary will use reasonable efforts to follow the procedures
established by the French Treasury for eligible United States Owners to benefit
from the reduced withholding tax rate upon payment of any dividend and to
receive the payment of any AVOIR FISCAL. To effect such recovery and receipt,
the Depositary shall provide U.S. resident Owners, and any other holders, upon
request, with the appropriate French tax forms and instructions for completing
such forms, which shall be provided by the Company to the Depositary, and shall
advise such U.S. resident Owners to return such forms to it properly completed
and executed. Upon receipt of such forms properly completed and executed by U.S.
resident Owners, the Depositary shall promptly cause them to be filed with the
appropriate French tax authorities, and upon receipt of any resulting
remittance, the Depositary shall distribute to the Owners entitled thereto, as
soon as practicable, the proceeds thereof in Dollars in accordance with Section
4.5. of the Deposit Agreement.
13. CONVERSION OF FOREIGN CURRENCY.
Whenever the Depositary shall receive foreign currency, by way of
dividends or other distributions or the net proceeds from the sale of
securities, property or rights, and if at the time of the receipt thereof the
foreign currency so received can in the judgment of the Depositary be converted
on a reasonable basis into Dollars and the resulting Dollars transferred to the
United States, the Depositary shall convert or cause to be converted, by sale or
in any other manner that it may determine, such foreign currency into Dollars,
and such Dollars shall be distributed to the Owners entitled thereto or, if the
Depositary shall have distributed any warrants or other instruments which
entitle the holders thereof to such Dollars, then to the holders of such
warrants and/or instruments upon surrender thereof for cancellation. Such
distribution may be made upon an averaged or other practicable basis without
regard to any distinctions among Owners on account of exchange restrictions, the
date of delivery of any Receipt or otherwise and shall be net of any expenses of
conversion into Dollars incurred by the Depositary as provided in Section 5.9 of
the Deposit Agreement.
If such conversion or distribution with regard to one or more Owners
can be effected only with the approval or license of any government or agency
thereof, the Depositary shall file such application for approval or license, if
any, as it may deem PROVIDED, HOWEVER, that the Company shall not be obligated
to make any such filing.
If at any time the Depositary shall determine that in its judgment any
foreign currency received by the Depositary is not convertible on a reasonable
basis into Dollars transferable to the United States and/or to one or more
Owners of Receipts, or if any
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approval or license of any governmental authority or agency thereof which is
required for such conversion is denied or in the opinion of the Depositary is
not obtainable, or if any such approval or license is not obtained within a
reasonable period as determined by the Depositary, the Depositary may distribute
the foreign currency (or an appropriate document evidencing the right to receive
such foreign currency) received by the Depositary to, or in its discretion may
hold such foreign currency uninvested and without liability for interest thereon
for the respective accounts of, the Owners entitled to receive the same.
If any such conversion of foreign currency, in whole or in part, cannot
be effected for distribution to some of the Owners entitled thereto, the
Depositary may in its discretion make such conversion and distribution in
Dollars to the extent permissible to the Owners entitled thereto and may
distribute the balance of the foreign currency received by the Depositary to, or
hold such balance uninvested and without liability for interest thereon for the
respective accounts of, the Owners entitled thereto for whom such conversion is
not practicable.
14. RIGHTS.
In the event that the Company shall offer or cause to be offered to
the holders of any Deposited Securities any rights to subscribe for
additional Shares or any rights of any other nature, the Depositary shall
have discretion, after consultation with the Company, as to the procedure to
be followed in making such rights available to any Owners including the
distribution of warrants or other instruments thereof as it deems appropriate
or in disposing of such rights on behalf of any Owners and making the net
proceeds available to such Owners or, if by the terms of such rights offering
or, for any other reason, the Depositary may not either make such rights
available to any Owners or dispose of such rights and make the net proceeds
available to such Owners, then the Depositary shall allow the rights to
lapse. If at the time of the offering of any rights the Depositary determines
in its discretion that it is lawful and feasible to make such rights
available to all Owners or to certain Owners but not to other Owners, the
Depositary may, distribute, to any Owner to whom it determines the
distribution to be lawful and feasible, in proportion to the number of
American Depositary Shares held by such Owner, warrants or other instruments
therefor in such form as it deems appropriate.
In circumstances in which rights would otherwise not be distributed, if
an Owner of Receipts requests the distribution of warrants or other instruments
in order to exercise the rights allocable to the American Depositary Shares of
such Owner under the Deposit Agreement, the Depositary will make such rights
available to such Owner upon written notice from the Company to the Depositary
that such Owner has executed such
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documents as the Company has determined in its sole discretion are reasonably
required under applicable law.
If the Depositary has distributed warrants or other instruments for
rights to all or certain Owners, then upon instruction from such an Owner
pursuant to such warrants or other instruments to the Depositary from such Owner
to exercise such rights, upon payment by such Owner to the Depositary for the
account of such Owner of an amount equal to the purchase price of the Shares to
be received upon the exercise of the rights, and upon payment of the fees of the
Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall, on behalf of such Owner, exercise the rights
and purchase the Shares, and the Company shall cause the Shares so purchased to
be delivered to the Depositary on behalf of such Owner. As agent for such Owner,
the Depositary will cause the Shares so purchased to be deposited pursuant to
Section 2.2 of the Deposit Agreement, and shall, pursuant to Section 2.3 of the
Deposit Agreement, execute and deliver Receipts to such Owner. In the case of a
distribution pursuant to this paragraph, such Receipts shall be legended in
accordance with applicable U.S. laws, and shall be subject to the appropriate
restrictions on sale, deposit, cancellation, and transfer under such laws.
If the Depositary determines in its discretion that it is not lawful
and feasible to make such rights available to all or certain Owners, it shall,
if possible, sell the rights, warrants or other instruments in proportion to the
number of American Depositary Shares held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales (net of the fees of the Depositary as
provided in Section 5.9 of the Deposit Agreement and all taxes and governmental
charges payable in connection with such rights and subject to the terms and
conditions of the Deposit Agreement) for the account of such Owners otherwise
entitled to such rights, warrants or other instruments, upon an averaged or
other practical basis without regard to any distinctions among such Owners
because of exchange restrictions or the date of delivery of any Receipt or
otherwise.
The Depositary will not offer rights to Owners unless both the rights
and the securities to which such rights relate are either exempt from
registration under the Securities Act of 1933 with respect to a distribution to
Owners or are registered under the provisions of such Act. If an Owner of
Receipts requests distribution of warrants or other instruments, notwithstanding
that there has been no such registration under such Act, the Depositary shall
not effect such distribution unless it has received an opinion from recognized
counsel in the United States for the Company upon which the Depositary may rely
that such distribution to such Owner is exempt from such registration, it being
understood that this Company shall have no obligation to furnish any such
opinion.
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The Depositary shall not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner in particular.
15. RECORD DATES.
Whenever any cash dividend or other cash distribution shall become
payable or any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever for any
reason the Depositary gives effect to a change in the number of Shares that
correspond to each American Depositary Share, or whenever the Depositary shall
receive notice of any meeting of holders of Deposited Securities other than
Shares, or whenever for any administrative purpose the Depositary deems it
necessary to do so, the Depositary shall fix a record date, after consultation
with the Company, when practicable, (which shall be to the extent practicable,
the same record date fixed by the Company), and with the prior approval of the
Company, when practicable, (a) for the determination of the Owners of Receipts
who shall be (i) entitled to receive such dividend, distribution or rights or
the net proceeds of the sale thereof or (ii) entitled to give instructions for
the exercise of voting rights at any such meeting, (b) on or after which each
American Depositary Share will correspond to the changed number of Shares or (c)
to facilitate the administrative purpose for which the record date was set.
Subject to the provisions of Sections 4.1 through 4.5 of the Deposit Agreement
and to the other terms and conditions of the Deposit Agreement, the Owners on
such record date shall be entitled, as the case may be, to receive the amount
distributable by the Depositary with respect to such dividend or other
distribution or such rights or the net proceeds of sale thereof in proportion to
the number of American Depositary Shares held by them respectively and to give
voting instructions and to act in respect of any other such matter.
16. VOTING OF DEPOSITED SECURITIES.
Upon receipt of notice of any meeting of holders of Shares or other
Deposited Securities sent by the Company at least thirty (30) days prior to the
date of the meeting, if requested in writing by the Company the Depositary
shall, as soon as practicable thereafter, mail to the Owners as of the close of
business on a record date established by the Depositary pursuant to Section 4.6
of the Deposit Agreement (a) a summary in English or an English version of the
notice of such meeting sent by the Company to the Depositary pursuant to Section
5.6 of the Deposit Agreement, (b) a statement in a form provided by the Company
that the Owners and holders of Receipts who hold the right to instruct the
Depositary with respect to the voting rights, if any, pertaining to the Shares
or Deposited Securities corresponding to their American Depositary Shares
("Voters") will be entitled, subject to any applicable provisions of French law,
the STATUTS of the Company and the Deposited Securities (which provisions, if
any, shall be summarized in pertinent part in such statement), to exercise the
voting rights (subject to the restrictions
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detailed below), if any, provided that any such Voter takes such steps as may be
required to become the Owner as shown on the books of the Depositary on or
before the Receipt Date (as defined below) (c) summaries in English of any
materials or other documents provided by the Company for the purpose of enabling
such Voters who are Owners to exercise such voting rights, by means of voting by
mail (FORMULAIRE de vote par correspondance) or by proxy (FORMULAIRE de vote par
procuration), which may be delivered EN BLANC, (d) a voting instruction card
(including a FORMULAIRE de vote par correspondence or procuration en blanc (when
applicable) and all other information, authorizations and certifications
required under French law to vote Shares in registered form ) to be prepared by
the Depositary and the Company (a "Voting Instruction Card"), and (e) a
statement that Voters who are not registered holders of the related American
Depositary Shares on the books of the Depositary must, before being provided
with a Voting Instruction Card, contact the Depositary by telephone, mail or fax
in order to cause, or indicate that they intend to cause, their American
Depositary Shares to be registered on the books of the Depositary in their name
prior to the Receipt Date. "Receipt Date" shall mean, with respect to any
shareholders' meeting, the latest date which is (A) at least two New York
Business Days (as defined below) prior to the date of such meeting and (B)
preceding a Paris Business Day (as defined below) prior to the date of such
meeting. "New York Business Day" and "Paris Business Day" shall mean a date on
which banks are not authorized or required by law or executive order to close in
New York or Paris, respectively. Holders of ADSs will not pay any fee in
connection with the required steps to become the registered holders of ADSs on
the books of the Depositary as described in (b) above. Upon the Depositary's
receipt of the contact referred to in (e) above, the Depositary shall promptly
mail or fax to the Voters so contacting the Depositary a Voting Instruction
Card. Upon the Depositary's receipt of a Voting Instruction Card from any Voter
who is an Owner, duly competed and executed, on or before the Receipt Date and
subject to the other restrictions set forth in Section 4.7 of the Deposit
Agreement, the Depositary shall forward such materials or documents as soon as
practicable to the Custodian.
In accordance with French company law and the STATUTS of the
Company, a precondition for exercising any voting rights is that, a holder of
Shares be registered in the shareholders' accounts of the Company at least one
(1) Paris Business Day prior to the date of the shareholders' meeting.
Pursuant to these requirements, any Voter who is an Owner or
holder of a Receipt corresponding to Shares in registered form on the Receipt
Date that desires to exercise its voting rights is required to instruct the
Depositary to block the transfer of its Receipt or Receipts and to instruct the
Depositary to request that the Custodian (a) register the names and addresses of
such Voter in the shareholders' accounts of the Company and any other
information required in accordance with French law or the Company's STATUTS and
(b) deposit the FORMULAIRE DE VOTE PAR CORRESPONDANCE or the
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FORMULAIRE DE VOTE PAR PROCURATION with the Company, at least one (1) Paris
Business Day prior to the date of the shareholders' meeting.
The Voting Instruction Card described in (d) in the first
paragraph of Section 4.7 of the Deposit Agreement above shall provide, among
other things, for certifications by the Voter as follows:
(i) setting forth such Voter's full name, address and number
of American Depositary Shares owned and any other information required in
accordance with French law or the Company's STATUTS, (ii) if such Voter was not
the registered holder of such American Depositary Shares as of the date the
Depositary mailed the materials described above, confirming that it has
instructed the Depositary to reregister such Voter's name in its books as the
Owner of such American Depositary Shares, (iii) instructing the Depositary not
to permit any transfers of any American Depositary Shares evidenced by such
Receipts on its books for a period beginning one (1) business day prior to the
date the meeting of holders of Shares set forth in the notice described in (a)
in the first paragraph of Section 4.7 of the Deposit Agreement above and ending
at the end of the day of the date of such meeting, provided always that if the
meeting is adjourned upon first call for a lack of quorum and unless the
Depositary is otherwise instructed by the Voter, such restriction on transfers
of ADSs shall recommence one (1) business day prior to the date set for the
reconvened meeting (the "Blocked Period"), and (iv) instructing the Depositary
to request the Custodian to cause (a) the name and address and any other
information required in accordance with French law or the Company's STATUTS of
such Voter to be registered in the shareholders' accounts of the Company during
the Blocked Period in respect of the number of Shares corresponding to such
Voter's American Depositary Shares, and (b) deposit the FORMULAIRE DE VOTE PAR
CORRESPONDANCE or the PROCURATION with ActivCard S.A., at least one (1) business
day prior to the date of the shareholders' meeting if such Shares are held in
registered form.
Upon receipt by the Depositary of a properly completed Voting
Instruction Card, on or before the Receipt Date, and provided that the Voter
instructing the Depositary with respect to voting the Shares has become, on or
before the Receipt Date, the Owner of such Receipts on the books of the
Depositary, the Depositary shall endeavor, insofar as practicable and permitted
under any applicable provisions of French law, the STATUTS of the Company and
the Deposited Securities, to vote or cause to be voted (including instructing
the Custodian to perform all applicable duties set forth in the Voting
Instruction Card and in Section 4.7 of the Deposit Agreement and restricting
transfer of American Depositary Shares as set forth in the Voting Instruction
Card and in Section 4.7 of the Deposit Agreement), by its employee or by the
Custodian or its employee, the Shares or other Deposited Securities in
accordance with any nondiscretionary instructions set forth in such request. The
Depositary shall not vote or attempt to exercise the right to vote that attaches
to the Shares or other Deposited Securities other than in accordance with such
instructions. The Depositary shall not
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comply with any instructions set forth on any Voting Instruction Card, except
with respect to, and only to the extent of, the number of American Depositary
Shares registered in the name of the Voter giving such instructions on the books
of the Depositary on the Receipt Date.
The Depositary will take no action to impair its ability to
vote or cause to be voted the number of Shares necessary to carry out the
instructions of all Voters under Section 4.7 of the Deposit Agreement.
The Depositary will not charge any fees in connection with the
foregoing transactions to enable any Voter to exercise its voting rights under
Section 4.7 of the Deposit Agreement.
Under French company law, shareholders holding a defined
percentage of the Company's share capital, which varies depending on the
absolute amount of such share capital, may propose new resolutions or
modifications to the resolutions presented by the Board of Directors to the
shareholders for their approval within 10 days of the publication of the notice
in the Bulletin des Annonces Officielles concerning the shareholders' meeting.
In such case, Voters who have given prior instructions to vote on such
resolution shall be deemed to have voted against the revised resolution;
provided however, that in the event such revised resolutions have been approved
by the Board of Directors of the Company during a suspension of the
shareholders' meeting, Voters who have sent a proxy (PROCURATION EN BLANC) shall
be deemed to have voted in favor of such revised resolutions approved by the
Board.
The Depositary and the Company and their respective directors,
employees, agents and controlling persons (as defined in the Securities Act of
1933) assume no obligation nor shall they be subject to any liability under the
Deposit Agreement to any Owner or holder of Receipts with respect to (i) whether
an Owner or holder of Receipts is a Voter or (ii) whether the name, address and
number of Shares corresponding to American Depositary Shares of any Owner or
holder of Receipts is properly entered into the Company's Share registry in a
timely manner or as to the manner of such entry, if any, except that the
Depositary and the Company agree to perform their respective obligations
specifically set forth in Section 4.7 of the Deposit Agreement without
negligence or bad faith.
17. CHANGES AFFECTING DEPOSITED SECURITIES.
In circumstances where the provisions of Section 4.3 of the Deposit
Agreement do not apply, upon any change in nominal value, change in par value,
split-up, consolidation, or any other reclassification of Deposited Securities,
or upon any recapitalization, reorganization, merger or consolidation, or sale
of assets affecting the Company or to which it is a party, any securities which
shall be received by the Depositary or a
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Custodian in exchange for or in conversion of or in respect of Deposited
Securities shall be treated as new Deposited Securities under the Deposit
Agreement, and American Depositary Shares shall thenceforth entitle the Owner
thereof to receive the new Deposited Securities so received in exchange or
conversion, unless additional Receipts are delivered pursuant to the following
sentence. In any such case the Depositary may with the Company's approval, and
shall if the Company shall so request, execute and deliver additional Receipts
as in the case of a dividend in Shares, or call for the surrender of outstanding
Receipts to be exchanged for new Receipts specifically describing such new
Deposited Securities.
Immediately upon the occurrence of any such change, conversion
or exchange covered by Section 4.8 of the Deposit Agreement in respect of the
Deposited Securities, the Company shall notify the Depositary in writing of such
occurrence and, as soon as practicable after receipt of such notice from the
Company, the Depositary shall give notice thereof in writing to all Owners of
Receipts.
18. LIABILITY OF THE COMPANY AND DEPOSITARY.
Neither the Depositary nor the Company nor any of their directors,
employees, agents or controlling persons (as defined under the Securities Act of
1933) shall incur any liability to any Owner or holder of any Receipt, if by
reason of any provision of any present or future law of the United States, The
Republic of France, or any other country, or of any other governmental or
regulatory authority or stock exchange, or by reason of any provision, present
or future, of the STATUTS of the Company, or the Deposited Securities or by
reason of any act of God or war or other circumstances beyond its control, the
Depositary or the Company nor any of their directors, employees, agents or
controlling persons (as defined under the Securities Act of 1933) shall be
prevented or forbidden from or be subject to any civil or criminal penalty on
account of doing or performing any act or thing which by the terms of the
Deposit Agreement it is provided shall be done or performed; nor shall the
Depositary or the Company incur any liability to any Owner or holder of a
Receipt by reason of any non-performance or delay, caused as aforesaid, in the
performance of any act or thing which by the terms of the Deposit Agreement it
is provided shall or may be done or performed, or by reason of any exercise of,
or failure to exercise, any discretion provided for in the Deposit Agreement.
Where, by the terms of a distribution pursuant to Sections 4.1, 4.2, or 4.3 of
the Deposit Agreement, or an offering or distribution pursuant to Section 4.4 of
the Deposit Agreement, or for any other reason, such distribution or offering
may not be made available to Owners of Receipts, and the Depositary may not
dispose of such distribution or offering on behalf of such Owners and make the
net proceeds available to such Owners, then the Depositary shall not make such
distribution or offering, and shall allow any rights, if applicable, to lapse.
Neither the Company nor the Depositary nor any of their directors, employees,
agents or controlling persons (as defined under the Securities Act of 1933)
assumes any obligation or shall be subject to any liability under the Deposit
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Agreement to Owners or holders of Receipts, except that they agree to perform
their obligations specifically set forth in the Deposit Agreement without
negligence or bad faith. The Depositary shall not be subject to any liability
with respect to the validity or worth of the Deposited Securities. Neither the
Depositary nor the Company nor any of their directors, employees, agents or
controlling persons (as defined under the Securities Act of 1933) shall be under
any obligation to appear in, prosecute or defend any action, suit, or other
proceeding in respect of any Deposited Securities or in respect of the Receipts,
which in its opinion may involve it in expense or liability, unless indemnity
satisfactory to it against all expense and liability shall be furnished as often
as may be required, and the Custodian shall not be under any obligation
whatsoever with respect to such proceedings, the responsibility of the Custodian
being solely to the Depositary. Neither the Depositary nor the Company nor any
of their directors, employees, agents or controlling persons (as defined under
the Securities Act of 1933) shall be liable for any action or nonaction by it in
reliance upon the advice of or information from legal counsel, accountants, any
person presenting Shares for deposit, any Owner or holder of a Receipt, or any
other person believed by it in good faith to be competent to give such advice or
information. Each of the Depositary, the Company and their respective directors,
employees, agents and controlling persons (as defined under the Securities Act
of 1933) may rely and shall be protected in acting upon any written notice,
request, direction or other document believed by such person to be genuine and
to have been signed or presented by the proper party or parties.
The Depositary shall not be liable for any acts or omissions
made by a successor depositary whether in connection with a previous act or
omission of the Depositary or in connection with a matter arising wholly after
the removal or resignation of the Depositary, provided that in connection with
the issue out of which such potential liability arises the Depositary performed
its obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be responsible for any failure to carry out any
instructions to vote any of the Deposited Securities, or for the manner in which
any such vote is cast or the effect of any such vote, provided that any such
action or omission to act is in good faith. The Company agrees to indemnify the
Depositary, its directors, employees, agents and affiliates and the Custodian
against, and hold each of them harmless from, any liability or expense
(including, but not limited to, the reasonable fees and expenses of counsel)
which may arise out of acts performed or omitted, in accordance with the
provisions of the Deposit Agreement and of the Receipts, as the same may be
amended, modified, or supplemented from time to time, (i) by either the
Depositary or a Custodian or their respective directors, employees, agents and
affiliates, except for any liability or expense arising out of the negligence or
bad faith of either of them, or (ii) by the Company or any of its directors,
employees, agents and affiliates. The indemnities contained in the preceding
sentence shall not extend to any liability or expense which may arise out of any
Pre-Release (as defined in Section 2.9 of the Deposit Agreement) to the extent
that any such liability or expense arises in connection with (a)
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any United States Federal, state or local income tax laws, (b) the failure of
the Depositary to deliver Deposited Securities when required under the terms of
Section 2.5 of the Deposit Agreement or (c) the non-performance by the
Depositary or the Custodian of any obligations relating to any Pre-Release under
Section 2.9 of the Deposit Agreement or any other agreement between the
Depositary and the Company relating to Pre-Release. However, the indemnities
contained in such preceding sentence shall apply to any liability or expense
which may arise out of any misstatement or alleged misstatement or omission or
alleged omission in any registration statement, proxy statement, prospectus (or
placement memorandum) or preliminary prospectus (or preliminary placement
memorandum) relating to the offer or sale of American Depositary Shares, except
to the extent any such liability or expense arises out of (i) information
relating to the Depositary or the Custodian, as applicable, furnished in writing
to the Company by the Depositary or the Custodian, as applicable, expressly for
use in any of the foregoing documents, or, (ii) material omissions from such
information furnished by the Depositary or the Custodian. No disclaimer of
liability under the Securities Act of 1933 is intended by any provision of the
Deposit Agreement.
19. RESIGNATION AND REMOVAL OF THE DEPOSITARY.
The Depositary may at any time resign as Depositary under the Deposit
Agreement by written notice of its election so to do delivered to the Company,
such resignation to take effect upon the appointment of a successor depositary
by the Company and its acceptance of such appointment as provided in the Deposit
Agreement. The Depositary may at any time be removed by the Company by written
notice of such removal, effective upon the appointment of a successor depositary
and its acceptance of such appointment as provided in the Deposit Agreement.
Whenever the Depositary in its discretion determines that it is in the best
interest of the Owners of Receipts to do so, it may, with the prior approval of
the Company, appoint a substitute or additional custodian or custodians which
shall be an accredited financial intermediary acting through a specified office
located in The Republic of France, approved by the Company, such approval not to
be unreasonably withheld.
20. AMENDMENT.
The form of the Receipts and any provisions of the Deposit Agreement
may at any time and from time to time be amended by agreement between the
Company and the Depositary in any respect which they may deem necessary or
desirable. Any amendment which shall impose or increase any fees or charges
(other than taxes and other governmental charges, registration fees, cable,
telex or facsimile transmission costs, delivery costs or other such expenses),
or which shall otherwise prejudice any substantial existing right of Owners of
Receipts, shall, however, not become effective as to outstanding Receipts until
the expiration of thirty days after notice of such amendment shall have been
given to the Owners of outstanding Receipts. Every Owner of a Receipt
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at the time any amendment so becomes effective shall be deemed, by continuing to
hold such Receipt, to consent and agree to such amendment and to be bound by the
Deposit Agreement or Receipts as amended thereby. In no event shall any
amendment impair the right of the Owner of any Receipt to surrender such Receipt
and receive therefor the Deposited Securities corresponding thereto except in
order to comply with mandatory provisions of applicable law.
21. TERMINATION OF DEPOSIT AGREEMENT.
The Depositary shall at any time at the direction of the Company
terminate the Deposit Agreement by mailing notice of such termination to the
Owners of all Receipts then outstanding at least 90 days prior to the date fixed
in such notice for such termination. The Depositary may likewise terminate the
Deposit Agreement by mailing notice of such termination to the Company and the
Owners of all Receipts then outstanding if at any time 90 days shall have
expired after the Depositary shall have delivered to the Company a written
notice of its election to resign and a successor depositary shall not have been
appointed and accepted its appointment as provided in the Deposit Agreement. On
and after the date of termination, the Owner of a Receipt, will upon (a)
surrender of such Receipt at the Corporate Trust Office of the Depositary, (b)
payment of the fee of the Depositary for the surrender of Receipts referred to
in Section 2.5 of the Deposit Agreement, and (c) payment of any applicable taxes
or governmental charges, will be entitled to delivery, to him or upon his order,
of the amount of Deposited Securities corresponding to the American Depositary
Shares evidenced by such Receipt. If any Receipts shall remain outstanding after
the date of termination, the Depositary thereafter shall discontinue the
registration of transfers of Receipts, shall suspend the distribution of
dividends to the Owners thereof, and shall not give any further notices or
perform any further acts under the Deposit Agreement, except that the Depositary
shall continue to collect dividends and other distributions pertaining to
Deposited Securities, shall sell rights as provided in the Deposit Agreement,
and shall continue to deliver Deposited Securities, together with any dividends
or other distributions received with respect thereto and the net proceeds of the
sale of any rights or other property, in exchange for Receipts surrendered to
the Depositary (after deducting, in each case, the fee of the Depositary for the
surrender of a Receipt, any expenses for the account of the Owner of such
Receipt in accordance with the terms and conditions of the Deposit Agreement,
and any applicable taxes or governmental charges). At any time after the
expiration of one year from the date of termination, the Depositary may sell the
Deposited Securities then held under the Deposit Agreement and may thereafter
hold uninvested the net proceeds of any such sale, together with any other cash
then held by it thereunder, unsegregated and without liability for interest, for
the pro rata benefit of the Owners of Receipts which have not theretofore been
surrendered, such Owners thereupon becoming general creditors of the Depositary
with respect to such net proceeds. After making such sale, the Depositary shall
be discharged from all obligations under the
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Deposit Agreement, except to account for claims of Owners as Creditors of the
Depositary for such net proceeds and other cash (after deducting, in each case,
the fee of the Depositary for the surrender of a Receipt, any expenses for the
account of the Owner of such Receipt in accordance with the terms and conditions
of the Deposit Agreement, and any applicable taxes or governmental charges).
Upon the termination of the Deposit Agreement, the Company shall be discharged
from all obligations under the Deposit Agreement except for its obligations to
the Depositary under Sections 5.8 and 5.9 of the Deposit Agreement which shall
survive the termination of the Deposit Agreement.
22. INFORMATION REQUESTS.
The Company may from time to time request Owners of Receipts to provide
information as to the capacity in which such Owners own or owned Receipts and
regarding the identity of any other persons then or previously interested in
such Receipts as to the nature of such interest and various other matters. The
Depositary agrees to use reasonable efforts to comply with written instructions
received from the Company requesting that the Depositary forward any such
requests to the Owner and to forward to the Company any responses to such
requests received by the Depositary.
23. DISCLOSURE OF INTEREST.
Notwithstanding any other provisions of the Deposit Agreement, each
Owner and holder of Receipts agrees to comply with the Company's STATUTS, as
they may be amended from time to time, the laws of The Republic of France and
the laws of the Republic of Belgium, if applicable, with respect to any
disclosure requirements regarding ownership of Shares, all as if such Receipts
were, for this purpose, the Shares corresponding thereto.
In order to facilitate compliance with the notification requirements,
an Owner or holder of Receipts may deliver any notification to the Depositary
with respect to Shares to which American Depositary Shares evidenced by such
Receipts relate, and the Depositary shall, as soon as practicable, forward such
notification to the Company and, if applicable, the EASDAQ authority or any
other authorities in The Republic of Belgium.
Pursuant to Section 4.10 of the Deposit Agreement, the Depositary
agrees to furnish to the Company upon request a list of the names, addresses and
holdings of American Depositary Shares by all persons in whose names Receipts
are registered on the books of the Depositary maintained for such purpose.
24. COMPLIANCE WITH U.S. SECURITIES LAWS.
Notwithstanding any terms of the Deposit Agreement to the contrary, the
Company and the Depositary each agrees that it will not exercise any rights it
has under the Deposit Agreement to prevent the withdrawal or delivery of
Deposited Securities in a
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manner which would violate the United States securities laws, including, but not
limited to, Section I A(1) of the General Instructions to the Form F-6
Registration Statement, as amended from time to time, under the Securities Act
of 1933.
25. RECEIPTS FOR TAXES PAID.
The Company shall as soon as practical after the due date for any
payment of any tax or other governmental charge to the government of the
Republic of France with respect to any distribution with respect to deposited
Securities provide the Depositary with a form of receipt setting forth the
amounts, if any, of tax or other government charge so paid to the government of
the Republic of France. The Depositary shall for a period of five years after
the date of any such payment of tax, or other government charge, maintain such
receipt, or other documentation, in its files and shall provide a copy of such
receipt, or other documentation, to the holder of the American Depositary Shares
representing such Deposited Securities evidenced by Receipts at the time of such
distribution upon the request made by such or its agent to the Depositary.
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Exhibit 5.1
March 14, 2000
ActivCard S.A.
24, 28 avenue du General de Gaulle
92156 Suresnes Cedex
France
Ladies and Gentlemen:
We have acted as U.S. and French counsel to ActivCard S.A., a
French SOCIETE ANONYME (the "Company"), in connection with the filing by the
Company with the Securities and Exchange Commission (the "Commission") on
February 22, 2000 of a registration statement on Form F-1 (No. 333-11540) and as
amended by Amendment No. 1 filed on March 6, 2000 (the "Registration
Statement"), covering the registration under the Securities Act of 1933, as
amended (the "Act"), of 4,000,000 ordinary shares, nominal value FF 6.25 per
share, of the Company and 600,000 ordinary shares to be sold by certain selling
shareholders (the "Selling Shareholders") referred to in the Registration
Statement (collectively, the "Shares"), in the form of shares of American
depositary receipts evidencing American depositary shares ("ADSs"), each ADS
representing one Share. This opinion is delivered to you for filing as Exhibit 5
to the Registration Statement.
In connection with the foregoing, we have examined the
Registration Statement and the originals, or copies identified to our
satisfaction, of such corporate records of the Company, certificates of public
officials, officers of the Company and other persons, and such other documents,
agreements and instruments as we have deemed necessary as a basis for the
opinion hereinafter expressed. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals and the conformity with the originals of all documents submitted to
us as copies. In rendering the opinion expressed below, we have relied as to
certain matters on information obtained from officers of the Company and public
officials.
Based upon the foregoing and having regard for such legal
considerations as we deem relevant, we are of the opinion that upon conclusion
of the proceedings being taken or contemplated by us to be taken prior to the
issuance of the Shares by the Company and prior to the sale of the Shares by the
Selling Shareholders, including the effectiveness of the Registration Statement,
and upon completion of the proceedings being taken in order to
<PAGE>
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permit such transactions to be carried out in accordance with the securities
laws of the various states where required, the Shares, when issued, sold and
paid for in the manner described in the Registration Statement, will be legally
and validly issued, fully paid and nonassessable.
We are attorneys admitted to practice in the State of New York
and are AVOCATS in the Republic of France, and we do not express any opinion
herein on the law of any jurisdiction other than the federal law of the United
States and the law of the Republic of France.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the prospectus contained in the Registration Statement. In
giving this consent, we do not concede that we are within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Sherman & Sterling
<PAGE>
EXHIBIT 10.5
<PAGE>
ACTIVCARD S.A.
1997 U.S. STOCK OPTION PLAN
In accordance with articles 208-1 to 208-2 of the French Commercial Act of
July 24, 1966 (the "Commercial Companies Act"), the general meeting of the
shareholders of ACTIVCARD S.A. ("ACTIVCARD S.A.") held on May 31, 1996, and on
September 26, 1996, and June 17, 1997, approved the establishment of a stock
option plan (the "1997 Plan") for full-time employees of ACTIVCARD S.A. and of
its subsidiaries; in particular, the U.S. subsidiary ACTIVCARD, Inc. ("ActivCard
US"). The purpose of this document is to set forth the terms and conditions for
the grant of options to employees of ActivCard US under the 1997 Plan, as
determined by the Board of Directors of ACTIVCARD S.A. taking into account the
modifications resulting from the last resolution adopted by the General Meeting
of Shareholders on September 26, 1996:
1. DEFINITIONS. As used herein, the following definitions shall apply:
(A) "ADMINISTRATOR" means the Board or any Committee appointed to
administer the Plan.
(B) "APPLICABLE LAWS" means the legal requirement relating to the
administration of stock option plans, if any, under applicable provision of U.S.
federal securities laws, California corporate and securities laws, the Code, the
rules of any applicable stock exchange or national markets system, and
provisions of French Law applicable to Options granted by companies organized
under the laws of France.
(C) "BOARD" means the Board of Directors of the Company.
(D) "CODE" means the Internal Revenue Code of 1986, as amended.
(E) "COMMITTEE" means any committee appointed by the Board to administer
the Plan.
(F) "COMPANY" means ACTIVCARD S.A.
(G) "CONTINUOUS STATUS AN EMPLOYEE, CONSULTANT OR DIRECTOR" means that
the employment relationship, consulting relationship or directorship with the
Company, any Parent or Subsidiary, is not interrupted or terminated.
(H) "EMPLOYEE" means any person, including an officer or director, who
is a full-time employee of the Company or any Parent or Subsidiary.
(I) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
<PAGE>
(J) "FAIR MARKET VALUE" means as of any date, the French franc value of
the U.S. dollar value of a Share, calculated with reference to the NOON buying
rate reported by the Federal Reserve Bank of New York (expressed in francs per
$1.00) determined as follows:
(I) If the shares are listed on any established stock exchange
or a national market system, including without limitation the [EASDAQ] the
Nasdaq National Market or the Nasdaq Small Cap Market of the Nasdaq Stock
Market, the Fair Market Value of a Share shall be THE CLOSING SALES PRICE FOR
SUCH SHARE (or the closing bid, if no sales were reported) as quoted on such
system or exchange or the day of determination, as reported in THE WALL
STREET JOURNAL or such source as the Board deems reliable;
(II) If the Shares are regularly quoted by a recognized securities
dealer but selling prices are not reported, the Fair Market value of a Share
shall be the means between the high bid and low asked prices for the Shares on
the day of determination, as reported in THE WALL STREET JOURNAL or such other
source as the Board deems reliable;
(III) In the absence of an established market for the Shares or the
Ordinary Shares, the Fair Market Value shall be determined in good faith by the
Board.
(K) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(L) "NON-QUALIFIED STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(M) "OPTION" means a stock option granted pursuant to the Plan.
(N) "OPTION AGREEMENT" means the written or electronic agreement
evidencing the grant of an Option executed by the Company and the Optionee,
including any amendments thereto.
(O) "OPTIONED STOCK" means the Shares subject to an Option.
(P) "OPTIONEE" means an Employee who receives an Option under the Plan.
(Q) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(R) "PLAN" means this 1997 U.S. Stock Option Plan.
(S) "SHARE" means an Ordinary share of the Company.
(T) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
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<PAGE>
2. STOCK SUBJECT TO THE PLAN.
(A) Subject to the provisions of Section 9, below, the maximum
aggregate number of Shares which may be optioned and sold under the Plan is
1,200,000 Shares. The Shares may be authorized, but unissued, or reacquired
Shares.
(B) If any Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option exchange program,
such unissued Shares shall become available for future grant under the Plan.
Shares that actually have been issued under the Plan shall not be become
available for future distribution under the Plan.
3. ADMINISTRATION OF THE PLAN.
(A) PLAN ADMINISTRATOR. The Plan shall be administered by (A) the
Board or (B) a Committee (or a subcommittee of such Committee) designated by
the Board, which Committee shall be constituted in such a manner as to
satisfy Applicable Laws. Once appointed, such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board.
(B) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws and the
provisions of the Plan (including any other powers given to the Administrator
hereunder), and except as otherwise provided by the Board, the Administrator
shall have the authority, in its discretion:
(I) to select the Employees to whom Options may be granted form
time to time hereunder;
(II) to determine whether and to what extent Options are granted
hereunder;
(III) to determine the number of Shares to be covered by each
Option granted hereunder;
(IV) to approve forms of Option Agreement for use under the Plan;
(V) to determine the terms and conditions of any Option granted
hereunder;
(VI) to establish additional terms, conditions, rules or
procedures to accommodate the rules or laws of France and to afford Optionees
favorable treatment under such laws; provided, however, that no Option shall
be granted under any such additional terms, conditions, rules or procedures
with terms or conditions which are inconsistent with the provisions of the
Plan;
(VII) to construe and interpret the terms of the Plan and Options
granted pursuant to the Plan; and
(VIII) to take such other actions, not inconsistent with the terms
of the Plan, as the Administrator deems appropriate.
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<PAGE>
(C) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be conclusive
and binding on all persons.
4. ELIGIBILITY. Options may be granted only to full-time Employees who are
not employees of the Company for French tax purposes. An [EMPLOYEE] who has
been granted an Option may, if otherwise eligible, be granted additional
Options.
5. TERMS AND CONDITIONS OF OPTIONS.
(A) DESIGNATION OF OPTIONS. Each Option shall be designated as either
an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of Shares subject to Options designated as Incentive Stock
Options which become exercisable for the first time by any Optionee during
any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall
be taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the date the Option with
respect to such Shares is granted.
(B) CONDITIONS OF OPTION. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Option.
(C) TERM OF OPTION. The term of each Option shall be the term stated
in the Option Agreement, provided, however, that the term shall be no more
than ten (10) years from the date of grant thereof. However, in the case of
an Incentive Stock Option granted to an Optionee who, at the time the Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Option shall be five (5) years form the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
(D) NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option transferable, such Option shall contain such
additional terms and conditions as the Administrator deems appropriate.
(E) TIME OF GRANTING OPTIONS. The date of grant of an Option shall
for all purposes, be the date on which the Administrator makes the
determination to grant such Option, or such other date as is determined by
the Administrator. Notice of the grant determination shall be given to each
Employee to whom an Option is so granted within a reasonable time after the
date of such grant.
6. OPTION EXERCISE PRICE AND CONSIDERATION; TAXES
(A) INCENTIVE STOCK OPTIONS. In the case of an Incentive Stock Option:
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<PAGE>
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described in
paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(B) NON-QUALIFIED STOCK OPTION. In the case of a Non-Qualified Stock
Option:
(A) granted to a person who, at the time of the grant of such
Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be not less than one hundred ten percent
(110%) of the Fair Market Value per Share on the date of grant.
(B) granted to any person other than a person described in the
preceding paragraph, the per Share exercise price shall be not less than
eighty-five percent (85%) of the Fair Market Value per Share on the date of
grant.
(C) CONSIDERATION. Subject to Applicable Laws, the method of payment
for Shares to be issued upon exercise of an Option shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant).
(D) TAXES. No Shares shall be delivered under the Plan to any
Optionee or other person until such Optionee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the
receipt of Shares or the disqualifying disposition of Shares received on
exercise of an Incentive Stock Option. Upon exercise of an Option the Company
shall withhold or collect from Optionee an amount sufficient to satisfy such
tax obligations.
7. EXERCISE OF OPTION.
(A) PROCEDURE FOR EXERCISE: RIGHTS AS A SHAREHOLDER.
(I) Any Option granted hereunder shall vest and become
exercisable as follows: twenty-five percent (25%) of the Shares subject to
the Option shall vest one year after the Option's vesting Commencement Date
(as set forth in the Optionee's Notice of Grant), and one forty-eighth (1/48)
of the Shares subject to the Option shall vest each month thereafter;
provided that the Optionee's Continuous Status as an Employee, Consultant or
Director has not terminated on such dates.
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<PAGE>
(II) An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of
the Company) of the Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to Optioned Stock,
notwithstanding the exercise of an Option. The Company shall issue (or cause
to be issued) such Shares promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Shares are issued, except as provided in the
Option Agreement or Section 9(a), below.
(B) EXERCISE OF OPTION FOLLOWING TERMINATION OF CONTINUOUS STATUS AS AN
EMPLOYEE, CONSULTANT OR DIRECTOR RELATIONSHIP. In the event of termination
of an Optionee's Continuous Status as an Employee (other than by reason of
disability) such Optionee may, but only within three (3) months after the
date of such termination (but in no event later than the expiration date of
the term of such Option as set forth in the Option Agreement), exercise his
or her Option to the extent that the Optionee was entitled to exercise it at
the date of such termination or to such other extent as may be determined by
the Administrator. If the Optionee should die within three (3) months after
the date of such termination, the Optionee's estate or the person who
acquired the right to exercise the Option by bequest or inheritance may
exercise the Option to the extent that the Optionee was entitled to exercise
it at the date of such termination within six (6) months of the Optionee's
date of death, but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement.
(C) DISABILITY OF OPTIONEE. In the event of termination of an
Optionee's Continuous Status as an Employee as a result of his or her
disability, Optionee may, but only within twelve (12) months form the date of
such termination (an in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise the Option to
the extent otherwise entitled to exercise it at the date of such termination;
provided, however, that if such disability is not a "disability" as such
term is defined in Section 22(c)(3) of the Code, in the case of an Incentive
Stock Option such Incentive Stock Option shall automatically convert to a
Non-Qualified Stock Option on the day three (3) months and one day following
such termination. To the extent that Optionee is not entitled to exercise
the Option at the date of termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(D) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by
a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert
the Plan. If, after
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<PAGE>
death, the Optionee's estate or a person who acquired the right to exercise
the Option by bequest or inheritance does not exercise the Option within the
time specified herein, the Option shall terminate.
8. CONDITIONS UPON ISSUANCE OF SHARES.
(A) Shares shall not be issued pursuant to the exercise of an Option
unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and, to the
extent deemed necessary, shall be further subject to the approval of counsel
for the Company with respect to such compliance.
(B) As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required by any Applicable Laws.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR SALE OF ASSETS.
(A) If the Company carries out any of the financial operations referred
to in article 195, paragraphs 5 and 6 of article 196, paragraphs 1 and 3, of
the French Companies Law, the Board shall, under the conditions prescribed by
law, adjust the number and price of Shares underlying outstanding Options, in
order to take account of the effects of the financial operation. At the time
any such operation is carried out, the Board of Directors may temporarily
suspend option exercise rights for the period during which the registered
capital for the Company must remain unchanged.
(B) In the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each outstanding Option shall be assumed or an equivalent option or right
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses
to assume or substitute for the Option, the Optionee shall fully vest in and
have the right to exercise the Option as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable.
If an Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee in writing or electronically that the Option shall
be fully exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed
if, following the merger or sale of assets, the option or right confers to
purchase or receive, for each Share of Optioned Stock subject to the Option
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale
of assets by holders of Shares for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the
merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option,
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<PAGE>
for each Share of Optioned Stock subject to the Option, to be solely common
stock of the successor corporation or its Parent equal in fair market value
to the per share consideration received by holders of Shares in the merger or
sale of assets.
10. TERMS OF PLAN. Options may be granted under these Plan for a period of
five (5) years form the date the Plan was first authorized by the
extraordinary general meeting of the Company's shareholders (May 31, 1996).
11. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(A) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary to comply with Applicable Laws, the Company shall obtain
shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(B) No Option may be granted during any suspension of the Plan or
after termination for the Plan.
(C) Any amendment, suspension or termination of the Plan shall not
affect Options already granted, and such Options shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and sighed by the Optionee and the Company.
12. RESERVATION OF SHARES.
(A) The Company, during the term of the Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to
satisfy the requirements of the Plan.
(B) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder, shall relieve the Company of any liability in respect of
the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
13. NO EFFECT ON TERMS OF EMPLOYMENT. The Plan shall not confer upon any
Optionee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or
her right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
14. INFORMATION TO OPTIONEES. The Company shall provide to each Optionee,
during the period for which such Optionee has one or more Options
outstanding, copies for financial statements as is presented to the annual
ordinary general meeting of the shareholders called to approve the financial
statements of the Company.
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<PAGE>
ACTIVCARD S.A. 1997 U.S. STOCK OPTION PLAN
STOCK OPTION AGREEMENT
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address: Douglas Kernan
17259 Deer Park Road
Los Gatos, CA 95032
You have been granted an option to purchase shares of Ordinary Shares of
the Company, subject to the terms and conditions of the 1997 Plan and this
Option Agreement, as follows:
<TABLE>
<S> <C>
Grant Number 9721
Date of Grant 7/28/97
Vesting Commencement Date 6/16/97
Exercise Price per Share $5.75
Total Number of Shares Granted 70,000
Total Exercise Price $402,500.00
Type of Option: $400,000.00 Incentive Stock Option
-------------
$2,500.00 Non-Qualified Stock Option
-------------
Term/Expiration Date: 6/15/04
</TABLE>
VESTING SCHEDULE:
Subject to other limitations set forth in this Agreement, this Option
may be exercised, in whole or in part, in accordance with the following
schedule:
Twenty-five percent (25%) of the Shares subject to the Option shall vest
twelve months after the Vesting Commencement Date, and 1/48th of the Shares
subject to the Option shall vest each month thereafter, so long as Optionee's
Continuous Status as an Employee, Consultant or Director has not terminated
on such dates.
TERMINATION PERIOD:
9
<PAGE>
This Option may be exercised for three (3) months after termination of
the Optionee's Continuous Status as an Employee, Consultant or Director, or
such longer period as may be applicable upon death or disability of Optionee
as provided in the 1997 Plan. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. ACTIVCARD S.A., a corporation organized under the
laws of France, (the "Company"), hereby grants to the Optionee named in the
Notice of Stock Option Grant (the "Optionee"), an option (the "Option") to
purchase the total number of shares of Ordinary Shares (the "Shares") set
forth in the Notice of Stock Option Grant, at the exercise price per share
set forth in the Notice of Stock Option Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the Company's 1997 Stock Option
Plan (the "1997 Plan"), and the 1997 U.S. Stock Option Plan (the "Plan")
which are incorporated herein by reference. Unless otherwise defined herein,
the terms defined in the Plan shall have the same defined meanings in this
Option Agreement.
If designated in the Notice of Stock Option Grant as an Incentive
Stock Option, this Option is intended to qualify as an Incentive Stock Option
as defined in Section 422 of the Code. Nevertheless, to the extent that it
exceeds the $100,000 rule of Section 422(d) of the Code, this Option shall be
treated as a Non-Qualified Stock Option.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Stock
Option Grant and with the applicable provisions of the Plan and this Option
Agreement. In the event of termination of Optionee's Continuous Status as an
Employee, Director or Consultant, this Option shall be exercisable in
accordance with the applicable provisions of the Plan and this Option
Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable only by
delivery of an Exercise Notice (attached as Exhibit A) which shall state the
election to exercise the Option, the whole number of Shares in respect of
which the Option is being exercised, and such other provisions as may be
required by the Administrator. Such Exercise Notice shall be signed by the
Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company accompanied by payment of the Exercise Price. The
Option shall be deemed to be exercised upon receipt by the Company of such
written notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of the Option
unless such issuance and such exercise shall comply with all Applicable Laws.
Assuming such compliance, for income tax purposes, the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
10
<PAGE>
(c) TAXES. No Shares will be issued to the Optionee or any other
person pursuant to the exercise of the Option until the Optionee or such
other person has made arrangements acceptable to the Administrator for the
satisfaction of foreign, federal, state and local income and employment tax
withholding obligations.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of the Option have not been registered under the
Securities Act of 1933, as amended, at the time the Option is exercised, the
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion the Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee;
provided, however, that such exercise method does not then violate Applicable
Laws:
(a) cash;
(b) check;
(c) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would
constitute a violation of Applicable Laws.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of the Optionee only by
the Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of the Optionee.
7. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Stock Option Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option Agreement.
8. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option Agreement of some of the federal tax consequences of exercise
of this Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND
11
<PAGE>
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER
BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option
qualifies as an Incentive Stock Option, there will be no regular federal
income tax liability upon the exercise of the Option, although the excess, if
any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price will be treated as an adjustment to the alternative minimum
tax for federal tax purposes and may subject the Optionee to the alternative
minimum tax in the year of exercise.
(b) EXERCISE OF NON-QUALIFIED STOCK OPTION. There may be a
regular federal income tax liability upon the exercise of a Non-Qualified
Stock Option. The Optionee wil be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price. If Optionee is an Employee or a former Employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and may
refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Non-Qualified Stock
Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal income tax purposes. In the case of an Incentive Stock Option, if
Shares transferred pursuant to the Option are held for at least one year
after receipt of the Shares and two years after the Date of Grant, any gain
realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an
Incentive Stock Option are disposed of within such periods, any gain realized
on such disposition wil be treated as compensation income (taxable at
ordinary income rates) to the extent of the difference between the Exercise
Price and the lesser of (i) the Fair Market Value of the Shares on the date
of exercise, or (ii) the sale price of the Shares.
9. LOCK-UP AGREEMENT.
(a) AGREEMENT. Optionee, if requested by the Company and the
lead underwriter of any public offering of the Ordinary Shares or other
securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees
not to sell, contract to sell, grant any option to purchase, transfer the
economic risk of ownership in, make any short sale for, pledge or otherwise
transfer or dispose of any interest in any Ordinary Shares or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Ordinary Shares (except Ordinary Shares included in such
public offering or acquired on the public market after such offering) during
the 180-day period following the effective date of a registration statement
of the Company filed under the Securities Act of 1933, as amended, or such
shorter period of time as the Lead Underwriter shall specify. Optionee
further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Ordinary Shares until the end
of such period. The Company and
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Optionee acknowledge that each Lead Underwriter of a public offering of the
Company's stock, during the period of such offering and for the 180-day
period thereafter, is an intended beneficiary of this Section 9.
(b) PERMITTED TRANSFERS. Notwithstanding the foregoing, Section
9(a) shall not prohibit Optionee from transferring any shares of Ordinary
Shares or securities convertible into or exchangeable or exercisable for the
Company's Ordinary Shares, to the extent such transfer is not otherwise
prohibited by this Agreement, either during Optionee's lifetime or on death
by will or intestacy to Optionee's immediate family or to a trust the
beneficiaries of which are exclusively the Optionee and/or a member or
members of Optionee's immediate family; provided, however, that prior to any
such transfer, each transferee shall execute an agreement pursuant to which
each transferee shall agree to receive and hold such securities subject to
the provisions hereof. For the purposes of this subsection, the term
"immediate family" shall mean spouse, lineal descendant, father, mother,
brother or sister of the tranferor.
(c) NO AMENDMENT WITHOUT CONSENT OF UNDERWRITER. During the
period from identification as a Lead Underwriter in connection with any
public offering of the Company's Ordinary Shares until the earlier of (i) the
expiration of the lock-up period specified in Section 9(a) in connection with
such offering or (ii) the abandonment of such offering by the Company and the
Lead Underwriter, the provisions of the Section 9 may not be amended or
waived except with the consent of the Lead Underwriter.
10. ENTIRE AGREEMENT; GOVERNING LAW. This 1997 Plan and the Plan are
incorporated herein by reference. The 1997 Plan, the Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertaking
and agreements of the Company and the Optionee with respect to the subject
matter hereof, and may not be modified adversely to the Optionee's interest
except by means of a writing signed by the Company and Optionee. This
agreement is governed by California law, except for that body of law
pertaining to conflicts of laws.
11. HEADINGS. The captions used in this Agreement are inserted for
convenience and shall not be deemed a part of this Agreement for construction
or interpretation.
12. INTERPRETATION. Any dispute regarding the interpretation of this
Option Agreement shall be submitted by the Optionee or by the Company
forthwith to the Board or the Administrator that administers the Plan, which
shall review such dispute at its next regular meeting. The resolution of
such dispute by the Board or the Administrator shall be final and binding on
all persons.
ACTIVCARD S.A., a corporation
organized under the laws of France.
By: /s/ [ILLEGIBLE]
------------------------------
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Its:
-------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY OPTIONEE'S CONTINUED EMPLOYMENT, CONSULTANCY OR
DIRECTORSHIP AT THE WILL OF THE COMPANY OR ACTIVCARD, INC. (NOT THROUGH THE
ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).
OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR
IN THE 1996 PLAN OR THE PLAN WHICH ARE INCORPORATED HEREIN BY REFERENCE,
SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUING AS AN
EMPLOYEE, CONSULTANT OR DIRECTOR OF THE COMPANY OR ACTIVCARD, INC., NOR SHALL
IT INTERFERE IN ANY WAY WITH THE COMPANY'S RIGHT OR ACTIVCARD, INC.'S RIGHT
TO TERMINATE OPTIONEE'S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the 1997 Plan and the Plan and
represents that he or she is familiar with the terms and provisions thereof,
and hereby accepts this Option Agreement subject to all of the terms and
provisions thereof. Optionee has reviewed the 1997 Plan, the Plan and this
Option Agreement in their entirety, has had an opportunity to obtain the
advise of counsel prior to executing this Option Agreement and fully
understands all provisions of the Option Agreement. Optionee hereby agrees
to accept as binding, conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the 1997 Plan, the
Plan or this Option Agreement. Optionee further agrees to notify the Company
upon any change in the residence address indicated below.
Dated: August 15, 1997
----------------------
Signed: /s/ Douglas Kernan
-------------------------
Optionee
Residence Address:
17259 DEER PARK RD
-------------------------------------------------
Los Gatos, CA
-------------------------------------------------
95032
-------------------------------------------------
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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. 2 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 14, 2000
