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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
CATUITY INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 38-3518829
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
2711 E. Jefferson Ave.
Detroit, Michigan, USA 48207
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(Address of Principal Executive Offices) (Zip Code)
313-567-4348
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act: None.
Securities to be registered pursuant to Section 12(g) of the Act:
Title Of Each Class Name of Each Exchange On Which
To Be Registered Each Class Is To Be Registered
Common Stock, par value $.001 per share Nasdaq National Market
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TABLE OF CONTENTS
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PAGE
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ITEM 1 BUSINESS............................................................. 1
RISK FACTORS......................................................... 13
ITEM 2. FINANCIAL INFORMATION................................................ 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................. 28
ITEM 3. PROPERTIES........................................................... 34
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT........................................................... 35
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS..................................... 37
ITEM 6. EXECUTIVE COMPENSATION............................................... 40
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................... 49
ITEM 8. LEGAL PROCEEDINGS.................................................... 52
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS............................... 53
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.............................. 55
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.............. 59
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS............................ 60
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................... 61
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................................. 62
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.................................... 63
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Our website is www.catuity.com. The information on our website is not
incorporated by reference into this registration statement.
Unless otherwise indicated, all information in this registration statement
gives effect to the one-for-ten reverse stock split of our outstanding capital
stock that occurred in November 1999.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This registration statement contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential" or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
specifically consider various factors, including the risks outline under "Risk
Factors." These factors may cause our actual results to differ materially from
any forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievement. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this registration statement to conform such statements to
actual results or to changes in our expectations.
SPECIAL NOTE REGARDING FOREIGN CURRENCY AND EXCHANGE RATES
All dollar figures contained in this registration statement are set forth
in United States dollars (US$), except as otherwise indicated. All Australian
dollars (A$) translated into US$ have been translated at the following rates per
A$, except as otherwise indicated:
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Exchange Rate per Australian Dollar
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For Revenues For Dec. 31 Assets
Year and Expenses(1) and Liabilities(2)
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1999 $0.6455 $0.6571
1998 $0.6290 $0.6126
1997 $0.7430 $0.6503
1996 $0.7830 $0.7943
1995 $0.7402 $0.7437
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(1) These exchange rates represent average exchange rates during the
year.
(2) These exchange rates represent December 31 exchange rates.
When the above rates do not apply, an exchange rate of US$0.65 for each A$ has
been applied, unless otherwise indicated.
ITEM 1. BUSINESS
OVERVIEW
We are a provider of software that allows retailers to establish and
administer customer incentive and loyalty programs. Our software is targeted to
a broad range of sellers of goods and services -- including retailers with store
locations and retailers who sell their products over
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the Internet. Our software is especially useful for retailers who sell both
through store locations and over the Internet.
Our software supports the establishment and administration of a variety of
customer incentive and loyalty programs. Using our software, the retailer may
reward its customers with valuable benefits, hoping to attract and retain
customers and to encourage increased purchases. Due to the flexibility of our
software, rewards may be easily established, targeted and changed. In addition,
the retailer may select from a wide variety of reward options. Our software
directly connects the retailer and its customer so that the customer recognizes
the retailer as the provider of the reward.
Our technology was created and tested in Australia in a company named Chip
Application Technologies Limited, or CAT, which is now our wholly owned
subsidiary. CAT commenced development of the technology in 1992. Initial trials
of a product that incorporated our technology commenced in 1995. CAT was listed
on the Australian Stock Exchange from July 1997 through November 1999, the date
that it became our subsidiary. We were recently incorporated as Catuity Inc. in
Delaware as part of our strategy to launch our product in the US market and
through our US based relationship partners. Catuity's shares have been listed on
the Australian Stock Exchange since November 1999. Catuity's listing on Nasdaq,
under the trading symbol "CTTY," will commence with effectiveness of this
registration statement. All references to "we," "our," the "Company" or the
"company" in this registration statement refer to Catuity Inc., including our
subsidiary, CAT.
INDUSTRY BACKGROUND
CUSTOMER INCENTIVE AND LOYALTY PROGRAMS
Customer incentive and loyalty programs traditionally are used by retailers
to attract and retain customers and to encourage purchases. Examples of typical
customer incentive and loyalty programs are:
- paper coupons;
- airline frequent flyer programs;
- supermarket programs that provide discounts and other special offers at
the check stand to members of the supermarket's club; and
- programs of online retailers that reward customers with cash rebates,
airline mileage and other benefits.
Customer incentive and loyalty programs at retail stores frequently are
tied to presenting a coupon, holding a membership card or providing a personal
identification number or customer registration. In the online world, rewards
frequently are tied to an account number or credit card.
There are few programs that offer multiple reward options or that work both
for retail stores and for the Internet environment interactively. Many programs
are linked to a particular payment card and few can provide multiple programs,
such as a short term incentive program
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and a long term loyalty program, based on a single transaction. Many programs
require paper statements and redemption forms, and few provide instant rewards
based on particular patterns of transactions. Additionally, many existing
programs operate on hardware provided by only one supplier or rewards from only
one source.
According to the AC Nielson Homescan Consumer Panel conducted in December,
1998, approximately 66% of all US households hold a frequent shopper program
card. Based on a 1999 study, Banc Boston Robertson Stephens estimates that $8
billion per year was spent using frequent shopper cards.
According to NCH NuWorld Marketing Ltd, in excess of 160 billion grocery
coupons were distributed in the US in 1998 and approximately 3.5 billion were
redeemed. Based on a 1999 study, Banc Boston Robertson Stephens estimates that
the consumer packaged goods industry spends $20 billion on promotions of which
$6.4 billion was spent on coupons and $4 billion on incentives.
From 1997 to 1998, US merchants selling on the web or planning to do so in
the short term increased from 37% to 76%, as reported in a combined study by
Ernst and Young and the National Retail Federation.
THE MARKET OPPORTUNITY
We believe that many retailers have found it to be difficult and cost
inefficient to create and administer customer incentive and loyalty programs
where the retailer controls the program and customizes the reward. As a result,
we believe that many retailers have:
- either avoided or introduced very simple, single-reward customer
incentive and loyalty programs;
- developed or had developed for them customized solutions that are
expensive to develop and maintain; or
- participated as one of many companies in customer incentive and loyalty
programs created and controlled by the sponsoring company. In these
cases, the rewards may not easily be recognized as having been provided
by the retailer and the programs do not typically offer the option of
using the retailer's own goods and services as rewards.
We believe that there is a significant opportunity for a flexible and easy
to use software tool that permits a retailer to create, target and easily change
customer incentive and loyalty programs that are controlled entirely by that
retailer; can apply to purchases using any payment system at retail stores, over
the Internet or interactively over both; can use the retailer's own goods and
services as rewards; can provide instant rewards; and accommodates all payment
methods. There is also a significant opportunity in providing retailers the
tools to operate customer incentive and loyalty programs cooperatively with
other complimentary retailers, allowing the retailer to provide cross selling
programs that share customers and expand its customer base.
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OUR SOLUTION
We provide retailers with the software tools to establish and administer
customer loyalty and incentive programs, whether the customer's purchases occur
at a retail store location or over the Internet. Our product may be used by a
wide variety of businesses, including retail stores, Internet merchants, banks
and financial institutions, credit card issuers, sporting and entertainment
venues, public transport providers and membership organizations. Our software
provides a single solution for the creation and administration of customer
incentive and loyalty programs that span retail store and Internet sales for
those retailers who operate in both arenas. This single solution also helps the
retailer establish programs that encourage loyalty of customers who shop both at
retail stores and over the Internet.
The combination of incentives and loyalty programs incorporated into our
solution offers a powerful customer acquisition and customer retention solution
for retailers. Incentives are used as short-term, tactical marketing programs to
win new customers and loyalty programs are used as long-term, strategic
marketing programs to retain customers. These programs and rewards, operating
simultaneously, can provide retailers (and others such as payment card issuers
and product suppliers) an important marketing tool.
Customer incentive and loyalty programs created with our software are
entirely controlled by the retailer. Our product provides a software solution
that is easy to use and is flexible. The retailer can reward its customers in
ways that permit the customer to easily recognize the retailer as the provider
of the reward. Retailers can either operate the programs themselves or use one
of our value added resellers on an out-sourced basis, but still retain control
of the programs themselves. In addition, retailers can establish programs with
other complementary retailers that create incentives for one retailer's
customers to purchase goods from the other retailer. Rewards may be provided in
the retailer's own goods and services, or through rewards provided by third
parties. The retailer can select from a variety of program and reward options.
Our solution is not dependent upon one type of customer identification or
method of verification. Customers can use existing cards or a membership number
with a personal identification number, or PIN, and programs can operate with
various payment methods. Customers and retailers can receive on-line reporting
and information services via the Internet.
OUR STRATEGY
Our strategy is to focus on helping the retailer create customer incentive
and loyalty programs that the retailer can control, easily customize and use on
different platforms. We support the retailer's desire to acquire new customers
and to retain existing customers. Our objective is to provide a solution that:
- provides an easy entry, low cost, powerful marketing solution for the
retailer;
- supports customer incentive and loyalty programs whether the customer
purchases at a retail store location or over the Internet; and
- provides the retailer with timely data collection, analysis and customer
information, and provides the customer easily accessible and timely
program information and reports.
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We sell our product indirectly through value added resellers and directly
through our own sales team. These two channels allow us to increase our product
exposure and market coverage. We believe a number of our competitors are also
potential value added resellers for us because our product adds value to their
products.
OUR PRODUCT
Our product is a software tool that provides a retailer the infrastructure
to establish and administer customer incentive and loyalty programs. Our
product's features include:
- multiple customized reward options to meet the needs of a wide range of
retailers;
- the ability to provide programs that offer instant or delayed rewards;
- the ability of the retailer to provide its own goods and services as
rewards or use third party goods and services as rewards;
- the ability of multiple retailers to determine eligibility for rewards
based on purchases from one or multiple retailers;
- an easy to operate, complete, off-the-shelf solution;
- applicability for sales through retail stores and for purchases online;
- on-demand data collection, analysis, customer profiling and behavioral
reporting;
- capacity to change or add incentive and loyalty programs overnight;
- support of a broad range of payment methods;
- scalability for upgrade to larger systems;
- the choice of online or offline processing operations;
- a completely paperless operation;
- security and monitoring systems; and
- support of multi-lingual operations.
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Our product permits the retailer to offer a broad range of reward
eligibility, including rewards that are:
- triggered by reaching preset spending levels or conducting specified
activities based on the value or the frequency of the activities;
- based upon short or long term activity;
- triggered by conducting specified activities at one or a range of
retailers;
- tiered based upon one or a range of activities or activity levels;
- increased based on achieving certain activity levels;
- randomly allocated; and
- triggered by using a particular payment method or particular membership.
The types of rewards that the retailer may choose to offer the customer
include:
- fixed or percentage discounts on the immediate transaction or on the
next transaction;
- rewards comprising goods and services provided by the retailer or by a
complementary retailer at another retail store or over the Internet; and
- multiple rewards such as:
- simultaneously offering an immediate incentive for the next
purchase and a long term loyalty program incentive for repeat
purchases;
- simultaneously offering participation in a local retail store
incentive program, a national chain loyalty program and a
complementary retailer's Internet program; or
- simultaneously offering participation in different programs
offered by a retailer, a payment card issuer and a product
supplier based on the same activity.
In addition to our target market of customer incentive and loyalty
programs, our product also is designed to support other applications. For
example, our product already supports ticketing for travel, entertainment and
sporting venues; issuing and tracking memberships in an organization; and
controlling access to facilities.
SALES AND MARKETING
We sell our product through value added resellers (VARs) and directly
through our own sales force. Because we are at the early stages of
commercializing our product, we currently are dependent on a limited number of
VARs and sales personnel.
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Some VARs integrate or bundle our product with their products, such as an
e-commerce product or a payment product. Certain VARs install our product in
their facilities and offer retailers services that include the functionality
provided by our product. VARs include software providers, integrators and
transaction processors. As of December 31, 1999, six VARs were offering our
product for sale to customers. By selling through VARs, we seek to obtain wide
market coverage of our business customers and obtain access to existing VAR
customers. Our VARs include IBM, Data Pro Accounting Software, Schlumberger,
Global Transaction Company (a subsidiary of Battelle) and Intellect.
We also sell our product directly through our own sales force. As of
December 31, 1999, we employed three persons in our direct sales efforts. In
certain cases, we use the services offered by the VARs to support the sale. We
also use our own sales force to support and train the VAR sales teams.
We are focusing on the US market because of its size, the rapid development
of US on-line businesses and the important role US companies play in the
development of payment systems. We expect to hire additional sales and marketing
staff in the US to increase our US marketing presence.
BUSINESS MODEL
We sell our product to retailers who provide goods and services to their
customers. Our business model is to receive transaction fees paid either by our
VARs or by the retailer. This model is designed to create a recurring revenue
stream, protected by a minimum annual fee, and offers a low initial cost
purchase decision for our customers. In certain markets, we may license
commercialization of our product and technology exclusively to a third party. In
certain situations, we may offer incentive and loyalty program services, based
on our product, to retailers.
We also expect to earn revenue from program customization and
implementation fees paid by our customers. We may also obtain revenue from
sources such as transaction interchange and provision of third-party equipment.
The revenues for these items are expected to be based on time-and-materials or
cost-plus arrangements and are not regarded as significant profit centers.
REVENUE AND ASSETS BY GEOGRAPHIC LOCATION
The product is currently being launched in the US market and 1999 was the
first year US based product license and services revenues were received. All
prior year revenues were based on product sales and services related to trials
or other early stage developments in Australia and New Zealand, research and
development grants and other income. In 1997 and 1998, 100% of our revenues were
generated in Australia and New Zealand and 100% of our assets were located in
Australia and New Zealand. For 1999, 73.6% of our revenues were produced in
Australia and New Zealand and 26.4% of our revenues were produced in North
America. In 1999, 98% of our non-cash assets were located in Australia.
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RELATIONSHIPS AND CUSTOMERS
We have established important relationships with IBM, Visa U.S.A. and Visa
International. Under a software remarketing agreement, IBM sells our product in
the North American market and provides maintenance support. We have installed
our product demonstration systems in most of IBM's e-commerce demonstration
centers in North America and in the IBM development center in Salt Lake City,
Utah. We have completed the demonstration phase of the integration of our
product with the IBM net.commerce product. IBM has a strong market presence in
e-commerce, multi-lane retail and banking.
We are a participant in a seven member working group, organized by Visa
U.S.A. and Visa International Services Association (Visa International), to
define technical specifications to integrate Visa payment systems with loyalty
programs. Under a Partner Program Loyalty Services Agreement with Visa
International, we are one of several suppliers that may offer Visa International
approved loyalty program applications to Visa members.
We have cooperative relationships with hardware and software suppliers
under which we receive technical information and development systems in support
of our development efforts to deploy our software on their hardware and software
platforms. Such relationships exist with Sun Microsystems, Schlumberger,
Verifone, Ingenico, Gemplus, Maosco, De La Rue Cartes et Systemes and Geisecke
and Devrient. Smart Dynamics provides technical support in the US for
implementation of our product at certain customer sites.
As of March 10, 2000, we have appointed six value added resellers in the
US. In addition, we have completed nine demonstration site installations and
have performed two commercial installations in the US in support of two
different groups of retailers and a service provider.
TECHNOLOGY AND INFRASTRUCTURE
Our product is an end to end, software package that allows retailers to
operate a range of powerful incentive and loyalty marketing programs in their
retail stores and in connection with sales over the Internet. Our product offers
a variety of programs and reward options in one product. Features of our
product include:
- integrated modules providing a complete end to end solution;
- the ability to apply multiple programs to an individual customer based
on a single transaction;
- the ability to coexist with traditional (e.g., cash/credit/debit/check)
and emerging (e.g., electronic purse) payment systems;
- the ability to operate loyalty and incentive programs across a variety
of hardware and software platforms;
- comprehensive reporting, program analysis and customer profiling
capability;
- strong system security and multi-lingual support; and
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- online (e-commerce) and in-store (POS) integration.
Our product architecture is based on the following four modules:
CUSTOMER PROFILE
The Customer Profile module is a platform-independent data format which
stores information about a customer's credits toward achieving rewards and about
particular vendor rewards programs. A customer's profile can be stored securely
in online or offline systems. Online systems typically use a magnetic stripe
card or a customer identification number for access from an online device that
permits access to a Web site or through a point of sale terminal. An offline
system could include a smart card or other data storage method.
Each customer is assigned a unique identification number by the system.
Customers may enroll and obtain their identification number over the web or at a
retail store. They may then link their participation in the incentive or loyalty
program to existing credit cards or membership cards. As a result, a credit card
or membership card can be linked to many incentive and loyalty programs. The
smart card form of the Customer Profile is platform independent, meaning that it
has been designed to function on a range of smart card operating systems,
including G&D StarCOS, Multos, Mifare and Java Cards.
PROGRAM ENGINE
The Program Engine module is a platform-independent software module that
implements the eligibility and reward rules for customer incentive and loyalty
programs. The Program Engine may be implemented in a point of sale device, an
online server for in-store transactions or at an online, e-commerce web server.
The Program Engine interprets the program rules sent to it from the Program
Manager, reviews the current status of the program on the Customer Profile and
applies the program rules accordingly. It also records all customer transactions
for transmission to the Program Manager.
PROGRAM MANAGER
At the heart of our product lies the Program Manager, an easy-to-use yet
powerful information management tool. It allows retailers to create and maintain
their customer loyalty and incentive programs. It also supports marketing and
financial analysis, and customer transaction history reports to assist retailers
in establishing dynamic customer loyalty and incentive programs.
Customer loyalty and incentive programs are established by the retailer and
maintained in the Program Manager. These programs are automatically downloaded
to Program Engines at the same time that transaction information is uploaded for
processing and analysis. The Program Manager incorporates analytical and
reporting tools for analysis of the effectiveness of customer loyalty and
incentive programs.
The Program Manager consists of a central server, database management
system and a communications infrastructure. The Program Manager can be installed
on any Microsoft
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Windows NT 4.0 (or higher) compatible server. The Program Manager has been
developed to use the Sybase Adaptive Server Enterprise (ASE) for Microsoft
Windows NT as its database engine and can be configured to use other relational
database management systems. A network of modems, telephone lines, annexes, hubs
and other components are required to allow terminals and remote client PCs to
connect and gain access to the system.
System security is controlled by the Program Manager. First, the system is
protected by means of complex cryptographic techniques (using Triple-DES or
3DES) that seek to prevent unauthorized tampering with the files that are
transmitted between the Program Manager and the Program Engines. Second, access
to the data stored in smart card or other chip devices (where used) is also
secured using cryptographic techniques. User access to the Program Manager also
is controlled by the Program Manager.
INQUIRY SERVER
The Inquiry Server module is a web site which allows retailers and
customers to review the available customer loyalty and incentive programs, check
their current program status, obtain reports and view their transaction history
at their leisure from any web browser. The customer or retailer simply inputs
their identification number (and password if applicable) in order to gain
access. The Inquiry Server program and transaction database is updated regularly
from the Program Manager.
RESEARCH, DEVELOPMENT AND TESTING
We have developed the technology used in our product in our research and
development facility in Sydney, Australia over the last 8 years. We continue to
develop the product by adding new product capabilities and applications. Our
Australian development team is experienced and provides a relatively low cost
development capability. We have tested our product in our facilities and in
field tests in western Sydney. Our expenditures for research, development and
testing were $1,415,837, $1,309,784 and $1,398,489, respectively, for 1997, 1998
and 1999.
Current development plans include creating further enhancements to our
product. We expect to hire additional research and development staff to
accommodate that work.
COMPETITION
Our product faces competition at two levels. First, we compete with
companies that provide software for customer incentive and loyalty programs for
retail store locations and/or Internet retailers. Second, our resellers who
provide services to retailers, compete with providers of incentive and loyalty
programs to retailers. We believe that the principal factors upon which we and
our resellers compete in the marketplace include:
- product functionality;
- product compatibility;
- price;
- service and training;
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- reputation and financial strength; and
- ability to provide other products and services.
Certain suppliers to retail stores of point of purchase terminals and card
and host systems offer software that is useful for incentive and loyalty
programs. Competitors include Cyperpro, with cash based incentive marketing
programs; Smart Card Solutions, with customized smart card incentive programs;
Prio, with credit card based cash back programs; and Welcome Real Time, with a
range of marketing programs for retail stores. Software providers for
e-commerce, such as Yantra Corporation, Talisma Corporation and Symix, are
potential competitors.
Competitors to the services provided by our resellers to retail stores
include the operators of the airline frequent flyer programs and marketing and
ad agencies operating traditional incentive and loyalty programs. Competitors to
the services provided by our resellers to on-line retailers include Netcentives,
with frequent flyer points; MyPoints.com, with targeted on-line incentive
programs; Webstakes, with sweepstakes; Cybergold, with cash back for credit card
transactions; E-centives, with personalized coupons; RewardsPlus with employee
benefit programs and companies such as E-piphany, Datasage and Verbind that
provide customer profiled targeted marketing programs.
We expect competition to increase as companies expand their offerings in
customer incentive and loyalty programs and provide software for retail stores
and the Internet.
Our ability to compete depends upon many factors, including:
- our ability to successfully market our product's features;
- the sales and marketing efforts by us and our competitors;
- the effectiveness of our solution relative to the product offerings of
our competitors;
- our ability to establish the credibility of our product in the
marketplace;
- our ability to effectively reach and sell to target retailers;
- our ability to attract and retain VARs who will sell our product; and
- our ability to timely succeed in our product development efforts.
INTELLECTUAL PROPERTY
We have filed certain patent applications in a number of countries
including the United States. These patent applications relate to the use of
customer profiles and systems for the operation of multiple reward programs in
retail shops and on the Internet in a single solution. We also rely in our
business on the protections afforded our intellectual property under copyright,
trademark and trade secret laws.
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PRODUCT WARRANTIES
In our agreements with VARs and customers, we typically will provide
certain warranties concerning our product. Those warranties may include such
matters as non-infringement of third party rights and our product meeting
certain specifications.
OUR HISTORY
We were incorporated in Delaware in June 1999 as Novatec Inc. and have
since changed our name to Catuity Inc. In November 1999, we acquired 100% of the
stock of Chip Application Technologies Limited, an Australian public company
(CAT). That transaction was approved by the Supreme Court of New South Wales,
Australia and by more than 75% in interest of CAT's shareholders present and
voting at a meeting held in November 1999. From July 1997 through November 1999,
CAT was listed on the Australian Stock Exchange. Since our acquisition of CAT in
November 1999, our shares have been listed on the Australian Stock Exchange.
CAT was incorporated in New South Wales in 1992. In 1995, it commenced
trials of early versions of our product in Western Sydney, Australia, under the
brand name Transcard. Since that time the product has been upgraded and tested
at that location. CAT, which licenses its technology to Catuity Inc., owns all
of the intellectual property rights to our product and employs the research and
development team that continues to develop and support the product at our
development center in Sydney.
EMPLOYEES
As of December 31, 1999, we had 37 full time employees and full time
consultants, comprised of 4 in sales and marketing in North America, 25 in
technology and product development in Australia, 1 in implementation support in
North America and 7 in finance and administration in Australia. None of our
employees is represented by a collective bargaining agreement. We consider our
relations with our employees to be good.
FACILITIES
We have established our corporate headquarters in Detroit, Michigan. Our
technology and product development facilities are in Sydney, Australia. We have
no other material foreign operations. See Item 3, Properties, below.
LEGAL PROCEEDINGS
From time to time we may be involved in litigation concerning claims
arising in the ordinary course of our business. We are not presently a party to
any material legal proceedings.
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RISK FACTORS
You should carefully consider the risks described below and the other
information in this registration statement before making an investment decision.
If any of the following risks occur, our business, financial condition or
results of operations could be materially adversely affected. In such case, the
trading price of our common stock could decline and you may lose all or part of
your investment.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATION OF OUR BUSINESS PROSPECTS
DIFFICULT.
Catuity was formed in June 1999. In November 1999, Catuity acquired all of
Chip Application Technologies Limited, which was formed in Australia in November
1992. We have only a limited operating history upon which we can be evaluated.
Any investment in the Company must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in an early stage of
development of their business, including the risks described below. There can be
no assurance that we will be successful in addressing those risks.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE SIGNIFICANT FUTURE LOSSES.
We incurred net losses of $3,516,840 for the year ended December 31, 1997,
$2,384,148 for the year ended December 31, 1998 and $6,210,084 for the year
ended December 31, 1999. As of December 31, 1999, we had an accumulated deficit
of $19,606,637. To date, we have not achieved profitability, and we expect to
incur significant and increasing net losses for at least the next two years. We
intend to continue to invest significantly in sales and marketing, customer
support, product development and administrative expenses, and as a result, will
need to generate significant revenues to achieve and maintain profitability.
There can be no assurance that any of our business strategies will be successful
or that significant revenues or profitability will ever be achieved. If we do
achieve profitability, we cannot be certain that we can sustain or increase
profitability on an ongoing basis. See "Selected Consolidated Financial Data."
FLUCTUATIONS IN OUR QUARTERLY REVENUE AND OPERATING RESULTS MAY AFFECT
THE PRICE OF OUR COMMON STOCK.
Fluctuations in our quarterly revenue could adversely affect the market
price of our common stock. Any shortfall in our revenue would have a direct
impact on our operating results for a particular quarter.
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside of our control. These factors
include:
- changes in the level of demand for our product;
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- changes in the growth rate of Internet usage;
- changes in the sales, marketing and general business policies and
strategies of our resellers;
- the amount and timing of our operating costs and capital expenditures
relating to the expansion of our business and operations;
- the timing of the introduction of new products or product
enhancements by us, our resellers or our competitors;
- customer order deferrals in anticipation of upgrades and new products
from us, our resellers or our competitors;
- our ability to anticipate and effectively adapt to developing markets
and rapidly changing technologies;
- changes in the mix of international and U.S. revenues and in foreign
currency exchange rates; and
- general economic conditions and specific economic conditions in online
and offline related industries.
We expect that our revenue in the future will be based primarily on a fee
per customer transaction that utilizes our software, subject to a minimum fee
per period. Accordingly, our fees will be dependent on the success of retailers
in implementing customer incentive and loyalty programs. Even when successful,
fees to us will be delayed until customer usage increases. We do not have any
substantial historical basis for predicting the volume of transactions that may
be generated by customers and retailers. A low level of usage by customers or
the cancellation or deferral of retailer contracts could have a material adverse
effect on our quarterly financial performance. In addition, there are no
assurances that retailers will be willing to pay for our software based on a fee
per customer transaction.
WE WILL BE ADVERSELY AFFECTED IF OUR PRODUCT DOES NOT ACHIEVE MARKET
ACCEPTANCE.
To date, our product has not been installed in a large-scale, commercial
deployment, and there can be no assurance that our product will perform desired
functions, offer sufficient price/performance benefits or meet the technical or
other requirements of customers. Despite testing of our product prior to its
commercial release, there can be no assurance that all performance errors or
deficiencies have been discovered and remedied, that additional errors or
deficiencies will not occur, or if they occur, that we will be able to correct
such errors and deficiencies.
In addition, we believe that the time required to deploy our product will
vary significantly depending on a number of factors, including the needs and
skills set of the customer, the size of the deployment, the complexity of the
customer's network environment and any integration required, the quantity of
hardware and degree of hardware configuration necessary to deploy the product
and the customer's installation schedule. We believe that the use of our product
by customers will involve an enterprise wide decision-making process, and that
we or our reseller
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<PAGE> 17
partners will need to provide a significant level of education and information
to prospective customers regarding the uses and benefits of the product. For
these and other reasons, the use and deployment of our product may be
characterized by lengthy sales and implementation cycles. Failure of our product
to achieve market acceptance for these or any other reasons would have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY BE ADVERSELY AFFECTED IF WE FAIL TO EXPAND OUR SALES AND SUPPORT
ORGANIZATIONS.
Our sales are conducted through resellers and our sales team. Our reseller
strategy is currently being implemented. We believe that our future success is
dependent upon supporting our resellers and further establishing our direct
sales and sales support capability. Competition for such sales and support
personnel is intense, and there can be no assurance that we will be able to
attract, assimilate or retain additional qualified marketing, sales and sales
support personnel on a timely basis in the future, or at all. In addition, we
believe that our success is dependent upon establishing relationships with a
variety of reseller partners, including original equipment manufacturers,
systems integrators and value added resellers. There can be no assurance that we
will be able to enter into agreements or establish relationships with additional
desired reseller partners on a timely basis or at all, or that such resellers
will devote adequate resources to selling our products. Our failure to
successfully expand the size of our marketing, sales and sales support
organization or establish and maintain appropriate reseller channels for our
products would have a material adverse effect on our business, financial
condition and results of operations.
WE MAY BE UNABLE TO SATISFACTORILY FUND OUR WORKING CAPITAL REQUIREMENTS.
In order to support our future operating requirements, we will need to
obtain additional funding either by increasing our lines of credit or by raising
additional debt or equity from the public or private capital markets. There can
be no assurance that such additional funding will be available on terms
attractive to us, or at all. Failure by us to raise additional funding when
needed could have a material adverse effect on our business, results of
operations and financial condition. If additional funds are raised through the
issuance of equity securities, the ownership percentages of our stockholders
would be reduced. Furthermore, such equity securities might have rights,
preferences or privileges senior to those of our common stock.
WE MAY BE ADVERSELY AFFECTED IF WE FAIL TO DEVELOP AND MAINTAIN STRATEGIC
RELATIONSHIPS.
We believe that success in marketing our product will depend in part on our
ability to develop and maintain strategic relationships with key hardware and
software vendors, reseller partners and retailers. We further believe that such
relationships will be important in order to validate our technology, facilitate
broad market acceptance of our products, and enhance our sales, marketing and
distribution capabilities. Our inability to develop and continue strategic
relationships, or the termination of one or more of our current relationships
could have a material adverse effect on our business, financial condition and
results of operations.
We rely on hardware and operating systems provided by third parties as the
platforms on which to operate our product. Failure of such third parties to
maintain or enhance their
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<PAGE> 18
products could impair the functionality of our product. Such failure or our
failure to successfully integrate our product with third party supplier products
could require us to obtain alternative products from other sources or to develop
such hardware and software internally, either of which could involve costs and
delays as well as diversion of our engineering resources.
WE MAY BE ADVERSELY AFFECTED IF WE FAIL TO ATTRACT AND RETAIN KEY
PERSONNEL.
Our operations will depend to a great extent on our ability to attract new
key personnel and retain existing key personnel in the future. Competition for
employees is intense, particularly for personnel with technical training and
experience in incentive and loyalty programs. We have from time to time in the
past experienced, and we expect to experience in the future, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
If we are unable to hire or retain key employees, our business, results of
operations and financial condition will be harmed.
MANY OF OUR KEY PERSONNEL ARE NEW TO US AND MAY NOT WORK TOGETHER
SUCCESSFULLY.
We are dependent upon the efforts and abilities of our management team,
particularly David L. Mac. Smith, our Chairman, Michael V. Howe, our President
and Chief Executive Officer, and Benjamin Garton, our Vice President of Product
Management and Development. A number of members of the management team,
including Mr. Howe, have joined us in recent months and we are continuing to
recruit new senior managers in North America. Our future performance will
depend, in part, on our ability to integrate successfully our newly hired
executive officers into our management team, and our ability to develop
effective working relationships among management. If our key personnel are
unable to work together successfully, our business, results of operations and
financial condition could be harmed.
WE MAY BE UNABLE TO SUCCESSFULLY MANAGE OUR OPERATIONS.
Our success will depend in part on our ability to manage our operations
successfully, particularly in light of our expansion in the United States. We
have recently established a United States presence and appointed a United States
based president and chief executive officer. In addition, we are in the process
of establishing a United States based senior management team and increasing the
scope of our operations in the United States. Our anticipated future operations
will continue to place a significant strain on our management systems and
resources.
We expect that we will be required to continue to improve our financial and
managerial controls and reporting systems and procedures, and will need to
expand, train and manage our work force. Furthermore, we expect that we will be
required to manage multiple relationships with various resellers, customers and
other third parties. There can be no assurance that we will be able to
effectively manage these tasks, and the failure to do so could have a material
adverse effect on our business, financial condition and results of operations.
WE DEPEND ON A LIMITED NUMBER OF THIRD PARTIES FOR ESSENTIAL PRODUCTS AND
SERVICES.
We rely on services furnished to us by a limited number of third parties,
including our resellers, suppliers of point of sale hardware and operating
systems, and suppliers of customer
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<PAGE> 19
devices, such as magnetic stripe cards and smart cards. Although we can operate
our product on a range of platforms, any interruption, deterioration or
termination of these third-party services could be disruptive to our business.
In the event that any of our agreements with any of these third parties is
terminated, we may not be able to find an alternative source of support on a
timely or commercially reasonable basis, if at all. As a result, any such
interruption, deterioration or termination could have a material adverse effect
on our results of operations and financial condition.
WE DEPEND UPON INDEPENDENT RESELLERS TO SELL OUR PRODUCT.
We have adopted a strategy of selling our product primarily through a
limited number of value added resellers. There can be no assurance that we will
generate sales and revenues through our resellers and any failure to do so, or
any termination or interruption of our relationships with a major reseller or a
significant number of our resellers, would have a material adverse effect on our
business, financial condition and results of operations. There can be no
assurance that our resellers will not price the product at a level that will
adversely affect our product's competitive position. Such pricing would have a
material adverse effect on our business, financial condition and results of
operations.
WE MAY FACE RISKS RELATED TO OUR INTERNATIONAL OPERATIONS.
Although we currently conduct most of our technology and product
development operations in Australia, we intend to enter into various
international markets. CAT, our wholly owned Australian subsidiary, currently
conducts product development and trial operations in Australia. We expect that
we will become a primarily North American based entity with North American based
senior management and that we will attempt to market and sell our product in the
UK, Europe, Asia and other selected international markets, including Australia
and New Zealand. Our entry into international markets will require significant
management attention and financial resources. If international revenue is not
adequate to offset the expense of establishing and maintaining foreign
operations, our business, financial condition and results of operations could be
materially adversely affected.
To date, we have only limited experience in developing trial versions of
our product and marketing and distributing our products. There can be no
assurance we will be able to successfully market, sell and deliver our product
in international markets. International operations are subject to inherent
risks, including:
- the impact of possible recession in economies outside the United States;
- the cost of localizing products for foreign markets;
- longer receivables collection periods and greater difficulty in accounts
receivable collection;
- unexpected changes in regulatory requirements;
- difficulties and costs of staffing and managing foreign operations;
- reduced protection for intellectual property rights in some countries;
- fluctuations in currency exchange rates;
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- tariffs, export controls and other trade barriers;
- potentially adverse tax consequences; and
- political and economic instability.
There can be no assurance that we or our resellers will be able to obtain,
sustain or increase international revenues, or that the foregoing factors will
not have a material adverse effect on our future international revenues and,
consequently, on our business, financial condition and results of operations.
International revenues are generally denominated in local currencies. We do not
currently engage in currency hedging activities. Although exposure to currency
fluctuations to date has been insignificant, there can be no assurance that
fluctuations in currency exchange rates in the future will not have a material
adverse impact on revenues from international sales and thus our business,
financial condition and results of operations.
OUR OPERATIONS ARE SUSCEPTIBLE TO COMPUTER VIRUSES, SECURITY BREACHES AND
OTHER DISRUPTIONS AND FAILURES.
We currently locate our data center at our development center in Sydney,
Australia and take certain precautions to protect our source code for our
software against loss from fire, earthquakes, floods, power and
telecommunications failures, sabotage, intentional acts of vandalism and similar
events. Despite such precautions, the occurrence of a natural disaster or other
unanticipated problems at current and future data centers could result in
interruptions in the services provided by us. Such interruptions could result in
reduction in, or termination of, service provided to our customers, which could
have a material adverse effect on our business, financial condition and results
of operations.
In addition, our systems may be vulnerable to unauthorized access and
computer viruses. Eliminating computer viruses and other security problems may
require interruptions, delays or cessation of service to users, which could have
a material adverse effect on our business, financial condition and results of
operations. We may be required to expend significant capital or other resources
to protect against the threat of security breaches or to alleviate problems
caused by breaches. Although we intend to continue to implement security
measures, we cannot be certain that measures implemented by us will not be
circumvented.
SOFTWARE DEFECTS COULD LEAD TO LOSS OF REVENUE OR DELAY IN OUR PRODUCT'S
MARKET ACCEPTANCE.
Our application software is internally complex and may contain defects. If
we are not able to detect and correct errors in our product before commencing
commercial shipments, we may experience loss of revenue or delays in market
acceptance. We continually evaluate our product and its enhancements for errors
and receive information from customers regarding errors they detect. However, we
may encounter product liability claims in the future. Product liability claims
brought against us could divert the attention of management and key personnel,
could be expensive to defend and may result in adverse settlements and
judgments.
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RISKS RELATED TO OUR INDUSTRY
INTENSE AND INCREASING COMPETITION IN THE APPLICATION SOFTWARE INDUSTRY
COULD HARM OUR BUSINESS.
The application software industry is highly competitive, rapidly developing
and subject to constant innovation and change. Numerous other companies operate
incentive marketing programs using both electronic and paper based systems, both
for retail stores and the Internet. Many of these companies have significantly
longer operating histories, greater name recognition, larger customer bases and
greater financial, technical and marketing resources than we do.
Our competitors may respond more quickly than we can to changing
technologies and customer requirements. For example, these competitors may:
- conduct more extensive marketing campaigns to capture market share;
- provide more attractive incentive and pricing packages to customers;
- negotiate more favorable contracts with existing and potential employees
and strategic partners;
- establish cooperative relationships among themselves or with third
parties, including large Internet participants, to increase the ability
of their products and services to address the needs of prospective
customers;
- bundle their products with other software or hardware, including
operating systems and browsers, in a manner that may discourage users
from purchasing products offered by us;
- establish cooperative relationships with our current or potential
competitors, thereby limiting our ability to sell our products through
particular reseller channels; or
- more quickly develop new products and services or enhance existing
products and services.
Our ability, and the ability of our resellers, to compete effectively in
the market for application software for incentive and loyalty marketing programs
will depend upon a variety of factors, including our ability to provide high
quality products and services at prices generally competitive with, or lower
than, those charged by our competitors. There can be no assurance that we will
be able to compete successfully. Moreover, there can be no assurance that
certain of our competitors will not be better situated to negotiate contracts
with retailers and resellers that are more favorable than contracts we
negotiate. In addition, there can be no assurance that the competition from
existing or new competitors or a decrease in the rates charged for products and
services by our competitors will not materially and adversely affect us.
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NEW TECHNOLOGIES COULD RENDER OUR PRODUCT OBSOLETE.
The application software business is characterized by rapid technological
change, new product introduction and evolving industry standards. Advances in
applications software or the development of entirely new technologies to replace
existing applications software could render our product obsolete and
unmarketable. Our success will depend, in significant part, on our ability to
make timely and cost-effective enhancements and additions to our technology and
to introduce new products and services that meet customer demands. There can be
no assurance that we will be successful in developing new products, services and
enhancements. Delay in the introduction of new products, enhancements or
services, the inability to develop such new products, enhancements or services
or their failure to achieve market acceptance could have a material adverse
effect on us.
OUR PERFORMANCE WILL DEPEND ON THE CONTINUED GROWTH OF THE INTERNET AND
INTERNET COMMERCE.
Our future success depends heavily on the overall continued growth and
acceptance of the Internet, including its use in electronic commerce. Although
our product operates in the offline environment, one of its main competitive
advantages is its capacity to provide programs across both the online and
offline channels. If Internet usage or commerce does not continue to grow or
grows more slowly than expected, our business, operating results and financial
condition could be adversely affected. Customers and businesses may reject the
Internet as a viable medium for a number of reasons. These include potentially
inadequate network infrastructure, slow development of enabling technologies,
security concerns, inadequate customer support and insufficient commercial
support. In addition, delays in the development or adoption of new standards and
procedures required to handle increased levels of Internet activity, or
increased government regulation, could cause the Internet to lose its viability
as a commercial medium. Any government regulation or taxing of the Internet may
result in adverse financial consequences. Even if the required infrastructure,
standards, procedures or related products, services and facilities are
developed, we may incur substantial expenses adapting our solutions to changing
or emerging technologies.
WE MAY FACE RISKS RELATED TO THE STORAGE OR PROVISION OF INACCURATE OR
CONFIDENTIAL INFORMATION.
It is possible that information provided through the use of our product or
information that is copied and stored by customers that have deployed our
product may contain errors. In such event, third parties could make claims
against us for losses incurred in reliance on such information. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type or may not be adequate to indemnify us for all liability that may
be imposed. Any imposition of liability or legal defense expenses that is not
covered by insurance or that is in excess of insurance coverage could have a
material adverse effect on our business, financial condition and results of
operations.
In addition, from time to time, persons may unlawfully obtain information
concerning a customer's or retailer's program by unlawfully utilizing our access
numbers, passwords and personal identification numbers. No assurance can be
given that future losses due to claims by third parties for unauthorized use
will not be material. We maintain no reserves for such risks.
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There can be no assurance that our risk management practices will be sufficient
to protect us from unauthorized thefts of information that could have a material
adverse effect on us.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS FOR USE OR MISUSE OF OUR
PRODUCT.
Retailers rely, and will continue to rely, on our product in connection
with providing promotions that have a direct financial impact on their
businesses and their customers. Use or misuse of our product, whether due to
accident, employee fraud, or otherwise, may result in unintended or undesirable
consequences that could result in financial or other damages to our customers
and to our customers' customers. A product liability claim brought against us,
even if not successful, would likely be time consuming and costly and could have
a material adverse effect on us.
WE MAY FACE RISKS RELATED TO THE USE OF ELECTRONIC PAYMENT CARDS.
Portions of our software may be integrated with or co-reside with a range
of third party payment and other software. For example, our product may be added
to existing or new electronic payment cards, either by the addition of software
to a chip or by using the payment card number as an identifier with our product.
Alternatively, a portion of the software comprising our product may be added to
existing or new payment devices, so that such software co-resides with payment
programs. On the Internet and in other environments, a portion of our software
may be integrated with a third party supplied e-commerce program. There can be
no assurances that such integration or co-residence will not adversely affect
the payment system, potentially giving rise to a claim that may have a material
adverse effect on our business, financial condition and results of operations.
In addition, if our customers experience problems with a payment system, it may
be difficult to determine if those problems originate from our product or other
products with which ours co-reside. Such difficulty may delay resolution of any
such problem and prove costly to us.
WE MAY BE AFFECTED BY POTENTIAL PRIVACY REGULATION.
The Federal Trade Commission is considering the adoption of regulations
regarding the collection and use of personal information obtained from
individuals, especially children, when accessing Internet sites. These
regulations could restrict our ability to provide demographic data to retailers.
At the international level, the European Union has adopted a directive that will
impose restrictions on the collection and use of personal data. These
developments could have an adverse effect on our business, results of operations
and financial condition.
WE MAY FACE INCREASED GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES.
There are currently few laws or regulations directly applicable to the use
of our product, either online or offline, other than laws that specifically
regulate lotteries and sweepstakes, two programs that our product could offer.
However, due to the increasing popularity and use of programs similar to those
offered in our product, it is possible that a number of laws and regulations may
be adopted at the local, state, national or international levels with respect to
such programs, covering issues such as user privacy, pricing, advertising,
intellectual property rights, information security or the convergence of
traditional communications services. Changes to such laws or adoption of
additional laws or regulations intended to address these issues could create
uncertainty in the marketplace which could reduce demand for our product,
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could increase our cost of doing business as a result of compliance, could
result in litigation or could in some other manner have a material adverse
effect on our business, financial condition and results of operations.
Congress has held hearings on whether to regulate providers of services and
transactions in the electronic commerce market. Other nations, including those
in the European Union, have taken actions to restrict the free flow of data and
information deemed to potentially be a breach of personal privacy. Any
restrictions on the collection and use of customer information over the Internet
could adversely affect the use of our product. Furthermore, several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers in a manner similar to long
distance telephone carriers and to impose access fees on these companies. This
could increase the cost of transmitting data over the Internet and thereby
reduce the demand for our product.
WE MAY FACE DIFFICULTIES PROTECTING AND ENFORCING OUR INTELLECTUAL
PROPERTY RIGHTS.
Our success and ability to compete are substantially dependent on our
proprietary technology and trademarks, which we attempt to protect through a
combination of patent, copyrights, trade secret and trademark laws as well as
confidentiality procedures and contractual provisions. However, any steps we
take to protect our intellectual property may be inadequate, time consuming and
expensive, and there can be no assurance that the steps taken by us will prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our proprietary rights as fully as do the laws of the
United States. In addition, we may infringe upon the intellectual property
rights of third parties, including third party rights in patents that have not
yet been issued. We expect that third-party infringement claims involving
Internet technologies and software products will increase. Any claims regarding
the rights of third parties, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms favorable to us, if at all. We have agreed, and may agree
in the future, to indemnify certain of our customers against claims that our
products infringe the intellectual property rights of others. We could incur
substantial costs in defending our sellers and our customers against
infringement claims. A successful claim of product infringement against us and
our failure or inability to license the infringed or similar technology could
have a material adverse effect on our business, financial condition and results
of operations.
We have applied for patents in relation to the method of operation of
incentive marketing programs using electronic means. We cannot assure you that
our patent applications will be approved. Moreover, even if approved, they may
not provide us with any competitive advantages or may be challenged by third
parties. In recent times a number of patents have been granted in this area.
Although we are not aware of any issued patent that our product would infringe,
legal standards relating to the validity, enforceability and scope of
intellectual property rights in Internet-related industries and use of
electronic data for granting of benefits and rewards are uncertain and still
evolving, and the future viability or value of any of our intellectual property
rights is uncertain.
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CORPORATE AND MARKET RISKS
OUR PRINCIPAL EXECUTIVE OFFICERS AND DIRECTORS COULD CONTROL STOCKHOLDER
VOTES AND OUR MANAGEMENT AND AFFAIRS.
Our executive officers and directors, and entities affiliated with them, as
at December 31, 1999, beneficially owned, in the aggregate, common stock
representing approximately 11.1% of our voting securities (assuming the exercise
of all outstanding options held by them). As a result, they could act together
to control all matters submitted to stockholders for approval (including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets). In addition, their large ownership position
could enable them to effectively control our management and affairs.
Accordingly, such concentration of ownership may delay, defer or prevent a
change in control, impede a merger, consolidation, takeover or other business
combination involving us or discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us. This could, in turn, have
an adverse effect on the market price of our common stock.
OUR TRADING VOLUME MAY BE LOW AND OUR STOCK PRICE MAY BE VOLATILE.
There can be no assurance that an active trading market will be maintained
for our common stock. Prior to Catuity's acquisition of CAT in November 1999,
CAT shares were listed on the Australian Stock Exchange (ASX) and since the
acquisition, Catuity's common stock has been listed on the ASX. Trading in CAT
shares from January 1, 1999 to November 22, 1999 averaged 73,995 shares per day
for an average daily value of A$844,427 (US$548,878) and trading in Catuity's
shares for the period November 23, 1999 to March 10, 2000 averaged 32,351 shares
per day for an average daily value of A$559,869 (US$363,915). There can be no
assurance that an adequate volume of trading in our shares will be maintained in
order to provide liquidity for our investors.
The market price of our common stock may fluctuate significantly in
response to the following factors, some of which are beyond our control:
- variations in quarterly operating results;
- changes in financial estimates by securities analysts;
- changes in market valuations of Internet software or loyalty program
companies;
- announcements by us of significant contracts, reseller arrangements,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of common stock or termination of stock transfer restrictions; and
- fluctuations in stock market price and volume, which are particularly
common among securities of Internet companies.
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The market prices and volumes of the common stock of many publicly held
technology based companies and Internet or Internet related companies have in
the past been, and can in the future be expected to be, especially volatile. The
market price for CAT shares listed on the ASX for the period from January 1,
1999 to November 22, 1999 ranged from A$2.40 (US$1.56) to A$22.00 (US$14.30) per
share, and the market price for Catuity shares on the ASX for the period
November 23, 1999 to March 10, 2000 ranged from A$14.16 (US$9.20) to A$19.98
(US$12.99).
In the past, following a period of volatility in the market price of a
company's securities, securities class action litigation often has been
instituted against such a company. Any such litigation could result in
substantial costs and a diversion of management's attention and our resources.
WE MAY BE SUBJECT TO ARBITRAGE RISKS.
Following registration of our securities in the United States, we expect
that our common stock will be listed on both the ASX, in Australia, and the
Nasdaq National Market, in the United States. Investors may seek to profit by
exploiting the difference, if any, in the price of our stock in these two
markets. Such arbitraging activities could cause our stock price in the market
with the higher value to decrease to the price set by the market with the lower
value.
CERTAIN DELAWARE ANTI-TAKEOVER PROVISIONS MAY PRODUCE RESULTS DISFAVORED BY
OUR STOCKHOLDERS.
Provisions of Delaware law could make it more difficult for a third party
to acquire control of us without the consent of our board of directors, even if
such a change were favored by our stockholders. We are subject to Section 203 of
the Delaware General Corporation Law, which, subject to certain exceptions,
prohibits a publicly held Delaware corporation from engaging in any "business
combination" with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder,
unless:
- prior to such date, the board of directors approved either the
business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of our voting stock outstanding at the time the
transaction commenced; and
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote
of at least 66% of the outstanding voting stock that is not owned by
the interested stockholder.
Section 203 defines "business combination" to include:
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- any merger or consolidation involving the corporation and the
interested stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of
our assets involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by us of any of our stock to the interested
stockholder;
- any transaction involving us that has the effect of increasing the
proportionate share of the stock of any class or series beneficially
owned by the interested stockholder; and
- the receipt by the "interested stockholder" of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by us or through the corporation.
In general, Section 203 defines an interested stockholder as an entity or
person beneficially owning 15% or more of our outstanding voting stock and any
entity or person affiliated with or controlling or controlled by such entity or
person.
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ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial statements and the notes thereto included
elsewhere in this registration statement.
The selected financial data has been prepared on a consolidated basis so
that our financial data as of and for the year ended December 31, 1999 includes
the financial data as of and for the year ended December 31, 1999 of Chip
Application Technologies Limited ("CAT"), our wholly owned subsidiary acquired
on November 22, 1999 and so that our financial data as of and for the years
ended December 31, 1998, 1997, 1996 and 1995 entirely reflect CAT's historical
financial data. CAT has been operating since November 12, 1992 (having changed
its name from Card Technologies Australia Limited in October, 1997) and has been
the primary operating entity. Our selected financial information as of and for
the year ended December 31, 1999 and the selected historical financial
information of CAT as of and for the years ended December 31, 1998, and 1997,
are derived from audited financial statements of CAT included elsewhere in this
registration statement, which have been audited by Ernst & Young, independent
accountants. The selected financial data set forth below for CAT as of and for
the years ended December 31, 1996 and 1995 are derived from audited financial
statements of CAT not included in this registration statement.
-26-
<PAGE> 29
SELECTED FINANCIAL DATA
CATUITY INC. (INCLUDING CHIP APPLICATION TECHNOLOGIES LIMITED)
YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Operating Revenue $ 1,210,903 $ 702,289 $ 888,092 $ 441,322 $ 379,557
Operating Expenses 7,380,307 2,909,758 4,190,050 3,740,354 3,091,505
------------ ------------ ------------ ------------ ------------
Operating (loss) income (6,169,404) (2,207,469) (3,301,958) (3,299,032) (2,711,948)
Other (expense) income (40,680) (176,679) (214,882) (362,721) 16,577
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (6,210,084) $ (2,384,148) $ (3,516,840) $ (3,661,753) $ (2,695,371)
============ ============ ============ ============ ============
Net (loss) income per share
Basic $ (1.05) $ (0.53) $ (1.15) $ (2.81) $ (12.03)
Diluted $ (1.05) $ (0.53) $ (1.05) $ (2.01) $ (12.03)
Weighted average number of
outstanding shares
Basic 5,913,613 4,473,257 3,065,840 1,300,906 223,992
Diluted 5,913,613 4,473,257 3,342,839 1,819,395 223,992
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets $ 6,254,324 $ 638,866 $ 1,336,385 $ 495,032 $ 598,318
Short-term debt including
current portion of
long-term debt 1,138,275 656,274 924,307 2,445,937 1,160,955
Long-term debt 874,818 1,593,549 1,691,618 2,028,169 0
Shareholders Equity/
(Capital deficit) 4,241,231 (1,610,957) (1,279,540) (3,979,074) (562,637)
</TABLE>
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<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward looking statements based upon current
expectations that involve risks and uncertainties. The Company's actual results
and the timing of certain events could differ materially from those anticipated
in these forward looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Form 10.
OVERVIEW
Card Technologies Australia Limited was incorporated on November 12, 1992
and changed its name to Chip Applications Technologies Limited ("CAT") on
October 21, 1997.
NovaTec Inc. ("NovaTec") was incorporated in Delaware on June 23, 1999 as a
special purpose company to facilitate a plan to acquire the outstanding capital
stock and business activities of CAT. Effective November 22, 1999, NovaTec
amended its certificate of incorporation to change the corporation's name to
Catuity Inc. (which we refer to in this registration statement as "Catuity, we,
us, our or the Company"). Following a one-for-ten reverse stock split of the
outstanding capital stock of CAT, Catuity acquired all of the outstanding shares
of CAT pursuant to a plan approved by the Supreme Court of New South Wales and
approved by more than 75% of the stockholders and optionholders present and
voting in person or by proxy at meetings held on November 3, 1999. This
transaction was part of our strategy to launch our product through the US market
and our US based relationship partners including IBM and Visa USA.
Catuity Inc. will continue CAT's existing business as described in this
registration statement. We develop and market software that allows retailers to
establish and administer customer incentive and loyalty programs. Our software
is targeted to a broad range of sellers of goods and services, including
retailers with store locations and retailers who sell their products over the
Internet. Our software is especially useful for retailers who sell both through
store locations and over the Internet.
Our software supports the establishment and administration of a variety of
customer incentive and loyalty programs (and a range of other programs such as
ticketing, memberships and access controls). With our software, the retailer may
reward its customers with valuable benefits, hoping to attract and retain
customers and to encourage increased purchases. Because of the flexibility of
our software, rewards may be easily established, targeted and changed. In
addition, a wide variety of rewards may be used by the retailer. Our software
directly connects the retailer and the retailer's customer so that the customer
recognizes the retailer as the provider of the reward. Our software operates
with all payment systems and allows the retailer to simply and easily offer its
goods and services as a reward, in preference to buying rewards from third
parties, such as air miles from an airline.
A major element of our marketing strategy has been to forge key
international strategic alliances with organizations that provide market access,
and organizations that incorporate our software into their products. We have
structured our role in these partnering arrangements as an independent third
party supplier of system software. To date, we have formed relationships
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<PAGE> 31
with a number of international companies including IBM, VISA, Sun Microsystems,
Smart Dynamics, Data Pro and a range of hardware and operation system suppliers
such as Schlumberger, Verifone and Ingenico.
RESULTS OF OPERATIONS
The following table sets forth the composition of our revenues and selected
statements of operations data:
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Product License & Services $ 638,382 $ 291,533 $ 761,039
Research, Development & 572,521 410,756 127,053
Grants
---------- ---------- ----------
Total Net Operating Revenues 1,210,903 702,289 888,092
Costs and Expenses:
Research, Development & 1,398,489 1,309,784 1,415,837
Testing
Selling & Relationship 956,911 914,622 708,921
Development
General and Administrative 1,255,096 693,979 998,061
Stock Compensation 2,475,175 (8,627) 218,646
Non Recurring Charges 1,294,636 -- 848,585
---------- ---------- ----------
Total Costs and Expenses 7,380,307 2,909,758 4,190,050
---------- ---------- ----------
Operating Loss (6,169,404) (2,207,469) (3,301,958)
Other Income (Expense) 40,680 176,679 214,882
---------- ---------- ----------
Net loss (6,210,084) (2,384,148) (3,516,840)
</TABLE>
REVENUES
Our product is currently being launched in the US market and 1999 was the
first year US-based product license revenues were received. All prior year
revenues were based on product license and services related to trials or other
early stage developments in Australia and New Zealand.
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<PAGE> 32
In 1999, operating revenues were $1,210,903. These revenues were derived
from $638,382 in product licenses and services, $572,521 in research and
development grants. In addition, interest received in the amount of $115,631 is
included in Other income (expenses). Comparatively, 1998 revenues totaled
$702,289, which was derived from $291,533 in product licenses and services and
$410,756 in research and development grants, with interest received in the
amount of $20,186 included in income (expense). In 1997, operating revenues were
$888,092, which was derived from $761,039 in product licenses and services and
$127,053 in research and development grants, with interest of $57,601 included
in income (expense).
Our current research and development grant, granted to us by the
Commonwealth of Australia, covers a project running from July 23, 1999 to
December 31, 2000. Under certain circumstances, including a change in control of
CAT or an attempt by us to assign the intellectual property created under the
grant, the Commonwealth has a right to require repayment of the grant amount. We
anticipate that we may seek additional research and development grants from the
Commonwealth and/or other sources in the future.
FISCAL YEAR ENDED 1999 COMPARED TO 1998
Operating revenues increased by $508,614, or 72%, from $702,289 for the
year ended December 31, 1998 to $1,210,903 for the year ended December 31, 1999.
The increase arose as a result of increased product licenses and services
revenue to $638,382 for the year ended December 31, 1999 from $291,533 for the
year ended December 31, 1998, an increase of 119%. Research and development
grant revenue increased to $572,521 for the year ended December 31, 1999 from
$410,756 for the year ended December 31, 1998, an increase of 39%.
Research and development and testing expenses increased $88,705, or 7%, to
$1,398,489 for the year ended December 31, 1999 from $1,309,784 for the year
ended December 31, 1998. This increase was due to increased research and
development expenses which was partially offset by the lower cost and use of
resources to support testing of our product.
Selling and relationship development expenses increased $42,289, or 5%,
from $914,622 for the year ended December 31, 1998 to $956,911 for the year
ended December 31, 1999. Selling and relationship development expenses were
primarily attributable to continued overseas strategic relationship development
and support. As a percentage of net revenue, these amounts represented 130% for
1998 as compared to 79% for 1999, which reflects increased sales rather than
increased selling and relationship development expenditure. Selling and
relationship development expenditure in the U.S. significantly increased as US
sales and marketing activities increased, while expenditure in other markets was
minimal.
General and administrative expenses increased $561,117, or 81%, from
$693,979 for the year ended December 31, 1998 to $1,255,096 for the year ended
December 31, 1999. The expense increase partially relates to the increased
resources required to implement the restructuring of CAT and Catuity and
increased compliance costs related to the increase in our issued capital stock
and in our number of stockholders to 4,380 at December 31, 1999, compared to 955
at December 31, 1998. During the year ended December 31, 1999, an additional
provision of $104,929 was made
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<PAGE> 33
against assets related to testing of our product, compared to a provision of
$30,669 made for the year ended December 31, 1998. Depreciation and amortization
expense increased $23,383 from $78,426 for the year ended December 31, 1998 to
$101,809 for the year ended December 31, 1999.
Stock compensation is charged in relation to a limited recourse loan to a
Mr. Mac. Smith in the amount of $2,475,175 for the year ended December 31, 1999,
compared to ($8,627) for the year ended December 31, 1998. This difference
reflects changes in our share price to $11.37 (reflecting a per share price of
A$17.30 converted at US$/A$ rate of 0.6571) at December 31, 1999 from $1.50
(reflecting a per share price of A$2.45 converted at US$/A$ rate of 0.6126) at
December 31, 1998.
Non-recurring charges have been incurred in the amount of $1,294,636 and
relate to our efforts to relocate our domicile to the US under the restructure.
Included in this amount were stock transfer taxes of $244,785. The balance of
costs related primarily to legal, accounting and financial advisors and court
costs.
Other income (expense) decreased by $135,999, or 77%, to $40,680 for the
year ended December 31, 1999 from $176,679 for the year ended December 31, 1998.
This decrease was attributable to a reduction in borrowings during 1999 and an
increase in interest income on cash reserves of $95,445.
Principally as a result of the factors described above, we incurred a net
loss of $6,210,084 for the year ended December 31, 1999 as compared to a net
loss of $2,384,148 for the year ended December 31, 1998.
FISCAL YEAR ENDED 1998 COMPARED TO 1997
Operating revenue decreased by $185,803, or 21%, to $702,289 for the year
ended December 31, 1998 from $888,092 for the year ended December 31, 1997. Of
this decrease, $279,276 was due to termination of a trial license agreement with
a local Australian bank that assisted with our Western Sydney pilot tests. An
increase in Research and Development Grants of $283,703 from $127,053 for the
year ended December 31, 1997, to $410,756 for the year ended December 31, 1998
served to offset the effect of our reduced product license revenue. Other
product license and services revenue decreased as the Western Sydney pilot was
consolidated.
Research and development and testing expenses decreased $106,053, or 7%, to
$1,309,784 for the year ended December 31, 1998 from $1,415,837 for the year
ended December 31, 1997. This decrease was due to a consolidation and reduction
in product testing activities and reflected in a reduction in business inputs
including staffing and field testing operating expenses.
Selling and relationship development expenses increased $205,701, or 29%,
to $914,622 for the year ended December 31, 1998 from $708,921 for the year
ended December 31, 1997. This increase represents increased overseas market
development and research efforts. Significant expenditure occurred in Asia,
Europe and the U.S., but following the Asian financial crisis, all Asian
expenditure ceased.
General and administrative expenses decreased $304,082, or 30%, to $693,979
for the year ended December 31, 1998 from $998,061 for the year ended December
31, 1997. The decrease in general and administrative expenses was primarily
attributable to reorganizing the
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<PAGE> 34
finance staff following a reduction in our product testing activities and
completion of the initial listing of CAT on the Australian Stock Exchange in
July 1997. Depreciation and amortization expense increased $22,702 or 41%, to
$78,426 for the year ended December 31, 1998 from $55,724 for the year ended
December 31, 1997. The increase was attributable to additional capital
expenditure on primarily research and development and was in accordance with our
management's expectations.
Stock compensation in relation to a limited recourse loan to a director was
credited in the amount of $8,627 for the year ended December 31, 1998 compared
to a cost of $218,646 for the year ended December 31, 1997. This difference
reflects changes in our share price to $1.50 (reflecting a per share price of
A$2.42 converted at US$/A$ rate of 0.6126) at December 31, 1998 from $2.44
(reflecting a per share price of A$3.30 converted at US$/A$ rate of 0.7430) at
December 31, 1997.
Other income (expense) decreased by $38,203, or 18%, to $176,679 for the
year ended December 31, 1998 from $214,882 for the year ended December 31, 1997.
This decrease was due to higher interest income on cash reserves.
Principally as a result of the factors described above, we incurred a net
loss of $2,384,148 for the year ended December 31, 1998 as compared to a net
loss of $3,516,840 for the year ended December 31, 1997.
LEASE OBLIGATIONS
We have obligations under non-cancellable operating leases in relation to
office equipment expiring June 28, 2000 and an office lease expiring December
14, 2003. Minimum future annual lease payments under these leases as of December
31, 1999 was $372,139.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations through debt and equity
investment from our founders, private share placements to institutional
investors, a public issuance of shares to non-US citizens and operating cash
flows.
In 1999, our net loss was $6,210,084. The net cash used in operating
activities was $3,524,804 after adjustments for stock-based compensation of
$2,504,224, an increase in accounts receivable of $576,072, amortization and
depreciation of $101,809 and minor adjustments to accrued expenses, provisions,
accounts payable and inventory. The net cash used in operating activities
includes non-recurring expenditure of $1,294,636 related to the costs of the
restructure and move to the US. We obtained an exchange rate benefit of
$100,097. Cash reserves increased from $148,789 to $5,269,757 during this
period. Net cash provided from the issuance of shares of common stock was
$9,521,278.
In 1998, our net loss was $2,384,148. The net cash used in operating
activities was $1,749,495 after adjustments for stock-based compensation credit
of $8,627, a decrease in accounts receivable of $193,015, amortization and
depreciation of $150,744 and minor adjustment to accrued expenses, provisions,
accounts payable and inventory. The net cash used in operating activities
includes no non-recurring expenditures. We incurred capital expenditures on
equipment of $175,951 and incurred an exchange rate loss of $23,411. Cash
reserves
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<PAGE> 35
decreased from $593,196 to $148,789 during the period. Net cash provided from
the issuance of shares of common stock was $1,504,570.
In 1997, our net loss was $3,516,840. The net cash used in operating
activities was $3,604,850 after adjustments for stock-based compensation of
$218,646, an increase in accounts receivable of $214,500, amortization and
depreciation of $55,724 and minor adjustment to accrued expenses, provisions,
accounts payable and inventory. The net cash used in operating activities
includes non-recurring expenditures of $848,585. We incurred capital
expenditures on equipment of $156,540 and incurred an exchange rate loss of
$88,193. Cash reserves increased from $48,807 to 593,196 during the period. Net
cash provided from the issuance of shares of common stock was $4,291,287.
MARKET RISK
To date, we have not utilized any foreign currency hedging or other
derivative financial instruments. We do not expect to employ these or other
strategies to hedge market risk in the foreseeable future. Following
registration of our securities in the United States, investors may seek to
profit by exploiting the difference, if any, in the price of our stock on the
ASX, in Australia, and the Nasdaq National Market, in the United States. Such
arbitraging activities could cause our stock price in the market with the higher
value to decrease to the price set by the market with the lower value. We cannot
estimate the amount or extent of this type of market risk.
We currently invest our cash and cash equivalents in interest bearing term
deposits with Australian banks. We believe these investments are subject to
minimal credit and market risk.
FUTURE ADOPTION OF NEW ACCOUNTING STATEMENTS
In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-9, "Modification of SOP 97-2" ("SOP
98-9"), which amends certain provisions of Statement of Position 97-2 "Software
Revenue Recognition with Respect to Certain Transactions" ("SOP 97-2") and
extends the deferral of the application of certain passages of SOP 97-2 provided
by Statement of Position 98-4 ("Deferral of Effective Date of SOP 97-2") until
the beginning of our fiscal year 2000. We do not expect the adoption of this
standard to have a material effect on our consolidated operating results or
financial position.
YEAR 2000 COMPLIANCE
As scheduled, we have completed our testing related to the year 2000
phenomenon including the impact, if any, of the recent change in the century on
our internally developed software as well as on computer technology and other
services provided to us by third-party vendors. Our testing included addressing
leap year calendar date calculation concerns. The possibility of significant
interruptions of normal operations has been reduced. As of March 15, 2000, we
have operated without significant or material year 2000-related problems. We
believe that all of our critical systems are year 2000 ready. However, there is
no guarantee that we have discovered all possible failure points.
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<PAGE> 36
We are fairly dependent on third party vendors to provide us services and
equipment. A significant year 2000-related disruption of services or equipment
that third party vendors provide to us could harm our business. We are not aware
that any of our third party vendors have experienced significant year
2000-related problems.
To date, we have incurred a minimal amount of expenses on the year 2000
phenomenon because we developed our systems and technology in light of the
phenomenon. All of our expenses have related to the operating costs associated
with time spent by employees and consultants in the evaluation process for year
2000 readiness matters.
ITEM 3. PROPERTIES
Our corporate headquarters and principal executive offices in North America
are located in leased facilities in Detroit, Michigan consisting of
approximately 1000 square feet of office space. Our lease expires in March 1,
2001, but can be renewed for a further one year period. Our current facilities
in the United States will not be sufficient to meet our anticipated growth.
Our offices and development center in Australia are located in leased
facilities in Sydney, New South Wales, Australia consisting of approximately
2,060 square feet. Our lease agreement expires on December 14, 2003. We believe
that our Australia facilities are sufficient to meet our immediate foreseeable
operating needs in Australia.
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<PAGE> 37
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding beneficial
ownership of our capital stock as of December 31, 1999 by:
- each person who is known by us to beneficially own more than five
percent of our common stock;
- our Chief Executive Officer and each of our executive officers for the
year ended December 31, 1999;
- each of our directors; and
- all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Common
Common Stock Stock
Beneficially Beneficially
Name and Address of Beneficial Owner Owned(1) Owned(2)
- ------------------------------------ ------------ ------------
<S> <C> <C>
Lance D. O'Connor(3)
6-8 Kangaroo Point Road
Kangaroo Point, NSW 2224 794,564 11.34%
Australia
Alexander S. Dawson(4)
52 St Marks Road
Randwick, NSW 2031 201,484 2.99%
Australia
David L. Mac. Smith(5)
58 View Street
Woollahra, NSW 2025 276,667 4.05%
Australia
Duncan P.F. Mount(6)
9 Ithica Road
Elizabeth Bay, NSW 2011 200,000 2.97%
Australia
John M. Weihen(7)
17 Bayswater Road
Lindfield, NSW 2070 34,200 *
Australia
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
Number of Percentage of
Shares of Common
Common Stock Stock
Beneficially Beneficially
Name and Address of Beneficial Owner Owned(1) Owned(2)
- ------------------------------------ ------------ ------------
<S> <C> <C>
Benjamin A. Garton(8)
65 Wilson Street
Newtown, NSW 2042 21,384 *
Australia
Jonathan R.E. Adams(9)
10 Willows Lane
Walingford, Pennsylvania 19806 1,500 *
Carl H. Fisher(10)
1607 Damon Way
Salt Lake City, Utah 84117 2,500 *
Justin C.A. Wescombe(11)
14/339 Edgecliff Road
Edgecliff NSW 2027 76,107 1.12%
Australia
All directors and executive
officers as a group 813,842 11.71%
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options,
warrants or other rights to purchase which are currently exercisable or are
exercisable within 60 days after December 31, 1999 are deemed outstanding for
purposes of computing the percentage ownership of any other person. Except as
indicated by footnotes and subject to community property laws, where applicable,
the persons named above have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.
(2) Percentage of Beneficial Ownership is calculated on the basis of the
amount of outstanding securities plus those securities of the named person
deemed to be outstanding under Rule 13-d3 (promulgated under the Securities and
Exchange Act of 1934, as amended) by virtue of such securities being subject to
rights to acquire beneficial ownership within 60 days after December 31, 1999.
An asterisk indicates beneficial ownership of less than 1% of the common stock
outstanding.
(3) Includes 222,134 vested but unexercised options held by Mr. O'Connor.
Also includes 55,000 vested but unexercised options held by Jenolan Pty Limited
of which Mr. O'Connor is a shareholder and director.
(4) Includes 16,484 vested but unexercised options held by Mr. Dawson. Also
includes 25,000 shares held by Glomore Pty Limited, a family investment company
of which Mr. Dawson is a shareholder and director.
(5) Includes 100,000 vested but unexercised options.
(6) Includes 178,087 shares held by Boom Australia Pty Limited which is the
Trustee of the Mount Family Trust, the directors of which are Mr. Mount and his
wife.
(7) Includes 30,000 vested but unexercised options.
(8) Includes 16,111 vested but unexercised options.
(9) Includes 1,500 vested but unexercised options.
(10) Includes 2,500 vested but unexercised options.
(11) Includes 50,000 vested but unexercised options.
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<PAGE> 39
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, and their ages as of January 1, 2000,
are as follows:
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
David L. Mac. Smith 49 Director and Chairman
Michael V. Howe 51 Director, President and Chief Executive Officer
Alexander S. Dawson 56 Director(1)
Duncan P.F. Mount 52 Director(1)
John M. Weihen 53 Vice President -- Finance and Administration, Treasurer and Secretary
Benjamin A. Garton 33 Vice President -- Product Development
Jonathan R.E. Adams 37 Vice President -- Implementation and Technical Support
Carl H. Fisher 45 Vice President -- Business Development
Justin C.A. Wescombe 37 Vice President -- Sales and Marketing
</TABLE>
(1) Member, Audit Committee
David L. Mac. Smith is our founder and currently our Chairman of the Board.
He has been the Chief Executive Officer and Managing Director of CAT, our wholly
owned subsidiary, since November 1992. In December 1999, he became our President
and CEO pending the appointment of a new President and CEO. In January 2000, he
resigned as our President and CEO and became our Chairman. He was the founder
and, from 1982 to 1991, CEO of Technology Investment Management Limited, a funds
management company with specific focus on technology related businesses. He has
a Bachelor of Law degree from the Australian National University.
Michael V. Howe has served as our President and Chief Executive Officer
since January 2000. From 1995 through 1999, he was the Director of Marketing
Communications for United Airlines, responsible for the United Mileage Plus
loyalty rewards program and the United partnership program. Prior to joining
United Airlines, he served as the Chief Executive Officer of Young and Rubicam
Advertising in Detroit, Michigan from 1990 to 1995. He has a Bachelor of
Business Administration from John Carroll University and a Master of Business
Administration from Michigan State University.
Alexander S. Dawson is currently one of our non-employee Directors. He
served as our Chairman of CAT, our wholly owned subsidiary, from November 1992
to December 1999. From 1987 to 1990, he was Chief Executive Officer of Arnotts
Ltd., Australia's largest biscuit and snack food manufacturing company. From
1988 to 1990, he was a member of the Business
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<PAGE> 40
Council of Australia. He served as Chairman of United Distillers (Australasia)
Limited from 1994 to 1996. He has a Bachelor of Commerce degree from the
University of New South Wales and a Master of Business Administration from
Columbia University.
Duncan P.F. Mount is currently one of our non-employee Directors. He served
as a non-employee Director of CAT, our wholly owned subsidiary, from March 1999
to December 1999. From 1990 to 1998, he was the Asian adviser to CEF.TAL
Investment Management Limited, a Hong Kong based joint venture between the
Canadian Imperial Bank of Commerce, Cheung Kong Holdings Limited and TAL
Investment Counsel. He spent 17 years in Hong Kong as the Managing Director of
Gartmore Investment Management Limited from 1980 to 1988 and as managing
director of CEF Investment Management Limited from 1988 to 1996, entities which
are fund management and investment companies. From 1996 to 1999 he was Managing
Director of CEF.TAL Australia Limited. He holds a Bachelor and Master of Arts
degree in Economics and Law (Hons) from Cambridge University.
John Weihen is currently our Vice President--Finance and Administration and
Secretary. He served in the same role in CAT, our wholly owned subsidiary, from
November 1998 to December 1999. From October 1995 to November 1998, he served as
General Manager Operations and Business Development for CAT. From 1993 to 1995,
he was Senior General Manager Northeast Asia for the Australian Shipping Line,
and from 1991 to 1993, he was Chief Operating Officer for Intag Limited, a
proximity card technology company based in Sydney, Australia. From 1988 to 1991,
he was an investment manager for Technology Investment Management Limited, a
venture capital funds management group. Mr. Weihen holds a Diploma in
Accountancy.
Benjamin A. Garton is currently Vice President--Product Management &
Development. He served in the same role with CAT, our wholly owned subsidiary,
from March 1999 to December 1999. From November 1996 to February 1999 he was
Manager Development for CAT and from September 1994 to October 1996 he was a
Senior Systems Analyst for CAT. From October 1992 to August 1994, he was
Development Manager at Citibank Australia with responsibilities for electronic
funds transfer switching systems.
Jonathan R.E. Adams is our Vice President--North American Implementation
and Technical Services. From 1996 to 1998 he was the Director, Financial
Markets, for Schlumberger Smart Cards and Systems based in New Jersey. From 1994
to 1996 he worked with MBNA America Corporation in strategic planning, involved
with card system implementation and electronic commerce. He holds a Bachelor of
Arts degree from Washington College and Master of Business Administration from
Georgetown University.
Carl H. Fisher is our Vice President--Business Development. From 1997
to 1998, he was a director and Vice President, Finance of ICOne, a smart card
loyalty program company based in Salt Lake City, Utah. From 1995 to 1997, he was
Chief Financial Officer and Chief Information Officer for Morinda Inc., a $100
million per year revenue wholesale sales company, From 1987 to 1995, he was
founder and President of a financial consulting firm, Fisher Associates,
assisting clients in areas of financial and computerized accounting systems.
Prior to establishing his own business, for eight years he worked with Arthur
Andersen and Price Waterhouse, specializing in areas of financial consulting
with high growth technology companies in the Silicon Valley. He holds a Bachelor
of Economics degree from Westminster College and a Bachelor of Accounting degree
from the University of Utah.
Justin C.A. Wescombe is our Vice President-Sales and Marketing, but will be
leaving our employ in April, 2000. He served in the same role with CAT, our
wholly owned subsidiary from 1997 to 1999. From 1994 to 1997, he was Vice
President Sales and Marketing for International Financial Systems of Ireland, a
provider of financial services software.
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<PAGE> 41
Each of our directors holds office until the next annual meeting of
stockholders or until his successor has been duly elected or qualified or until
his earlier death, resignation or removal. Executive Officers are appointed by,
and serve at the discretion of, our board of directors.
Our board of directors has an audit committee. The audit committee, among
other things, makes recommendations to the board of directors concerning the
engagement of independent public accountants, monitors and reviews the quality
and activities of our internal audit functions, and monitors the results of our
operating and internal controls as reported by management and the independent
public accountants. We expect to add a third member to the audit committee in
the future in order to meet NASDAQ audit committee rules.
Our board of directors does not have a compensation committee. Compensation
for our Chief Executive Officer is determined by our board as a whole.
Compensation for all of our other senior executives is recommended by our CEO to
our board, which reviews all senior executive employment agreements. In
recommending and determining compensation, our CEO and our board consider
independent studies of comparable remuneration packages. Incentives in the form
of stock options are generally offered.
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<PAGE> 42
ITEM 6. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the last three fiscal years, all
compensation of our executive officers who were serving as executive officers at
the end of 1999 and in addition the compensation of our President and CEO, who
commenced employment on January 4, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------
Other Annual
Name and Compensation
Principal Position Year Salary($) Bonus($) ($)(1)
- ------------------ ---- --------- -------- -------------
<S> <C> <C> <C> <C>
Michael V. Howe
President and CEO 2000 240,000 60,000
David L. Mac. Smith
Director and Chairman 1999 172,640 0 4,425
1998 163,275 0 25,041(2)
1997 185,750 0 4,214
John M. Weihen
Vice President -
Finance and
Administration,
Secretary 1999 129,100 0 4,425
1998 125,800 0 4,311
1997 148,600 0 4,214
Benjamin A. Garton
Vice President - Product
Development 1999 88,936 0 11,969(3)
1998 64,783 0 11,611(3)
1997 85,148 0 4,214
Jonathan R.E. Adams
Vice President --
Implementation and
Technical Services 1999 125,000 0 0
Carl H. Fisher
Vice President --
Business Development 1999 150,000 0 0
Justin C.A. Wescombe
Vice President - Sales and
Marketing 1999 92,400 0 36,700(4)
1998 90,039 0 35,761(4)
1997 107,236 0 41,364(4)
</TABLE>
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<PAGE> 43
(1) Includes Australian Superannuation Guarantee Levy, a compulsory
payment that funds retirement benefits.
(2) Also includes payout of unused vacation.
(3) Also includes motor vehicle lease payments.
(4) Includes shares of common stock issued in accordance with Mr.
Wescombe's employment agreement valued as follows: 1999 - $32,275;
1998 - $31,450; 1997 - $37,150.
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth each grant of stock options to each of our
executive officers for the year ended December 31, 1999.
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<PAGE> 44
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------------------- Value at Assumed
Number of Percent of Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise for Option Term(4)
Options Employees in Price Per Expiration ------------------------
Name Granted(1) Fiscal Year(2) Share(3) Date 5% 10%
- ---- ----------- ------------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
David L. Mac. Smith 50,000 14.20% $ 6.50 Jun 24, 2000 $ 16,250 $ 32,500
50,000 14.20 $ 7.48 Jun 24, 2001 $ 38,335 $ 78,540
50,000 14.20 $ 7.80 Jun 24, 2003 $ 84,047 $180,999
50,000 14.20 $10.40 Jun 24, 2004 $143,666 $317,465
------- -------
200,000 56.80%
John M. Weihen 5,000 1.42% $ 6.18 Sep 30, 2001 $ 3,167 $ 6,489
5,000 1.42 $ 6.18 Jun 30, 2002 $ 3,167 $ 6,489
5,000 1.42 $ 1.95 Mar 31, 2001 $ 1,526 $ 3,227
------- -------
15,000 4.26%
Benjamin A. Garton 15,000 4.26% $ 6.18 Jun 30, 2001 $ 9,502 $ 19,467
7,500 2.13 $ 6.18 Jun 30, 2002 $ 4,751 $ 9,733
7,500 2.13 $ 6.18 Jun 30, 2003 $ 4,751 $ 9,733
20,000 5.68 $ 6.18 Jun 30, 2004 $ 12,669 $ 25,956
------- -------
50,000 14.20%
Jonathan R.E. Adams 1,500 0.43% $ 6.18 Jun 30, 2001 $ 706 $ 1,436
2,500 0.71 $ 6.18 Jun 30, 2001 $ 772 $ 1,544
3,500 0.99 $ 6.18 Jun 30, 2002 $ 1,648 $ 3,350
3,500 0.99 $ 6.18 Jun 30, 2002 $ 2,215 $ 4,539
------- ------
11,000 3.12%
Carl H. Fisher 1,250 0.36% $ 6.18 Jun 30, 2001 $ 759 $ 1,553
1,250 0.36 $ 6.18 Jun 30, 2001 $ 657 $ 1,341
1,250 0.36 $ 6.18 Jun 30, 2001 $ 556 $ 1,128
1,250 0.36 $ 6.18 Jun 30, 2001 $ 455 $ 916
------- ------
5,000 1.44%
Justin C. A. Wescombe -- -- -- -- -- --
</TABLE>
- ----------
(1) Each such option will become fully vested as follows:
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<PAGE> 45
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------
Number of
Securities
Underlying Exercise
Options Vesting Price Per Expiration
Name Granted(1) Date Share $ Date
- ---- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
David L. Mac. Smith 50,000 Jul 1, 1999 6.50 Jun 24, 2000
50,000 Jul 1, 2000 7.48 Jun 24, 2001
50,000 Jul 1, 2001 7.80 Jun 24, 2003
50,000 Jul 1, 1999 10.40 Jun 24, 2004
John M. Weihen 5,000 Sep 30, 1999 6.18 Sep 30, 2001
5,000 Jun 30, 2000 6.18 Jun 30, 2002
5,000 Mar 10, 1999 1.95 Mar 31, 2001
Benjamin A. Garton 15,000 Jul 1, 1999 6.18 Jun 30, 2001
7,500 Jul 1, 2000 6.18 Jun 30, 2002
7,500 Jun 30, 2001 6.18 Jun 30, 2003
20,000 Jun 30, 2002 6.18 Jun 30, 2004
Jonathan R.E. Adams 1,500 Dec 31, 1999 6.18 Jun 30, 2001
2,500 Jun 30, 2000 6.18 Jun 30, 2001
3,500 Dec 31, 2000 6.18 Jun 30, 2002
3,500 Jun 30, 2001 6.18 Jun 30, 2002
Carl H. Fisher 1,250 Jul 31, 1999 6.18 Jun 30, 2001
1,250 Oct 31, 1999 6.18 Jun 30, 2001
1,250 Jan 31, 2000 6.18 Jun 30, 2001
1,250 Apr 30, 2000 6.18 Jun 30, 2001
</TABLE>
(2) Based on a total of 352,254 option shares granted to our employees
during fiscal year 1999.
(3) The exercise price per share of each option was equal to or greater
than the fair market value of the common stock on the date of grant as
determined by the board of directors. The exercise price may be paid in cash, or
in shares of our common stock valued at the market value of such stock on the
exercise date.
(4) The potential realizable value is calculated based on the term of the
option at the time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and does
not represent our predictions of our future stock price performance. The
potential realizable value at 5% and 10% appreciation is calculated by assuming
that the exercise price on the date of grant appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated price.
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<PAGE> 46
FISCAL YEAR END-OPTION VALUES
The following table sets forth, for each of our executive officers, the
number and value of securities underlying options that were held by such
executive officers as of December 31, 1999. In 1999, 14,172 options were
exercised by such executive officers.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
At December 31, 1999(1) at December 31, 1999(2)
----------------------- -------------------------
Name Vested Unvested Vested Unvested
- ---- ------- -------- -------- --------
<S> <C> <C> <C> <C>
David L. Mac. Smith 100,000 100,000 $280,000 $361,000
John M. Weihen 30,000 5,000 $257,850 $ 25,350
Benjamin A. Garton 16,111 35,000 $121,152 $139,425
Jonathan R.E. Adams 1,500 9,500 $ 7,605 $ 48,165
Carl H. Fisher 2,500 2,500 $ 12,675 $ 12,675
Justin C. A. Wescombe 50,000 25,000(3) $401,500 $120,250
</TABLE>
(1) The heading "Vested" refers to shares that were exercisable as of
December 31, 1999; the heading "Unvested" refers to shares that were
unexercisable as of December 31, 1999.
(2) Based on a fair market value of our common stock as of December 31,
1999 of $11.25 per share.
(3) Will not vest due to termination of employment as of April 30, 2000.
POST FISCAL YEAR END-OPTION GRANTS
Since the end of our last fiscal year, we retained a new President and
Chief Executive Officer, Mr. Michael Howe. Associated with his employment, we
are committed to issue options to Mr. Howe to purchase 315,000 shares of common
stock. Of the shares underlying those options, 75,000 shares vested with the
grant of the option and the balance vests quarterly over a five year period
ending December 31, 2004. The expiration date of the options generally is
December 31, 2008, or six months after cessation of employment, if earlier. The
option exercise price will be the lowest of the volume-weighted average trading
price of our shares on the Australian Stock Exchange for 30 days prior to
listing on the Nasdaq National Market (converted to US$ at 0.65 per A$); the
volume-weighted average trading price of our shares on the Nasdaq National
Market for the 30 days immediately following listing on such Nasdaq Market; and
the volume-weighted average trading price of Catuity shares on the Australian
Stock Exchange for the month of January, 2000 (converted to US$ at 0.65 per A$).
COMPENSATION OF DIRECTORS
Each of our non-employee directors receives an annual director's fee of
$16,138. Our Chairman and our President and CEO, who are executives and
directors, receive only the executive compensation referred to above.
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<PAGE> 47
EMPLOYMENT AGREEMENTS
MICHAEL V. HOWE. We entered into a five year employment agreement with our
President and Chief Executive Officer, Michael Howe, effective January, 2000.
Under the agreement, Mr. Howe is entitled to receive a base salary of $240,000,
which is subject to annual review for possible increase by the Board in
conjunction with performance. Mr. Howe is also entitled to receive a performance
based bonus which will be determined by the Board each year as part of the
budget review. For the first year, the bonus is fixed at $60,000 to be paid in
four equal installments on March 31; June 30; September 30 and December 31,
2000. Mr. Howe received options to purchase up to 315,000 shares of common
stock, which will vest 75,000 on commencement of employment and 12,000 at the
end of each calendar quarter through the quarter ending December 31, 2004
contingent upon his continued employment at the quarter end. The option exercise
price will be the lowest of the weighted average trading price of our shares on
the Australian Stock Exchange for 30 days prior to listing on the Nasdaq
National Market (converted to US$ at 0.65 per A$); the weighted average trading
price of our shares on NASDAQ for the 30 days immediately following listing on
NASDAQ; and the weighted average trading price of Catuity shares on the
Australian Stock Exchange for the month of January, 2000 (converted to US$ at
0.65 per A$), but in no event less than 85% of the fair market value of our
shares on date of grant. All options expire on the earlier of December 31, 2008
or the date six months after cessation of employment.
If the agreement is terminated by us without cause, Mr. Howe is entitled
to one year's written notice. We have the right to pay one year's base salary
and accelerate 50% of the stock options scheduled to vest for that year to
effect immediate termination. Mr. Howe may voluntarily terminate the agreement
at any time provided we are given 6 months' advance written notice.
DAVID L. MAC. SMITH. We entered into a three year employment agreement
with our Chairman, David L. Mac. Smith, effective June 1, 1999. Under the
agreement, Mr. Mac. Smith is entitled to receive a base salary of $174,282,
subject to annual review for possible increase based on consideration of cost of
living, level of responsibility, competitive remuneration, performance and
increases awarded to our other employees. Mr. Mac. Smith is also entitled to
payment by us of certain required Australian withholding amounts. During the
term of his employment agreement and for various periods thereafter, Mr. Mac.
Smith will have the right to purchase up to 200,000 shares of common stock as
detailed above.
The agreement may be terminated by Mr. Mac. Smith by giving six months'
notice in writing. If a person or party gives notice of its intention to
acquire, or acquires, more than 30% of the issued capital of the Company or any
parent of the Company, all unvested shares and options will vest and Mr. Mac.
Smith may terminate the agreement at any time within a period of six months
following such event by giving three months' notice. We may terminate the
agreement for cause or if Mr. Mac. Smith becomes unable to perform his duties or
agreement has not been reached prior to June 1, 2001 on continued employment
after the term. On termination of the agreement by either party for any reason,
we shall pay Mr. Mac. Smith the then prevailing basic salary package for 12
months from the effective date of termination, payable monthly in arrears in
equal installments secured by a bank guarantee or such other installments and
security as may be mutually agreed. If the agreement is terminated by us, Mr.
Mac. Smith must resign as a Director.
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<PAGE> 48
Under Mr. Mac. Smith's previous employment contract, entered into on
May 1, 1995, he was entitled to the equivalent of 10% of any shares issued
until the time we became listed on the ASX. A loan from us was made
available to acquire these shares. At December 31,1999, this non-interest
bearing loan to Mr. Mac. Smith amounted to $593,043. Our recourse for
repayment of the loan is limited to dividends and share sale proceeds. Mr.
Mac. Smith may transfer shares subject to the loan to members of his family
or entities controlled by one or more members of his family without any
obligation to repay the loan. However, the sale or any transfer or any
disposal of the shares to any other person will trigger repayment of the loan
applicable to such shares.
JOHN WEIHEN. We entered into an employment agreement with the Vice
President - Finance and Administration, Treasurer and Secretary, Mr. J. Weihen,
effective November 1, 1996. The employment agreement was extended through June
30, 2001. Under the agreement, Mr. Weihen is entitled to receive annual
remuneration of $130,000, subject to annual CPI increases. During the term of
his employment and for various periods thereafter, Mr. Weihen will have the
right to purchase 35,000 shares of common stock as detailed above at $6.18 and
$1.95 per share. If the agreement is terminated by us without cause, Mr. Weihen
is entitled to a minimum of 9 months written notice. Mr. Weihen may terminate
the agreement for significant and serious personal or family reasons upon 4
months written notice.
BENJAMIN GARTON. We entered into a two year employment agreement with our
Vice President - Product Development, Mr. B. Garton, effective April 1, 1999.
Under the agreement, Mr. Garton is entitled to receive annual remuneration of
$107,250 subject to annual CPI increases. Mr. Garton will have the right to
purchase 51,111 shares of common stock as detailed above. If the agreement is
terminated by us without cause, Mr. Garton is entitled to a minimum of 9 months
written notice. Mr. Garton may terminate the agreement for significant and
serious personal or family reasons upon 6 months written notice.
JONATHAN R.E. ADAMS. We entered into a one year employment agreement
year with our Vice President - Implementation and Technical Services, Mr. J.
Adams, effective August 9, 1999. Under the agreement, Mr. Adams is entitled to
receive annual remuneration of $125,000. During the term of his employment and
for various periods thereafter, Mr. Adams will have the right to purchase 11,000
shares of common stock as detailed above at $6.18 per share. If the agreement is
terminated by us without cause, Mr. Adams is entitled to a minimum of 2 months
written notice. Mr. Adams may voluntarily terminate the agreement at any time
provided we are given 2 months written notice.
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<PAGE> 49
CARL H. FISHER. We entered into a one year employment agreement with
our Vice President - Business Development, Mr. C. Fisher, effective May 1, 1999.
Under the agreement, Mr. Fisher is entitled to receive annual remuneration of
$150,000. During the term of his employment and for various periods thereafter,
Mr. Fisher will have the right to purchase 5,000 shares of common stock as
detailed above at $6.18 per share. If the agreement is terminated by us without
cause, Mr. Fisher is entitled to a minimum of 2 months written notice. Mr.
Fisher may voluntarily terminate the agreement at any time provided we are given
2 months written notice.
JUSTIN WESCOMBE. We entered into a three year employment agreement with
our Vice President - Sales and Marketing, Mr. J. Wescombe, effective August 1,
1998. Under the agreement, Mr. Wescombe is entitled to receive annual
remuneration of $130,000, subject to annual CPI increases. That remuneration
includes shares in us valued at $2,690 per month issued at the end of each
quarter at the last sale price on the ASX at the end of each month. During the
term of his employment and for various periods thereafter, Mr. Wescombe will
have the right to purchase 75,000 shares of common stock as detailed above.
-47-
<PAGE> 50
We and Mr. Wescombe have mutually agreed to terminate his employment
agreement, effective April 30, 2000 as a result of Mr. Wescombe being unable to
relocate to the US due to family reasons. As a result of the termination, Mr.
Wescombe's 25,000 unvested shares will not vest.
Catuity, Inc. Stock Option Plan
In March 2000, the Board adopted, and the stockholders approved, our
Catuity Inc. Stock Option Plan. The plan provides for the grant of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, to employees and of nonstatutory stock options to employees,
non-employee directors and consultants. The plan is administered and
interpreted by the Board or a committee designated by the Board. It will
terminate in 2010.
As of March 10, 2000, the plan authorized the issuance of options to
purchase up to 750,000 shares of common stock, and no options were outstanding.
The plan administrator has discretion, within the limits of the plan, to
select optionees and to determine the number of shares to be subject to each
option and the exercise price and vesting schedule of each option. The exercise
price of incentive stock options granted under the plan must at least be equal
to the fair market value per share of the common stock on the date of grant and
the exercise price of nonstatutory stock options granted under the plan must be
greater than or equal to 85% of the fair market value per share of the common
stock on the date of grant. With respect to any participant who is a 10%
stockholder, the per share exercise price of any stock option granted under the
plan must equal at least 110% of the fair market value of the common stock on
the grant date and the maximum term of the option must not exceed five years.
The term of all other options granted under the plan may not exceed ten years.
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<PAGE> 51
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 6 "EXECUTIVE COMPENSATION" sets forth the details of employment
agreements with our executive officers, Messrs. Howe, Mac. Smith, Weihen,
Wescombe, Garton, Adams and Fisher. ITEM 6 also sets forth details concerning
the grant of options to those executive officers.
In September, 1999 we entered into a three year Service Contract with Mr.
Lance O'Connor, who was a director of CAT at that time, to provide assistance
and management of our advisors in the United States. The services related to
establishment of the US office, general management of our affairs in the United
States, development of administration and financial reporting systems,
preparation of budgets and accounting reporting procedures and capital markets.
On March 1, 2000, the arrangement with Mr. O'Connor was terminated as a result
of our decision to establish our principal U.S. office in Detroit, rather than
San Francisco (where Mr. O'Connor is located) and completion of certain
projects. Under the contract, Mr. O'Connor received an annual service fee
(including Australian fringe benefits tax) of $20,000 plus an annual
accommodation allowance of $40,000 and an accountable expense allowance of
$40,000.
In January 1999 we entered into a share placement agreement with BNP
Equities (Australia) Limited, (BNP) to place 300,000 shares at $2.71 per share
to institutional clients of BNP, raising $813,333. One of the sub-underwriters
in the placement was Boom Australia Pty Limited, which subscribed for 25,000
shares or 8.33% of the shares placed. Boom Australia Limited is an investment
company of which Mr. Mount is a Director. At that time Mr. Mount was not a
Director of Catuity or CAT.
On March 19, 1999, Mr. Mount became a Director of CAT and in December 1999
became a Director of Catuity. On March, 26 1999, we entered into an agreement
with BNP to underwrite the exercise of up to 941,088 options due to expire June
30, 1999 and exercisable at $4.84 each and the placement of 150,000 shares at
$4.84 per share to clients of BNP,
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<PAGE> 52
$726,188. Boom Australia Limited subscribed for 100,000 shares, or 66.67% of
the shares placed and received a sub-underwriting fee for sub-underwriting the
exercise of the options.
In September 1999, CAT requested approval from The Supreme Court of New
South Wales, Australia, to hold shareholder and optionholder meetings to
consider, and if thought fit approve arrangements to restructure CAT's share
capital. Under the restructure shareholders and optionholders in CAT would
exchange their securities and entitlements (following a reverse stock split of 1
for 10) for an equal number of securities and entitlements in a newly formed
Delaware company (NovaTec Inc, which subsequently changed its name to Catuity
Inc.). The restructure was approved at Court-ordered meetings of shareholders
and optionholders and implemented in November, 1999. Implementation of the
restructure has resulted in Catuity Inc. acquiring all CAT shares for an
equivalent number of shares in Catuity. All employees holding options in CAT
received an equivalent number of options, with the same terms and conditions, in
Catuity. Non-employee options were restructured differently, but with the
resulting effect that they were placed in the same position as all other
optionholders. Mr. O'Connor and Mr. Dawson, two directors of CAT, were part of
the non-employee optionholder arrangements under share option and put and call
share deeds.
In August 1996, Heath Fielding Australia Pty Limited, Jenolan Pty Limited
and Krislan Pty Limited entered into a loan agreement with CAT which loan was
secured by the assets of CAT. At the time of the agreement, Len Hanning was a
director of CAT and a director of Heath Fielding Australia Pty Limited. Mr.
Hanning resigned as a director of CAT in March 1998. At the time, Mr. O'Connor
was a director of CAT and a director and shareholder in both Jenolan Pty Limited
and Krislan Pty Limited. In March 1997, Jenolan and Krislan agreed to release
the security and convert their outstanding loan balance of $1,004,556 into
450,675 shares of CAT at $2.23 per share. Heath became the sole security holder
for their loan of $1,691,618. In May 1999, CAT entered into an agreement with
Heath Group Australasia Pty Limited (HGA) (formerly Heath Fielding Australia Pty
Limited) and Industrial Superannuation Administrative Services Limited (ISAS)
whereby HGA and ISAS agreed to grant CAT an option to buy-back 332,588 shares at
$5.50 per share any time up to July 18, 2000. The buy-back option was contingent
upon CAT undertaking to immediately repay $839,981 of the outstanding loan
amount of $1,593,549 and the balance pro rata to the percentage of shares
purchased under the option. In addition HGA and ISAS undertook to exercise all
their June 30, 1999 options and to sell the 263,233 shares resulting from the
option exercise together with the balance of 220,921 shares they held by June
30, 1999. All these transactions were completed. The buy back option now applies
to Catuity shares. CAT can exercise the option to buy-back shares in a maximum
of three payments subject to making pro rata repayments of the outstanding
balance of the loan. At the end of the option exercise period any balance of the
loan remaining outstanding will be subject to the terms and conditions of the
original loan agreement which provides for repayment when in the opinion of the
directors of CAT, CAT has sufficient surplus fund available to permit repayment
of the loan balance. The
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<PAGE> 53
outstanding loan balance after July 18, 2000 may be called by HGA in the event
of default by CAT in performance of the loan terms.
-51-
<PAGE> 54
ITEM 8. LEGAL PROCEEDINGS
There is no action, suit, proceeding or investigation pending or, to our
knowledge, threatened against us, including any investigation of any
governmental authority or body.
-52-
<PAGE> 55
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
CAT was listed on the Australian Stock Exchange (ASX) under the trading
symbol "CAT" from July 11, 1997 to November 22, 1999. On November 23, 1999, upon
our acquisition of CAT, we replaced CAT as the listed entity on the ASX under
the same trading symbol. We continue to be traded on the ASX. We are applying
for listing on the Nasdaq National Market in conjunction with the filing of this
registration statement. There previously has been no United States market for
our common stock.
Our high and low sales prices on the ASX for each quarter within the last
two fiscal years are shown below, both in Australian dollars and in United
States dollars.
As of December 31, 1999, 821,623 shares of our common stock were subject to
outstanding options, warrants or other securities convertible into our common
stock.
<TABLE>
<CAPTION>
High Low High Low
Period (Australian $) (Australian $) (United States $) (United States $)
- ------ -------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Fiscal Year 1998:
First Quarter 1998 $4.50 $3.00 $2.98 $1.99
Second Quarter 1998 $4.40 $2.60 $2.73 $1.62
Third Quarter 1998 $3.50 $2.10 $2.08 $1.25
Fourth Quarter 1998 $2.60 $2.05 $1.59 $1.26
Fiscal Year 1999:
First Quarter 1999 $9.90 $2.40 $6.28 $1.52
Second Quarter 1999 $15.10 $7.60 $9.98 $5.03
Third Quarter 1999 $12.50 $8.00 $8.16 $5.22
Fourth Quarter 1999 $24.40 $11.70 $16.03 $7.69
</TABLE>
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<PAGE> 56
<TABLE>
<S> <C> <C> <C> <C>
Fiscal Year 2000
First Quarter (through
March 10, 2000) $20.00 $14.55 $13.00 $9.46
</TABLE>
All currency conversions are based on the prevailing A$ to US$ rate
applicable on the last day of each respective quarter.
As of December 31, 1999, there were approximately 4,380 stockholders of
record of our common stock as reported to us by Computershare Registry Services
Pty Limited, our transfer agent.
To date, we have not paid any dividends on our common stock and do not
expect to do so in the foreseeable future. We expect to retain all earnings to
finance the growth and development of our business.
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<PAGE> 57
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The sales described in this Item occurred outside of the United States and
were not required to be registered under United States securities laws.
CURRENT FISCAL YEAR TO DATE
In January, 2000, we issued 500 shares at $6.18 per share as a result of
the exercise of stock options. In February, 2000, we issued 1,526 shares at
$8.87 per share in connection with an employment agreement; 500 shares at $6.18
and 2,000 shares at $1.95 as a result of the exercise of stock options; and
6,667 shares of common stock at $4.88 per share as a result of the exercise of
stock options.
On March 2, 2000 Zip/Gun D.O.A. Pty. Limited was issued 610 shares at a
price of $10.66 per share as payment for services rendered under a services
contract which concluded in December, 1999.
FISCAL YEAR ENDED DECEMBER 31, 1999
In December, we issued 340,000 shares at $11.17 per share to institutional
clients of BNP Equities (Australia) Limited, raising $3,798,038 to provide
working capital.
In November, we concluded the Court-approved restructure, which resulted
in the issue of 125 shares by CAT as free bonus shares for the purpose of
rounding following the one-for-ten reverse stock split. This bonus issue was
immediately followed by the issue of 6,389,269 shares in us to CAT's
shareholders under the restructure in exchange for 100% of the shares
outstanding of CAT.
Prior to the restructure, the formation of Catuity and CAT becoming our
wholly owned subsidiary, CAT sold the following unregistered securities in the
fiscal year ended December 31, 1999:
- - In January, CAT issued 300,000 shares at $2.76 per share to clients of
BNP Equities (Australia) Limited, raising $827,946 to be used for
working capital.
- - In March, CAT entered into an underwriting agreement with BNP Equities
(Australia) Limited to underwrite the exercise of 941,088 options. Between
April 1 and June 30, a total of 921,458 options were exercised by option
holders resulting in the issue of 921,458 shares at $4.93 per share. In July,
19,630 shares were issued at a per share price of $4.93 to the underwriters
representing the shortfall in options exercised. As part of the underwriting
agreement there was a placement of 150,000 shares at $4.93 per share to the
sub-underwriters, raising $739,238.
-55-
<PAGE> 58
- - During the year, the following shares of common stock were issued as a result
of the exercise of employee options:
<TABLE>
<CAPTION>
Month Number of Shares Exercise Price
------- ---------------- --------------
<S> <C> <C>
January 41,500 $1.97
February 1,500 $1.97
March 6,559 $4.93
May 2,500 $1.97
August 1,500 $1.97
September 4,000 $1.97
October 7,000 $1.97
November 6,500 $1.97
</TABLE>
- - In August, CAT issued 6,657 shares to Justin C.A. Wescombe in accordance with
his employment agreement. These shares were issued as follows: 4,082 shares
at $2.04 per share; 1,450 shares at $5.65 per share and 1,125 shares at $7.29
per share.
FISCAL YEAR ENDED DECEMBER 31, 1998
In 1998, CAT issued to Cabcharge Australia Pty Limited shares as
consideration due under an agreement for the purchase of the business and assets
of Transcard Australia Pty Ltd. The consideration was payable in 4 tranches of
shares at a value of $153,150 determined by the average sale price of shares in
the preceding quarter. The first tranche was paid in 1997 (see below). In
January, CAT issued 49,420 shares at $3.12 per share, in April CAT issued 68,177
shares at $2.67 per share and in July CAT issued 69,897 shares at $2.21 per
share to Cabcharge Australia Pty Limited, all under the terms of the purchase
agreement.
In February, CAT issued 3,364 shares at a per share price of $2.28 to
Justin C.A. Wescombe and 11,858 shares at a per share price of $1.84 to M.
Spooner, in accordance with their employment service contracts.
In May, CAT issued 3,363 shares at a per share price of $2.28 to Justin
C.A. Wescombe and 14,294 shares at a per share price of $1.84 to M. Spooner, in
accordance with their employment service contracts.
In August, CAT issued 4,140 shares at a per share price of $1.85 to Justin
C.A. Wescombe and 14,502 shares at a per share price of $2.11 to M. Spooner, in
accordance with their employment service contracts.
In November, CAT issued 5,388 shares at a per share price of $1.42 to
Justin C.A. Wescombe and 19,459 shares at a per share price of $1.57 to M.
Spooner, in accordance with their employment service contracts.
In May, 1,500 shares were issued at $1.84 per share to employees following
the exercise of options.
-56-
<PAGE> 59
In May, CAT issued 750,000 shares at $1.84 per share to clients of
Prudential-Bache Securities (Australia) Limited, raising $1,378,350 to be used
for working capital.
FISCAL YEAR ENDED DECEMBER 31, 1997
In March, CAT issued 1,333,333 shares at $1.95 per share to clients of
Prudential-Bache Securities (Australia) Limited, raising $2,601,200 to be used
for working capital.
In May, CAT issued 450,675 shares at $1.95 per share to Jenolan Pty Ltd on
conversion of $879,222 in convertible notes. Also in May, 136,282 shares were
issued at $1.95 per share to Mr. Mac. Smith in accordance with his employment
service agreement. In that purchase, Mr. Mac. Smith executed a non-recourse loan
in the amount of $303,773 repayable from dividends and the sales proceeds of the
shares.
In May, CAT conducted a public offering of shares at $1.95 per share,
underwritten by Prudential-Bache Securities (Australia) Limited. A total of
399,800 shares were issued, raising $779,970 for working capital.
In September, CAT issued 142,858 shares at $4.55 per share which raised
$650,300 to fund initial overseas marketing expenses. Also in September, 6,867
shares were issued to employees at $1.95 per share following the exercise of
employee options.
In October, CAT issued 35,714 shares at $4.55 per share to Cabcharge
Australia Pty Limited, being the first tranche of consideration due under an
agreement for the purchase of the business and assets of Transcard Australia Pty
Ltd. The consideration was payable in 4 tranches of shares to be valued at
$162,575 determined by the average sale price of shares in the preceding quarter
(see above for additional payments).
In October, CAT issued 25,632 shares following the exercise of 5,006
options at $3.12 per share by Alexander S. Dawson; 16,666 options at $3.12 per
share by Heath Fielding Australia Pty Ltd and 3,960 options at $1.95 per share
by employees.
In November, CAT issued 1,669 shares at $4.10 per share to Justin C.A.
Wescombe in accordance with his employment service contract.
Also in November, 1,500 shares were issued to employees following the
exercise of employee options at $1.95 per share.
GENERAL
All of the above CAT shares were exercised for Australian dollars; the
exchange rates used to convert Australian dollars to United States dollars are
the same as those used to
-57-
<PAGE> 60
convert balance sheet figures for the respective fiscal years. The respective
exchange rates are US$0.65 for 2000, US$0.6571 for 1999, US$0.6126 for 1998 and
US$0.6503 for 1997 per $A.
All share numbers reflect the impact of the one for ten reverse stock
split completed in November 1999. All share prices have been rounded to the
nearest cent. Where underwriters' fees were paid, the fees have been deducted
from the issued capital in the financial statements, but the gross receipts
before such fees are indicated above.
At December 31, 1999, we had 6,729,269 shares of common stock outstanding.
-58-
<PAGE> 61
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Our authorized capital consists of 110,000,000 shares, of which 100,000,000
shares are denominated common stock, par value $0.001 per share and of which
10,000,000 shares are denominated preferred stock, par value $0.001 per share. A
total of 6,741,072 shares of common stock were issued and outstanding as of
March 10, 2000. Also outstanding as of that date were options held by third
parties to purchase an aggregate of 821,623 shares of common stock. No preferred
stock has been issued.
Holders of common stock are entitled to one vote for each share standing in
his or her name. The holders of common stock may receive cash dividends as
declared by the Board of Directors out of funds legally available therefor. Each
share of common stock is entitled to share pro rata in distributions upon
liquidation. Holders of common stock are entitled to participate in the election
of all directors. The holders of common stock do not have cumulative voting
rights in the election of directors. The outstanding shares of common stock are
fully paid and non-assessable. Holders of common stock do not have subscription,
redemption, conversion, liquidation or preemptive rights. The rights of the
holders of common stock will also be subject to the rights and preferences of
the holders of the company's preferred stock, as designated by our Board of
Directors.
-59-
<PAGE> 62
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, our Certificate of
Incorporation provides that no director will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; and
- for any transaction from which the director derived an improper personal
benefit.
Our bylaws further provide that we must indemnify our directors and
executive officers and may indemnify our other officers and employees and agents
to the fullest extent permitted by Delaware law. We currently maintain liability
insurance for our officers and directors.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents as to which indemnification is being
sought. We are not aware of any pending or threatened litigation or proceeding
that might result in a claim for such indemnification.
We have entered into indemnification agreements with each of our
directors. These agreements require us, among other things, to indemnify each
director for certain expenses (including attorneys' fees), judgments, fines,
penalties and settlement amounts incurred by any such person in any threatened,
pending or completed action, suit or proceeding or by reason of any event or
occurrence arising out of such person's services as a director. Under various
employment agreements, we also have agreed to indemnify various officers for
any cost, loss, damage or liability (including legal fees) incurred in
connection with any action brought against the officer arising from the
performance of his duties.
-60-
<PAGE> 63
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item are
filed as part of this Form 10. See Index to Financial Statement Information at
page F-1 of this Form 10.
-61-
<PAGE> 64
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-62-
<PAGE> 65
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
1. Our financial statements are filed as part of this Registration
Statement on Form 10. See Index to Financial Statement Information at page F-1.
2. The following financial schedules are included for the three years ended
December 31, 1999: Schedule II -- Valuation and Qualifying Accounts, at page
F-22. Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes.
(b) EXHIBITS
2.1 Implementation Agreement between Chip Application Technologies
Limited and NovaTec Inc.
3.1 Certificate of Registration of Card Technologies Australia Limited
3.2 Certificate of Registration on Change of Name from Card
Technologies Australia Limited to Chip Application Technologies
Limited
3.3 Certificate of Incorporation of NovaTec Inc.
3.4 Certificate of Amendment to the Certificate of Incorporation of
NovaTec Inc.
3.5 Bylaws of NovaTec Inc.
10.1 Put and Call Option Deed of A.S. Dawson in Respect of Shares of
Chip Application Technologies Limited
10.2 Share Option Deed of A.S. Dawson in Respect of Shares of NovaTec
Inc.
10.3 Employment Agreement of Michael V. Howe
10.4 Executive Services Agreement of David L. Machattie Smith
10.5 Deed of Employment of Benjamin Garton
10.6 Employment Contract of Justin Wescombe and Employment Contract
Amendment
10.7 Deed of Employment of John Weihen
10.8 Services Agreement of Jonathan Adams
10.9 Services Agreement of Carl H. Fisher
10.10 Lease for premises located at 68-72 Wentworth Avenue Surry Hills,
New South Wales, Australia
10.11 Lease for premises located at 2711 East Jefferson Avenue, Detroit,
Michigan
10.12* Research and Development Start Grant for Chip Application
Technologies Limited
10.13*+ Smart Loyalty Technical Work Group Agreement between Visa U.S.A.
and Chip Application Technologies Limited
10.14*+ Partner Program Loyalty Services Agreement between Visa
International Service Association and Chip Application
Technologies Limited
10.15*+ Software Remarketing Agreement between IBM and Chip Application
Technologies Limited
10.16*+ Marketing Support Plan between IBM and Chip Application
Technologies Limited
10.17 Operation Reseller Agreement between Catuity Inc. and Data Pro
Accounting Software, Inc.
10.18 Sun Microsystems Computer Company and Chip Application
Technologies Limited Joint Marketing Agreement
10.19 Cooperative Agreement between Chip Application Technologies
Limited and Global Transaction Company
10.20 Technology Partnership Agreement between Chip Application
Technologies Limited and Gemplus Technologies Asia Pte Ltd.
10.21 Memorandum of Understanding between De La Rue Cartes et Systemes
and Chip Application Technologies Limited
10.22 Loan Repayment and Option Agreement among Chip Application
Technologies Limited, Health Group Australia Pty Limited and
Industrial Superannuation Administration Services Limited
10.23 Form of Indemnification Agreement
10.24 Form of Stock Option Plan and Form of Stock Option Agreement under
Plan
27.1 Financial Data Schedule
* Confidential treatment requested.
+ To be filed by amendment.
-63-
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATUITY INC.
Dated: , 2000
----------------- By:
-----------------------------------
Name:
Title:
-64-
<PAGE> 67
CATUITY INC
INDEX TO FINANCIAL STATEMENTS(9)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors Report................................................................... F-2
Consolidated Balance Sheets as at December 31, 1998 and 1999.................................. F-3
Consolidated Statement of Operations for the years ended December 31, 1997, 1998 and 1999..... F-4
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1997, 1998
and 1999...................................................................................... F-5
Consolidated Statement 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> 68
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Catuity Inc.
We have audited the accompanying consolidated balance sheets of Catuity
Inc., as at December 31, 1998 and 1999 and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the index at Item 15(a). These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit 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 referred to above
present fairly, in all material respects, the consolidated financial position of
Catuity Inc., at December 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material aspects to the
information set forth therein.
ERNST & YOUNG
Sydney, Australia
February 18, 2000
F-2
<PAGE> 69
CATUITY INC.
FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1999
F-3
<PAGE> 70
CATUITY INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 148,789 $ 5,269,757
Accounts receivable, less allowance of
nil in 1998 and $157,704 in 1999 10,791 429,159
Inventories, net 151,187 65,781
Prepaid expenses 33,495 67,016
Restricted cash 72,164 178,054
Other 38,234 2,519
------------ ------------
Total current assets 454,660 6,012,286
Non-Current Assets:
Property, plant and equipment, net 170,890 242,038
Other 13,316 --
------------ ------------
Total non-current assets 184,206 242,038
============ ============
Total assets $ 638,866 $ 6,254,324
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 310,066 $ 560,906
Accounts payable to shareholders 17,650 --
Accrued expenses 116,846 301,630
Deferred income 58,359 --
Accrued compensation 81,189 118,054
Trust liability 72,164 157,685
------------ ------------
Total current liabilities 656,274 1,138,275
Non-Current Liabilities:
Borrowings from shareholders 1,593,549 854,230
Accrued compensation -- 20,588
------------ ------------
Total non-current liabilities 1,593,549 874,818
Commitments and Contingencies (Note 6) -- --
Stockholders' equity:
Ordinary shares - par value nil in 1998 and
$0.001 in 1999
Authorized shares - 100 million in 1998 and 1999
Issued and outstanding shares - 4,920,340 in 1998
and 6,729,269 in 1999 11,969,007 21,519,333
Additional paid-in capital 210,019 2,685,195
Shareholder loans (806,146) (757,733)
Foreign currency translation reserve 412,716 401,073
Accumulated deficit (13,396,553) (19,606,637)
------------ ------------
Total stockholders' equity (1,610,957) 4,241,231
------------ ------------
$ 638,866 $ 6,254,324
============ ============
</TABLE>
See accompanying notes
F-4
<PAGE> 71
CATUITY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product license revenue $ 581,769 $ 135,235 $ 540,759
Product service revenue 179,270 156,298 97,623
Grant revenue 127,053 410,756 572,521
------------ ------------ ------------
Total revenues 888,092 702,289 1,210,903
Costs and expenses:
Research and development and testing 1,415,837 1,309,784 1,398,489
Selling and relationship development 708,921 914,622 956,911
General and administrative 998,061 693,979 1,255,096
Stock compensation 218,646 (8,627) 2,475,175
Non-recurring charges 848,585 -- 1,294,636
------------ ------------ ------------
Total costs and expenses 4,190,050 2,909,758 7,380,307
------------ ------------ ------------
Operating loss (3,301,958) (2,207,469) (6,169,404)
------------ ------------ ------------
Other income (expense):
Interest income 57,601 20,186 115,631
Interest expense - related party (272,483) (196,865) (156,311)
------------ ------------ ------------
Total other income (expense) (214,882) (176,679) (40,680)
------------ ------------ ------------
Loss before taxes (3,516,840) (2,384,148) (6,210,084)
Provision for Income taxes -- -- --
------------ ------------ ------------
Net Loss $ (3,516,840) $ (2,384,148) $ (6,210,084)
============ ============ ============
Net loss per share - basic $ (1.15) $ (0.53) $ (1.05)
============ ============ ============
Net loss per share - diluted $ (1.05) $ (0.53) $ (1.05)
============ ============ ============
Weighted average shares outstanding - basic 3,065,840 4,473,257 5,913,613
============ ============ ============
Weighted average shares outstanding - diluted 3,342,839 4,473,257 5,913,613
============ ============ ============
</TABLE>
See accompanying notes
F-5
<PAGE> 72
CATUITY INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN U.S. DOLLARS)
<TABLE>
<CAPTION>
ISSUED CAPITAL ADDITIONAL
---------------------- PAID IN SHAREHOLDER
SHARES AMOUNT CAPITAL LOANS
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 1,370,648 $3,166,463 $ 964,108 $(502,373)
Issuance of common stock 1,877,660 4,209,862 428,640
Shares issued through loans to employees 136,282 303,773
Shareholder loans (303,773)
Exercise of options 33,999 79,509 29,065
Issuance of shares in consideration
for acquisition of Transcard assets 35,714 79,602 106,143
Share issuance costs (379,033)
Conversion of note to common stock 450,675 1,004,555
Stock based compensation 218,646
Comprehensive income
Net loss
Foreign currency translation reserve
Comprehensive income
--------- ----------- ----------- ---------
Balances at December 31, 1997 3,904,978 $8,843,764 $ 1,367,569 $(806,146)
Issuance of common stock 826,368 1,463,999 108,503
Restructure of par value of shares 1,279,258 (1,279,258)
Exercise of options 1,500 2,831
Share issuance costs (70,763)
Issuance of shares in consideration
for acquisition of Transcard assets 187,494 379,155 92,595
Stock based compensation (8,627)
Comprehensive income
Net loss
Foreign currency translation reserve
Comprehensive income
--------- ----------- ----------- ---------
Balances at December 31, 1998 4,920,340 $11,969,007 $ 210,019 $(806,146)
Issuance of common stock 796,782 5,294,713
Exercise of options 1,012,147 4,731,445
Share issuance charges (475,832)
Stock based compensation 2,475,176
Shareholder loans 48,413
Comprehensive income
Net loss
Foreign currency translation reserve
Comprehensive income
--------- ----------- ----------- ---------
Balances at December 31, 1999 6,729,269 $21,519,333 $ 2,685,195 $(757,733)
========= =========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
FOREIGN TOTAL
COMPREHENSIVE ACCUMULATED CURRENCY SHAREHOLDERS
INCOME DEFICIT TRANSLATION EQUITY
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 $(7,495,565) $(111,707) $(3,979,074)
Issuance of common stock 4,638,502
Shares issued through loans to employees 303,773
Shareholder loans (303,773)
Exercise of options 108,574
Issuance of shares in consideration
for acquisition of Transcard assets 185,745
Share issuance costs (379,033)
Conversion of note to common stock 1,004,555
Stock based compensation 218,646
Comprehensive income
Net loss (3,516,840) (3,516,840) (3,516,840)
Foreign currency translation reserve 439,386 439,386 439,386
-----------
Comprehensive income $(3,077,454)
=========== ------------ -------- -----------
Balances at December 31, 1997 $(11,012,405) $327,679 $(1,279,539)
Issuance of common stock 1,572,502
Restructure of par value of shares --
Exercise of options 2,831
Share issuance costs (70,763)
Issuance of shares in consideration
for acquisition of Transcard assets 471,750
Stock based compensation (8,627)
Comprehensive income
Net loss (2,384,148) (2,384,148) (2,384,148)
Foreign currency translation reserve 85,037 85,037 85,037
-----------
Comprehensive income $(2,299,111)
=========== ------------ -------- -----------
Balances at December 31, 1998 $(13,396,553) $412,716 $(1,610,957)
Issuance of common stock 5,294,713
Exercise of options 4,731,445
Share issuance charges (475,832)
Stock based compensation 2,475,176
Shareholder loans 48,413
Comprehensive income
Net loss (6,210,084) (6,210,084) (6,210,084)
Foreign currency translation reserve (11,643) (11,643) (11,643)
-----------
Comprehensive income $(6,221,727)
=========== ------------ -------- -----------
Balances at December 31, 1999 $(19,606,637) $401,073 $ 4,241,231
============ ======== ===========
</TABLE>
See accompanying notes
F-6
<PAGE> 73
CATUITY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN U.S. DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,516,840) $ (2,384,148) $ (6,210,084)
Adjustments used to reconcile net loss to net
cash used in operating activities:
Stock based compensation 218,646 (8,627) 2,504,224
Depreciation and amortization 55,724 78,425 101,809
Amortization of prepaid license fees -- 72,319 --
Provision for doubtful accounts -- -- 157,704
Provision for obsolete inventory -- 30,669 104,929
Changes in assets and liabilities:
Accounts receivable (214,500) 193,015 (576,072)
Inventories (119,756) 104,940 (19,523)
Accounts payable (35,687) 164,585 250,840
Accrued expenses and other liabilities 7,563 12,881 166,229
Other assets, net -- (13,554) (4,860)
------------ ------------ ------------
Net cash used in operating activities (3,604,850) (1,749,495) (3,524,804)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (156,540) (175,951) (135,622)
Net advances to shareholders 88,429 (120) --
Deposits lodged (14,864) -- --
------------ ------------ ------------
Net cash used in investing activities (82,975) (176,071) (135,622)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings from related parties 47,305 -- --
Payments on borrowings from related parties (18,185) -- (839,981)
Issuance of common stock, net of expenses 4,291,287 1,504,570 9,521,278
------------ ------------ ------------
Net cash provided by financing activities 4,320,407 1,504,570 8,681,297
------------ ------------ ------------
Foreign exchange effect on cash (88,193) (23,411) 100,097
------------ ------------ ------------
Net increase/(decrease) in cash and cash equivalents
544,389 (444,407) 5,120,968
Cash and cash equivalents, beginning of year 48,807 593,196 148,789
------------ ------------ ------------
Cash and cash equivalents, end of year $ 593,196 $ 148,789 $ 5,269,757
============ ============ ============
Supplemental disclosure of cash flow information
Interest paid during the year $ 252,631 $ 178,241 $ 156,311
============ ============ ============
Common stock issued for purchase of
Transcard assets $ 185,750 $ 471,750 --
============ ============ ============
Conversion of notes to common stock $ 1,018,306 $ -- --
============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 74
NOTE 1. DESCRIPTION OF BUSINESS
Catuity Inc. (the "Company" or "Catuity") is a Delaware Corporation
incorporated in 1999. The Company listed on the Australian Stock Exchange
("ASX") on November 23, 1999. In November 1999, under court approved Schemes of
Arrangement, Catuity acquired all the shares on issue in Chip Application
Technologies Limited ("CAT"), a company which had been listed on the ASX since
July 1997 (Refer Note 7). Catuity is the parent company of the group and will
continue the business activities of CAT. The Company designs, develops, operates
and markets multi-program systems that provide loyalty and incentive marketing
solutions for retail shops and the Internet. These solutions aim to increase
customer retention, increase the customer base and reduce costs for merchants in
the rapidly converging physical and virtual worlds. Catuity provides full
program services and network system software that directly connects the seller
and the buyer across all purchasing channels, irrespective of payment method.
The Company's operations had been predominantly located in Australia but will
now be expanded into North America.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements are presented in US dollars and have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"), which differ in certain respects from
accounting principles applied by the Company in its local currency financial
statements, which are prepared in accordance with accounting principles
generally accepted in Australia ("Australian GAAP").
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the consolidation of accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent liabilities at the date of the consolidated financial
statement and the reported amount of revenues and expenses during the reporting
periods. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENTS
For the purposes of the consolidated statements of cash flows, the Company
considers all cash and highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories comprising of validators, keypads and cards used in pilots are
stated at the lower of cost (first in first out method) or market value (net
realizable value) (Refer Note 5).
F-8
<PAGE> 75
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the shorter of the estimated
useful lives of the respective assets (which ranges from three to seven years)
or the applicable lease term. Maintenance and repairs are expensed as incurred
and improvements are capitalized. Depreciation expense was $100,703, $75,368 and
$52,634 for the years ended December 31, 1999, 1998, and 1997 respectively.
Amortization expense was $1,106, $3,057, and $3,090 for the years ended December
31, 1999, 1998, and 1997 respectively.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company are translated in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation". The
Company's management has elected to present these consolidated financial
statements in U.S. dollars. The financial statements of the Company and its
subsidiaries are translated from their functional currency into the reporting
currency, the U.S. dollar, utilizing the current rate method. Accordingly the
assets and liabilities are translated at the exchange rates in effect at the end
of the reporting period.
The rates used to translate assets and liabilities were:
<TABLE>
<CAPTION>
DECEMBER 31 DECEMBER 31
1999 1998
----------- -----------
<S> <C>
$0.6571 $0.6126
</TABLE>
Revenues and expenses are translated at the average exchange rate during the
year. The rates used to translate revenues and expenses were:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C>
$0.6455 $0.6290 $0.7430
</TABLE>
All cumulative translation gains and losses from the translation into the
Company's reporting currency are included as a separate component of
stockholders' equity in the consolidated balance sheets.
Currency transaction gains and losses are recognized in current operations and
have not been significant to the Company's operation results in any period.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"),
which requires the use of the liability method in accounting for income taxes.
Under SFAS No.
F-9
<PAGE> 76
109, deferred tax assets and liabilities are measured based on differences
between the financial reporting and tax bases of assets and liabilities using
enacted tax rates and laws that are expected to be in effect when the
differences are expected to reverse.
REVENUE RECOGNITION
Product Sales Revenue is recognized upon the execution of the sale or license
agreement provided the company has no additional performance criteria. If
significant customization is part of the transaction, such revenues are
recognized over the period of delivery. Product sales payments received which
are related to future performance are deferred and recorded as revenues as they
are earned over specified future performance periods.
Revenues from transaction processing services are recorded at the time the
service is utilized by the customer.
Research and development grants are recorded as revenue when the underlying
performance objective has been attained or services have been provided or costs
incurred as per the grant agreement.
NET LOSS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS No. 128") and Staff Accounting Bulletin No. 98 ("SAB
98") during the year ended December 31, 1997. SFAS 128 replaced the calculation
of primary and fully diluted net loss per share with basic and diluted loss per
share. Under SFAS No. 128, basic net income per share excludes dilutive common
stock equivalents and is calculated by dividing net loss by the weighted average
number of shares outstanding. Diluted net loss per share is calculated by
dividing the net loss by the weighted average number of common shares
outstanding and dilutive common stock equivalents outstanding during the period.
Common equivalent shares from stock options are excluded from the calculation of
diluted net loss per share as their effect is anti dilutive. SAB 98 applied to
pre IPO issuances of shares and potential common equivalent shares that are
considered to be nominal issuances. SAB 98 requires nominal issuances of shares
and common equivalent shares to be included in diluted net loss per share for
all years presented even if the impact is antidilutive.
STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees under the intrinsic
value method in accordance with Accounting Principals Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board Statement No. 130, "Reporting Comprehensive Income," ("SFAS No. 130")
which
F-10
<PAGE> 77
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's consolidated financial position, shareholders equity, results of
operation or cash flows. SFAS. No. 130 requires foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS No.
130.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, cash equivalents, accounts
receivable, accounts payable and loans from a related party. The carrying values
of cash, cash equivalents and accounts payable approximate fair value due to
their short-term nature. The fair value of the related party loan is estimated
on current rates available for similar debt with similar maturity and
collateral. The related party loan has a carrying value that is not
significantly different than its estimated fair value.
CONCENTRATIONS OF RISK
Financial instruments which subject the Company to concentrations of credit risk
consist primarily of cash, cash equivalents and accounts receivable. The Company
maintains its cash with Australian financial institutions. The company conducts
business with companies throughout Australia and the Australian Government and
with companies throughout Australia and the United States. The Company performs
ongoing credit evaluations of its corporate customers and generally does not
require collateral. As the Company derives its revenue from a limited number of
customers, they are exposed to credit risk if the customers are unable to pay.
For the year ended December 31, 1999, three customers accounted for 26%
($314,757), 16% ($190,222) and 47% ($572,521) of net revenue and accounted for
84% ($491,453) of the accounts receivable balance at year end. In 1998, two
customers accounted for 58% ($410,756) and 19% ($132,090) of net revenue. In
1997, three customers accounted for 66% ($581,769), 14% ($127,053) and 11%
($96,246) of net revenue.
SEGMENT REPORTING
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" ("SFAS No. 131"). SFAS No.
131 superseded SFAS Statement No. 14, Financial Reporting for Segments of a
Business Enterprise. The adoption of SFAS No. 131 did not affect results of
operations, financial position or disclosures of the company.
STOCK SPLIT
At November 22, 1999, the Company completed a one-for-ten reverse stock split of
the outstanding shares of issued capital. All share information and per share
amounts in the accompanying consolidated financial statements has been
retroactively adjusted to reflect the effect of this stock split.
F-11
<PAGE> 78
NEW ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-9 "Modification of SOP 97-2" ("SOP
98-9"), which amends certain provisions of Statement of Position 97-2 "Software
Revenue Recognition with Respect to Certain Transactions" ("SOP 97-2") and
extends the deferral of the application of certain passages of SOP 97-2 provided
by Statement of Position 98-4 ("Deferral of Effective Date of SOP 97-2") until
the beginning of the Company's fiscal year 2000. The Company does not expect the
adoption of this standard to have a material effect on its consolidated
operating results or financial position.
F-12
<PAGE> 79
NOTE 3. NON-RECURRING CHARGES
In the year ended December 31, 1999 the Company incurred non recurring charges
of $1,294,636. These costs relate to the scheme of arrangement the Company
undertook to relocate its corporate structure from Australia to the United
States of America. These costs include legal, consulting and stamp duty fees.
In early 1997 the Company acquired the operation of Transcard Australia Pty Ltd
(Transcard) the Company's partner in the pilot of its multi-program software
product, for a fixed price of $743,000. This acquisition was settled in cash and
shares in the Company. This acquisition was part of the Company's
rationalization of its Transcard pilot.
In late 1997 the Company decided not to expand the Western Sydney pilot and, as
a result, the Company recorded charges of $364,813 relating to the write down of
inventory associated with the Transcard pilot and $483,772 in relation to the
goodwill costs incurred and the write-down of its investment in Transcard.
NOTE 4. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Finished goods $ 215,478 $ 235,001
Provision for obsolete inventory (64,291) (169,220)
--------- ---------
$ 151,187 $ 65,781
========= =========
</TABLE>
NOTE 5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Computer equipment $ 235,759 $ 346,666
Buildings and improvements 7,261 63,485
Office furniture and equipment 50,413 60,566
--------- ---------
$ 293,433 $ 470,717
Less accumulated depreciation
and amortization (122,543) (228,679)
--------- ---------
$ 170,890 $ 242,038
========= =========
</TABLE>
F-13
<PAGE> 80
NOTE 6. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company has commitments under non-cancelable operating
leases in relation to office equipment expiring June 28, 2000 and an office
lease expiring December 14, 2003. Minimum future annual lease payments under
these leases as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $103,497
2001 85,347
2002 89,412
2003 93,883
--------
$372,139
========
</TABLE>
Total rent expense on all operating and office leases was $121,701, $126,605 and
$142,422 for 1999, 1998 and 1997 respectively.
Under the terms of a Grant Agreement with the Commonwealth of Australia, the
Company must meet certain obligations with regard to the development and
commercialization of a Multi Card Acceptance Device. In the event that these
obligations are not met the Company may be required to repay all or part of the
grant monies received. The Directors do not believe that any liability will
materialize. Management believe they have complied with and will continue to
comply with the terms of the Grant Agreements. The maximum potential liability
at December 31, 1999 was $222,042.
NOTE 7. STOCKHOLDERS' EQUITY
LIMITED RECOURSE LOANS
The Company has provided limited recourse loans to a director (1999: $593,043
and 1998: $598,826) and related companies (1999: $68,168 and 1998: $63,551) for
the purpose of purchasing shares in the Company. The loans have been offset
against issued capital. The loans will only be repaid from the proceeds of
dividends paid by the Company and from the proceeds from the sale of the shares.
The Company's recourse for repayment of the loan is limited to after-tax
dividends and sale proceeds from the shares. As a result, the recoverability of
the loan is dependent upon the value of the shares. The loans do not have a
specified repayment date. The loans provided are interest-free. Consequently,
the loans have been treated as variable option and variable accounting has been
adopted. Based on the movement in the share price of common stock from the date
of the loan to December 31, 1999, the Company has recorded an expense of
$2,459,523 and $31,713 for the years ended December 31, 1999 and 1997. The
Company has recorded a credit of $26,847 for the year ended December 31, 1998.
ESCROW SHARES
As a prerequisite to the Company's initial public offering in July 1997 the
Australian Stock Exchange requested the Company restrict the trading of 293,848
shares of common stock and 1,174,822 options held by existing shareholders for a
period of two years from the date of the initial public offering. In addition as
a result of negotiations with our underwriter 374,739 shares of common stock
were voluntarily held in escrow until July 2000.
F-14
<PAGE> 81
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
DIVIDEND POLICY
The Company has not declared or paid cash dividends on its ordinary shares.
EMPLOYEE STOCK OPTIONS
The Company has provided employees who have worked for more than 12 months share
options at an exercise price as determined by the Board of Directors at the time
of issuance. Option vesting schedules are determined by the Board of Directors
at the time of issuance. Stock options issued by the Company vest at the end of
a specified period of time, which is linked to the employees' continuing
employment, ranging from one to three years. Employees must exercise the options
within three months of terminating their employment with the Company or the
options lapse. The Company has recorded an expense of $15,653, $16,543, and $0
for the years ended December 31, 1999, 1998 and 1997, for the difference between
the exercise price and the issue price of the Company's shares at the date of
the option grant. The number of unissued shares of common stock subject to
options issued to employees at December 31, 1999 was 655,102.
OPTIONS ISSUED TO THIRD PARTIES
The Company granted options to purchase 512,353 shares of common stock to third
parties and outside directors at an exercise price ranging from $2.23 to $5.57
per share during the period January 1, 1997 to December 31, 1999. These options
were issued to encourage investors to invest in the Company now and in the
future. These options were issued at the same terms and conditions as other
options issued to employees. The Company valued these options using the
Black-Scholes option pricing model which amounted to $0, $1,677, and $186,933
for the years ended December 31, 1999, 1998, and 1997 respectively. The expense,
in respect of the options, was charged to the profit and loss in the year they
were granted as they vested immediately. There were 166,521 of options issued to
third parties outstanding at December 31, 1999.
Had compensation costs for these plans been determined consistent with SFAS No.
123, "Accounting for Stock Based Compensation," the Company's net loss and net
loss per share would have been reported as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net Loss as Reported $(3,516,840) $(2,384,148) $(6,210,084)
=========== =========== ===========
Pro Forma $(3,529,991) $(2,436,292) $(6,865,434)
=========== =========== ===========
Pro Forma basic earnings per share $ (1.15) $ (0.54) $ (1.16)
=========== =========== ===========
Pro Forma diluted earnings per share $ (1.06) $ (0.54) $ (1.16)
=========== =========== ===========
</TABLE>
Because the SFAS No. 123 method of valuation has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation costs may
not be representative of amounts to be expected in future years.
F-15
<PAGE> 82
For disclosure purposes, the fair value of stock based compensation was computed
using the Black-Scholes option pricing model with the following weighted average
assumptions used for 1997, 1998, and 1999 grants:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Risk Free Interest Rate 5.80% 4.65% 5.96%
Expected Dividend Yield -- -- --
Expected Lives (years) 2.45 3.38 3.04
Expected Volatility 0.683 0.749 0.796
</TABLE>
Activity in the Plans is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARE OPTIONS EXERCISE PER SHARE
------------- ------------------
<S> <C> <C>
Outstanding at December 31, 1996 836,280 $ 5.61
Granted 597,318 5.37
Cancelled/lapsed (3,101) 2.92
Exercised (33,999) 3.08
---------- ------
Outstanding at December 31, 1997 1,396,498 5.57
Granted 125,500 3.59
Cancelled/lapsed (33,000) 1.89
Exercised (1,500) 1.89
---------- ------
Outstanding at December 31, 1998 1,487,498 5.49
Granted 352,254 7.00
Cancelled/lapsed (5,982) 4.76
Exercised (1,012,147) 5.64
---------- ------
Outstanding at December 31, 1999 821,623 $ 5.96
========== ======
</TABLE>
The weighted average fair value of options granted during the year ended
December 31, 1999, 1998 and 1997 are $3.19, $1.07, and $0.33 respectively.
The following is additional information relating to options outstanding as of
December 31, 1999:
F-16
<PAGE> 83
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER OF EXERCISE CONTRACTUAL NUMBER EXERCISE
RANGE SHARES PRICE LIFE (YEARS) OF SHARES PRICE
- ------------- --------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
$ 1.95-$ 2.20 64,000 $ 2.05 1.38 56,500 $ 2.06
$ 3.15-$ 4.35 39,668 $ 3.94 2.09 39,668 $ 3.94
$ 4.90-$ 6.50 517,955 $ 5.35 1.28 415,703 $ 5.12
$ 6.55-$ 8.00 150,000 $ 7.34 1.83 50,000 $ 6.57
$10.00-$11.00 50,000 $10.51 4.50 50,000 $10.51
</TABLE>
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 10 million shares of
preferred stock, with a par value of $0.001 per share, none of which is issued
or outstanding. The Board of Directors has the authority to issue the preferred
stock in one or more series and to fix rights, preferences, privileges and
restrictions, including dividends, and the number of shares constituting any
series or the designation of such series, without any further vote or action by
the stockholders.
F-17
<PAGE> 84
OPTION AGREEMENT
In May 1999, the Company entered into an Agreement with Heath Group Australasia
Pty Limited ("HGA") (formerly Heath Fielding Australia Pty Limited) and
Industrial Superannuation Administrative Services Limited ("ISAS") whereby HGA
and ISAS agreed to grant the Company an option to buy-back 332,588 shares at
$5.50 per share any time up to July 18, 2000 ("Option Agreement"). The buy-back
option was contingent upon the Company immediately repaying $839,981 of the
outstanding loan amount of $1,593,549.
Under the Option Agreement, the balance of the loan is to be repaid pro rata to
the percentage of shares purchased. The Company can buy-back shares in a maximum
of three tranches, subject to making payments on the loan. Interest will
continue to be payable on any outstanding balance of the loan at a rate of 12
percent. At the end of the option exercise period, any balance of the loan
remaining outstanding will be subject to the terms and conditions of the
original Loan Agreement which provides for:
i) the repayment of the loan when, in the opinion of the Directors, the
Company has sufficient surplus funds available and
ii) a Deed of Charge giving HGA a fixed and floating charge over the
assets of the Company.
As part of the Option Agreement, HFA and ISAS exercised 263,233 options expiring
on June 30, 1999.
SCHEMES OF ARRANGEMENT
In September 1999 the Company sought approval from The Supreme Court of New
South Wales to hold a stockholder and optionholder meeting to consider and
approve schemes of arrangement to restructure the Company. Under the schemes,
stockholders and optionholders would exchange their securities and entitlements
in a newly formed Delaware registered Company (NovaTec Inc.) which would seek
listing on the ASX. As part of the schemes the Company completed a one-for-ten
reverse share and option split. The schemes were approved at Court ordered
meetings of stockholders and optionholders held on November 3, 1999 and
implemented on November 22, 1999 when trading in CAT shares ceased and commenced
the trading in Catuity Inc. (formerly NovaTec Inc.) shares on November 23, 1999.
Implementation of the Restructure has resulted in Catuity becoming the parent
company of the group acquiring all CAT shares on issue and issuing an equivalent
number of shares in Catuity. Options were treated in the same way and
optionholders received an equivalent number of options with the same terms and
conditions, in Catuity.
LOSS OF PAR VALUE
Due to changes in Australia's corporate tax law, effective July 1, 1998,
companies in Australia no longer have par values. Consequently, $1,279,258
previously included in
F-18
<PAGE> 85
"Additional Paid In Capital" and relating to share premiums was transferred to
"Issued Capital" on July 1, 1998.
NOTE 8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in dollars, except share and per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss $ (3,516,840) $ (2,384,148) $ (6,210,084)
============ ============ ============
Weighted average shares 3,065,840 4,473,257 5,913,613
Effect of dilutive securities:
Employee stock options 276,998 -- --
------------ ------------ ------------
Dilutive potential common shares 3,342,838 4,473,257 5,913,613
------------ ------------ ------------
Net loss per share $ (1.15) $ (0.53) $ (1.05)
============ ============ ============
Net loss per share - assuming dilution $ (1.05) $ (0.53) $ (1.05)
============ ============ ============
</TABLE>
NOTE 9. SEGMENT INFORMATION
The Company operates in the computer technology industry. Its major operations
are based in Australia. In June 1999, the Company established operations in the
United States of America (USA). In 1999, 1998 and 1997 all of the Company's
revenues relate to the Australian operations. In 1999 revenues included $314,757
(26%) of export sales to the USA. In 1998 revenues included export sales of
$56,610 (8% of total sales) to New Zealand. No export sales were made in 1997.
In 1999, $462,044 of the operating loss of $6,169,404 is attributable to the
operations in the USA. The costs relating to the operations in the USA represent
direct costs of executives and consultants and their related costs and does not
include costs incurred by non resident personnel in the USA. In 1998, $343,726
of the operating loss of $2,207,758 was attributable to operations in Asia. The
Australian operations accounted for 100 percent of the operating loss in 1997.
All major assets of the Company were held in Australia in 1999, 1998 and 1997.
F-19
<PAGE> 86
NOTE 10. INCOME TAXES
There has been no provision for income taxes for any period as the Company has
incurred operating losses.
The provision for income tax on operating loss is reconciled to the reported
provision for income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1997 1998 1999
----------- --------- -----------
<S> <C> <C> <C>
Net loss at statutory tax rate $(1,266,062) $(858,293) $(2,235,630)
Stock compensation 78,713 (3,106) 891,063
Abnormal item 174,156 -- 466,069
R&D grant 25% deduction (97,002) (56,805) (84,678)
Grant revenue -- (147,872) (206,108)
Over provision of losses -- 313,813 --
Effect of change in corporate tax rate
on loss and FITB not recognized -- -- 336,699
Non-deductible branch costs -- 101,907 --
Other 1,507 44 409
----------- --------- -----------
Valuation allowance $ 1,108,688 $ 650,312 $ 832,176
----------- --------- -----------
Provision for income tax -- -- --
---------- --------- -----------
</TABLE>
The statutory tax rate was 36% for the years 1997, 1998 and 1999. The statutory
tax rate will change to 34% effective July 1, 2000.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry-forwards $ 4,452,486 $ 5,235,117
Provisions 93,933 143,478
----------- -----------
Total deferred tax assets 4,546,419 5,378,595
----------- -----------
Valuation allowance (4,546,419) (5,378,595)
----------- -----------
Total net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
F-20
<PAGE> 87
NOTE 10. INCOME TAXES (CONTINUED)
Realization of deferred tax assets is dependent upon future earnings, if any,
the timing and amount of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance
As of December 31, 1999, the Company had operating loss carry-forwards of
$5,235,117. There can be no assurance that the Company will realize the benefit
of the net operating loss carryforwards.
The valuation allowance increased by $832,176 and $650,312 in 1999 and 1998,
respectively. Management has determined, based on the Company's history of prior
operating losses and its expectations for the future, that a full valuation
allowance for deferred tax assets should be provided.
Utilization of the net operating loss may be subject to an annual limitation due
to the ownership change limitations in accordance with Division 165 and Division
166 of the Australian Income Tax Assessment Act 1997. The limitation may result
in the expiration of net operating losses before utilization.
NOTE 11. PENSION PLANS
On behalf of its employees, the Company contributes to a defined contribution
plan on the basis of varying percentages of employees' salaries. The Company is
only obliged to make contributions while the members remain employees of the
Company. The Company contributed $85,421, $92,235, and $76,915 for the years
ended December 31, 1999, 1998 and 1997 respectively.
NOTE 12. RESTRICTED CASH
The Company is the Trustee of a bank account related to trials of its
multi-program software in the Transcard card system in Western Sydney. When
consumers using the system transfer funds to their cards, the funds are
deposited into this trust account. The funds are debited from the account
electronically and paid to merchants when transaction information relating to
card holder usage is downloaded from merchants through a central host processing
system. The Company is not entitled to the funds other than in specified
circumstances whereas cards are inactive or expired. Consequently, an amount
corresponding to the trust account balance is recorded
F-21
<PAGE> 88
as a current liability. The trust account had an ending balance of $72,164 in
1998 and $157,685 in 1999.
In addition, the Company had restricted cash of $20,369 and $0 as of December
31, 1999 and 1998, respectively, related to an amount held as security for an
operating lease.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION (IN THOUSANDS) PERIOD EXPENSES DEDUCTIONS(1) PERIOD
- -------------------------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful debts $0 $158 $0 $158
Year ended December 31, 1998
Allowance for doubtful debts $0 $ 0 $0 $ 0
Year ended December 31, 1997 $0 $ 0 $0 $ 0
</TABLE>
- ---------
(1) Write-offs of uncollectible amounts, net of recoveries.
F-22
<PAGE> 89
NOTE 13. SUBSEQUENT EVENTS
There have been no significant events since December 31, 1999.
F-23
<PAGE> 90
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
2.1 Implementation Agreement between Chip Application Technologies
Limited and NovaTec Inc.
3.1 Certificate of Registration of Card Technologies Australia Limited
3.2 Certificate of Registration on Change of Name from Card
Technologies Australia Limited to Chip Application Technologies
Limited
3.3 Certificate of Incorporation of NovaTec Inc.
3.4 Certificate of Amendment to the Certificate of Incorporation of
NovaTec Inc.
3.5 Bylaws of NovaTec Inc.
10.1 Put and Call Option Deed of A.S. Dawson in Respect of Shares of
Chip Application Technologies Limited
10.2 Share Option Deed of A.S. Dawson in Respect of Shares of NovaTec
Inc.
10.3 Employment Agreement of Michael V. Howe
10.4 Executive Services Agreement of David L. Machattie Smith
10.5 Deed of Employment of Benjamin Garton
10.6 Employment Contract of Justin Wescombe and Employment Contract
Amendment
10.7 Deed of Employment of John Weihen
10.8 Services Agreement of Jonathan Adams
10.9 Services Agreement of Carl H. Fisher
10.10 Lease for premises located at 68-72 Wentworth Avenue Surry Hills,
New South Wales, Australia
10.11 Lease for premises located at 2711 East Jefferson Avenue, Detroit,
Michigan
10.12* Research and Development Start Grant for Chip Application
Technologies Limited
10.13*+ Smart Loyalty Technical Work Group Agreement between Visa U.S.A.
and Chip Application Technologies Limited
10.14*+ Partner Program Loyalty Services Agreement between Visa
International Service Association and Chip Application
Technologies Limited
10.15*+ Software Remarketing Agreement between IBM and Chip Application
Technologies Limited
10.16*+ Marketing Support Plan between IBM and Chip Application
Technologies Limited
10.17 Operation Reseller Agreement between Catuity Inc. and Data Pro
Accounting Software, Inc.
10.18 Sun Microsystems Computer Company and Chip Application
Technologies Limited Joint Marketing Agreement
10.19 Cooperative Agreement between Chip Application Technologies
Limited and Global Transaction Company
10.20 Technology Partnership Agreement between Chip Application
Technologies Limited and Gemplus Technologies Asia Pte Ltd.
10.21 Memorandum of Understanding between De La Rue Cartes et Systemes
and Chip Application Technologies Limited
10.22 Loan Repayment and Option Agreement among Chip Application
Technologies Limited, Health Group Australia Pty Limited and
Industrial Superannuation Administration Services Limited
10.23 Form of Indemnification Agreement
10.24 Form of Stock Option Plan and Form of Stock Option Agreement under
Plan
27.1 Financial Data Schedule
* Confidential treatment requested.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
THE IMPLEMENTATION AGREEMENT
CHIP APPLICATION TECHNOLOGIES LIMITED
AND
NOVATEC INC.
IMPLEMENTATION AGREEMENT
<PAGE> 2
THIS IMPLEMENTATION AGREEMENT is made the 2nd day of September, 1999
BETWEEN CHIP APPLICATION TECHNOLOGIES LIMITED ACN 057 883 333 of Level
5, 152 - 162 Riley Street, East Sydney in the State of New South
Wales ("C.A.T.")
AND NOVATEC INC. ARBN 089 327 882 a company incorporated in the
State of Delaware, USA whose Australian registered office is
located at Level 15, The Ernst & Young Building, 321 Kent
Street, Sydney in the State of New South Wales ("NOVATEC INC.")
RECITALS
A. The C.A.T. Shares are listed on the ASX.
B. C.A.T. has been advised that it would be advantageous and in the
interests of C.A.T. Shareholders for the holding company of the C.A.T.
Group to be a company incorporated in the United States of America and
to have a listing on the ASX and on The Nasdaq SmallCap Market in the
United States. NovaTec Inc. will apply for a listing on ASX prior to
implementation of the Schemes and will consider making an application
for a listing on The Nasdaq SmallCap Market after implementation of the
Schemes.
C. For this purpose the Schemes have been proposed which provide, among
other things, for:
(i) the transfer of the C.A.T. Shares to NovaTec Inc. following
which NovaTec Inc. will become the parent company of C.A.T.;
(ii) the issue by NovaTec Inc. on the Shares Scheme Implementation
Date, with effect from the Effective Date, to each Scheme
Shareholder of a number of NovaTec Inc. Shares (credited as
fully paid) equal in number to the C.A.T. Shares of which each
Scheme Shareholder is registered as holder at Close of
Registers;
(iii) the deeming from the Effective Date of any Statement of Holding
issued in respect of C.A.T. Shares to be a Statement of Holding
issued in respect of NovaTec Inc. Shares until a new Statement
of Holding or certificate is issued by NovaTec Inc.;
(iv) variation of all C.A.T. Options so as to:
(A) exclude any provision which allows C.A.T. to elect to
have a parent company of C.A.T. issue a share in the
parent company for each unexercised C.A.T. Option;
(B) replace all references referred to in clause 10.1 under
the heading, "Method of Exercise of Options" to "100"
with a reference to "100"; and
(C) include an overriding provision which prevents the
options being exercised if, at the time of exercise,
C.A.T. is not a listed company and is a subsidiary of
another company;
<PAGE> 3
3
(v) the issue by NovaTec Inc. to the Scheme Optionholders on the
Options Scheme Implementation Date of NovaTec Inc. Options equal
in number to the C.A.T. Options of which the Scheme Optionholder
is registered as holder at Close of Registers so as to provide
that upon exercise of the NovaTec Inc. Option the holder of the
NovaTec Inc. Option will obtain shares in NovaTec Inc.
D. Each of C.A.T. and NovaTec Inc. consider that it is to its advantage
that NovaTec Inc. should acquire the C.A.T. Shares, that the terms of
the C.A.T. Options be varied and that new NovaTec Inc. Options should be
issued by NovaTec Inc. to the Scheme Optionholders on the Options Scheme
Implementation Date, and that the acquisitions, variations and issues
should be effected pursuant to the terms of the Schemes.
E. Implementation of the Schemes is subject to the conditions precedent
referred to below.
OPERATIVE PROVISIONS
1 DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this agreement unless the context otherwise requires:
"AEST" means Australian Eastern Standard Time, being the time in Sydney, New
South Wales.
"ASIC" means the Australian Securities and Investments Commission.
"ASSOCIATE" has the meaning given by the Corporations Law.
"ASX" means Australian Stock Exchange Limited.
"BUSINESS DAY" means a business day as defined in the Listing Rules.
"C.A.T." means Chip Application Technologies Limited ACN 057 883 333 and, where
the context permits, includes its subsidiaries.
"C.A.T. GROUP" means C.A.T. and any of its subsidiaries.
"C.A.T. OPTIONS" means all options issued by C.A.T. including those set out in
Schedule 1.
"C.A.T. OPTIONHOLDERS" means holders of C.A.T. Options.
"C.A.T. SHAREHOLDERS" means holders of C.A.T. Shares.
"C.A.T. SHARES" means fully paid ordinary shares in the capital of C.A.T.
"CHARTER DOCUMENTS" means the Certificate of Incorporation and By-Laws of
NovaTec Inc.
"CLOSE OF REGISTERS" means 5.00 pm (AEST), or in the case of proper
SCH transfers such time as permitted by SCH, on the Record Date.
"COMPANY" means C.A.T. or NovaTec Inc. as the context requires.
<PAGE> 4
4
"CONSOLIDATION RESOLUTION" means the ordinary resolution to approve the
consolidation of C.A.T.'s share capital on a one-for-ten basis.
"COURT" means the Supreme Court of New South Wales.
"COURT APPROVAL" means the order of the Court to approve the Shares Scheme and
the Options Schemes pursuant to Section 411(4) of the Corporations Law.
"COURT APPROVAL DATE" means the date upon which the Court makes orders approving
the Shares Scheme and the Options Scheme.
"DEFERRED SETTLEMENT" means a settlement in the trading of NovaTec Inc. Shares
in which the obligation to settle on a trade date plus three business days is
deferred until the time fixed by the ASX (following the despatch of a Statement
of Holding).
"DGCL" means the Delaware General Corporation Law, as amended.
"DIRECTOR" or "BOARD" means the directors of C.A.T., whose names are set out in
Part 3 section 2 of the Information Memorandum.
"EFFECTIVE DATE" means the date on which an office copy of the Court Approval is
lodged with the ASIC.
"ENTITLEMENT DATE" means the date 48 hours prior to the Court-ordered Meetings
of C.A.T. Shareholders and C.A.T. Optionholders to approve the Schemes of
Arrangement.
"EXPLANATORY STATEMENT" means the statement in relation to the Schemes which
complies with Section 412(l) of the Corporations Law.
"FIRST COURT-ORDERED MEETING" means the meeting of C.A.T. Shareholders convened
by order of the Court pursuant to section 411 of the Corporations Law to
consider, and if thought fit, to agree to the Shares Scheme.
"IMPLEMENTATION AGREEMENT" means this agreement.
"INFORMATION MEMORANDUM" means the Information Memorandum for the Proposed
Schemes of Arrangement between C.A.T. and its shareholders and optionholders in
relation to the proposal from NovaTec Inc. and for the Extraordinary General
Meeting of C.A.T. shareholders.
"LISTING RULES" means the Official Listing Rules of the ASX.
"MEETINGS" means the First Court-ordered Meeting and the Second Court-ordered
Meeting.
"NOVATEC INC." means NovaTec Inc. ARBN (089 327 882) a company incorporated in
the State of Delaware, USA.
"NOVATEC INC. OPTIONHOLDER" means the holder of NovaTec Inc. Options.
"NOVATEC INC. OPTIONS" means the options in NovaTec Inc. issued upon the same
terms and conditions (excluding the variation pursuant to the Options Scheme
which prevents double exercise of the NovaTec Inc. Options and the C.A.T.
Options) as the C.A.T. Options.
<PAGE> 5
5
"NOVATEC INC. SHARE OPTION DEED" means each of the share option deeds in
respect of NovaTec Inc. Options between C.A.T., NovaTec Inc., and each of the
Other Parties.
"NOVATEC INC. SHARES" means fully paid common stock in NovaTec Inc.
"OFFICIAL LIST" means the official list of ASX.
"OPTIONS SCHEME IMPLEMENTATION DATE" means the day which is one (1) Business Day
after the Shares Scheme Implementation Date.
"OPTION REGISTER" means the register of holders of C.A.T. Options and includes
any branch register.
"OPTIONS SCHEME" means the scheme of arrangement between C.A.T. and the C.A.T.
Optionholders set out in this Information Memorandum, subject to any alterations
or conditions made or required pursuant to subsection 411(6) of the Corporations
Law.
"OTHER PARTIES" means each of Alexander S. Dawson, Lance D O'Connor, N.S.
Dawson, Jenolan Pty Ltd (ACN 061 674 691), Medi-Box Pty Limited (ACN 070 649
320) and J Malkin as trustee of the Adelphi Superannuation Fund.
"PRELIMINARY EVENTS" means the events mentioned in clause 1.1 in Part III of
each of the Shares Scheme and the Options Scheme.
"PROPER SCH TRANSFER" has the meaning given in the Corporations Law (relating to
the Exchange's electronic settlement and transfer system called "CHESS").
"PUT AND CALL OPTION DEED" means each of the put and call option deeds in
respect of C.A.T. Shares between C.A.T., NovaTec Inc. and each of the Other
Parties.
"RECORD DATE" means the date 5 Business Days after the Effective Date.
"REGISTERED ADDRESS" means the address recorded in the Share Register.
"RESOLUTION 1" means the resolution to be considered by C.A.T. Shareholders at
an extraordinary general meeting dated on or about 25 October 1999 to confirm
and endorse a resolution of the Board of Directors' to allot and issue bonus
shares in the capital of C.A.T.
"RESOLUTION 2" means the resolution to be considered by C.A.T. Shareholders at
an extraordinary general meeting dated on or about 25 October 1999 to approve
the consolidation of all of the share capital of C.A.T. on a one-for-one basis.
"SCH" means the securities clearing house.
"SCHEMES" means the Shares Scheme and the Options Scheme.
"SCHEME OPTIONHOLDER" means each person who is registered in the Options
Register as the holder of Options as at the Close of Registers.
<PAGE> 6
6
"SCHEME SHAREHOLDER" means each person who is registered in the Share Register
at the Close of Registers as the holder of C.A.T. Shares, after the registration
by C.A.T. of transfers and transmissions in accordance with the Shares Scheme.
"SECOND COURT-ORDERED MEETING" means the meeting of C.A.T. Optionholders
convened by order of the Court pursuant to section 411 of the Corporations Law
to consider and if thought fit, to agree to the Options Scheme.
"SHARES SCHEME IMPLEMENTATION DATE" means the, day which is eight (8) Business
Days after trading in the NovaTec Inc. Shares on a Deferred Settlement basis
commences.
"SHARE REGISTER" means the register of C.A.T. Shareholders and includes any
branch register.
"SHARE REGISTRY" means Computershare Registry Services Pty Ltd, Level 3, 60
Carrington Street, Sydney, NSW, 2000.
"SHARES SCHEME" means the scheme of arrangement between C.A.T. and the C.A.T.
Shareholders set out in this Information Memorandum, subject to any alterations
or conditions made or required pursuant to subsection 411(6) of the Corporations
Law.
"STATEMENT OF HOLDING" when used in relation to C.A.T. Shares or NovaTec Inc.
Shares held or to be allotted to a person who has elected in a form acceptable
to C.A.T. and NovaTec Inc. to hold those C.A.T. Shares or NovaTec Inc. Shares in
uncertificated form includes a statement or certificate showing the holdings of
those C.A.T. Shares or NovaTec Inc. Shares which conforms with the business
rules of the ASX.
"UNDERLYING C.A.T. SHARES" means the shares underlying each of the C.A.T.
Options held by the Other Parties.
"USA" or "UNITED STATES" means the United States of America.
1.2 Interpretation
Unless expressed to the contrary:
(a) the singular includes the plural and vice versa;
(b) each gender includes each other gender;
(c) terms binding more than one person shall be construed as binding
them jointly and severally;
(d) references to persons include references to corporations;
(e) references to clauses by number are references to the numbered
clauses of this agreement and references to sections by number
are references to the numbered sections of the Explanatory
Statement in the Scheme booklet to be sent to C.A.T.
Shareholders and C.A.T. Optionholders;
(f) headings and sub-headings shall not affect the construction of
the substantive provisions of this document;
<PAGE> 7
7
(g) terms defined in the Corporations Law and the Listing Rules
shall bear their defined meaning where used in this document;
and
(h) references to "AUD$" means Australian dollars and "US$" means
American dollars.
2 UNDERTAKINGS BY C.A.T.
In consideration of the undertakings given by NovaTec Inc. pursuant to
this document, C.A.T. agrees to:
(a) pay to NovaTec Inc. a fee of AUD$20,000.00;
(b) do all such things and to execute all such deeds and other
documents that may be necessary or expedient on its part to
implement the Schemes including, without limitation:
(i) to apply to the Court pursuant to the provisions of
Section 411(1) of the Corporations Law for orders
convening a meeting of the holders of C.A.T. Shares and
a meeting of the holders of C.A.T. Options;
(ii) if the Schemes are approved at the meetings held for the
purposes of the Shares Scheme and the Options Scheme, to
seek the approval of the Court to the Schemes pursuant
to Section 411(4) of the Corporations Law;
(iii) if the Court Approval is granted by the Court, to lodge
forthwith with ASIC a copy of the Court Approval
together with such other documents as may be required
pursuant to the Corporations Law;
(iv) to make application for any relevant approval of the
regulatory authorities in Australia to the issue of
NovaTec Inc. Shares to holders of C.A.T. Shares and
C.A.T. Options pursuant to the terms of the Schemes;
(v) if shareholder confirmation and endorsement is given at
the Extraordinary Meeting on 25 October 1999 in relation
to Resolution 1, Court Approval is granted for the
Schemes and ASX approval is granted for the listing of
NovaTec Inc. on the ASX and all conditions (if any)
relating to this approval are satisfied, to allot and
issue bonus shares to certain C.A.T. Shareholders in
accordance with a resolution of the Board;
(vi) if shareholder approval is given at the Extraordinary
Meeting on 25 October 1999 in relation to Resolution 2,
Court Approval is granted for the Schemes and ASX
approval is granted for the listing of NovaTec Inc. on
the ASX and any conditions relating to this approval are
satisfied, to consolidate the C.A.T. Shares and C.A.T.
Options on a one-for-ten basis as at 12:02am on the
Effective Date; and
(c) enter into a deed with NovaTec Inc. and the directors of NovaTec
Inc. pursuant to which the directors of NovaTec Inc. undertake
to resign from their office as
<PAGE> 8
8
directors of NovaTec Inc. on or about the Shares Scheme
Implementation Date and the directors of NovaTec Inc. also agree
to procure the appointment of A.S. Dawson, D. MacSmith, L.D.
O'Connor and D. Mount as directors of NovaTec Inc. on or about
the Shares Scheme Implementation Date.
3 UNDERTAKINGS BY NOVATEC INC.
In consideration of the undertakings given by C.A.T. pursuant to this
document, NovaTec Inc. agrees to do all things and execute all such
deeds and other documents that may be necessary or expedient on its part
to implement the Schemes including, without limitation:
(a) apply for admission to the Official List and for quotation of
the NovaTec Inc. Shares on ASX;
(b) change its name to a name of C.A.T.'s choice when directed in
writing by C.A.T. and if the Schemes are not implemented in
accordance with the Information Memorandum, give up all rights
or licences to the new name and change its name to a name which
does not include any reference to "C.A.T.", or "Chip Application
Technologies" or any substantially identical or deceptively
similar name on such date as is notified by C.A.T. in writing;
(c) issue on the Shares Scheme Implementation Date, with effect from
the Effective Date, to each Scheme Shareholder a number of
NovaTec Inc. Shares (credited as fully paid) equal in number to
the C.A.T. Shares of which the Scheme Shareholder is registered
as holder at the Close of Registers;
(d) issue to each Scheme Optionholder on the Options Scheme
Implementation Date and with effect from the Options Scheme
Implementation Date, a certificate for the same number of
NovaTec Inc. Options as the number of C.A.T. Options of which
the Scheme Optionholder is registered as holder at the Close of
Registers;
(e) enter in NovaTec Inc.'s share register situated in Sydney on the
Shares Scheme Implementation Date, with effect from the
Effective Date, the name and address of each Scheme Shareholder
as the holder of the NovaTec Inc. Shares issued or transferred
to that Scheme Shareholder pursuant to clause 3(c);
(f) deem with effect from the Effective Date a Statement of Holding
issued in respect of C.A.T. Shares to be a Statement of Holding
issued in respect of NovaTec Inc. Shares until a new Statement
of Holding or certificate is issued by NovaTec Inc.;
(g) enter in NovaTec Inc.'s option register situated in Sydney on
the Options Scheme Implementation Date, with effect from the
Options Scheme Implementation Date, the name and address of each
Scheme Optionholder as the holder of the NovaTec Inc. Options
issued to that Scheme Optionholder pursuant to clause 3(d);
(h) deem with effect from the Options Scheme Implementation Date a
Statement of Holding issued in respect of C.A.T. Options to be a
Statement of Holding issued in respect of NovaTec Inc. Options
until a new Statement of Holding is issued by NovaTec Inc;
<PAGE> 9
9
(i) to enter into the Put and Call Option Deeds and the NovaTec Inc.
Share Option Deeds as soon as possible after execution of this
document; and
(j) enter into a deed with C.A.T. and the directors of NovaTec Inc.
pursuant to which the directors of NovaTec Inc. undertake to
resign from their office as directors of NovaTec Inc. on or
about the Shares Scheme Implementation Date and the directors of
NovaTec Inc. also agree to procure the appointment of A.S.
Dawson, D. MacSmith, L.D. O'Connor and D. Mount as directors of
NovaTec Inc. on or about the Shares Scheme Implementation Date.
4 FURTHER UNDERTAKINGS BY NOVATEC INC.
4.1 In consideration of the undertakings given by C.A.T. pursuant to this
agreement, NovaTec Inc. agrees and undertakes to sign all documents and
do all things necessary to procure the listing of the NovaTec Inc.
Shares by the ASX (subject to Court Approval of the Schemes) as soon as
practicable after executing this agreement.
4.2 In consideration of the undertakings given by C.A.T. pursuant to this
agreement, NovaTec Inc. also agrees and undertakes on and after the
Effective Date to:
(a) conduct the business of NovaTec Inc. in the best interests of
C.A.T. and its members;
(b) do all things necessary to ensure the efficient implementation
of the Schemes.
4.3 NovaTec Inc. hereby undertakes to do all those things and execute all
those deeds and other documents as may be necessary or expedient on its
part to implement the Schemes and, without limiting the generality of
the foregoing, to perform each of the undertakings given by it in
clauses 3 and 4 of this document.
4.4 NovaTec Inc. agrees that from the time it commences use of the new name
advised by C.A.T. it will not do anything or fail to do anything that
may, or may be calculated to, prejudice or bring into disrepute the
names C.A.T. or Chip Application Technologies Limited.
4.5 NovaTec Inc. and C.A.T. hereby acknowledge and agree that the benefit of
each of the covenants given by NovaTec Inc. in this document shall be
held by C.A.T. on trust for all Scheme Shareholders and Scheme
Optionholders as beneficiaries of those covenants.
4.6 NovaTec Inc. hereby acknowledges and agrees that to the extent of any
inconsistency between the Schemes and NovaTec Inc.'s Charter Documents,
the Schemes override NovaTec Inc.'s Charter Documents and bind NovaTec
Inc. and all NovaTec Inc. shareholders.
4.7 NovaTec Inc. undertakes that it will choose that section 124-385 of the
Income Tax Assessment Act 1997 ("the Act") applies to it and will make
this choice in accordance with the Act within two months after the
completion time (as defined in section 124-365(1) of the Act) or within
such further time as the Commissioner of Taxation allows.
5 CONDITIONS PRECEDENT
<PAGE> 10
10
5.1 The agreements contained in this document shall be subject in all
respects to the following conditions:
(a) the approval by meetings of C.A.T. Shareholders and C.A.T.
Optionholders of the Shares Scheme and the Options Scheme
respectively;
(b) the Schemes being approved by the Court pursuant to Section
411(4) of the Corporations Law with or without modification;
(c) receipt by NovaTec Inc. of ASX's approval to list NovaTec Inc.
on the ASX and satisfaction of any conditions set out in ASX's
approval; and
(d) any relevant approval of the regulatory authorities in Australia
being obtained to the issue of NovaTec Inc. Shares to Scheme
Shareholders and Scheme Optionholders pursuant to the terms of
the Schemes.
6 SEQUENCE
The obligations set out in clauses 2, 3, 4 and 5 of this document shall
be fulfilled by the respective parties in the sequence set out in the
Schemes.
7 MISCELLANEOUS
7.1 The parties shall execute all documents and do all acts and things
necessary for the full and effectual performance of the agreements
contained in this document and the Schemes.
7.2 The obligations of the parties under this document shall terminate if
the Schemes (with or without modification) do not become effective in
accordance with their terms by 31 March 2000 or such other date as may
be agreed between the parties in writing, but such termination shall not
affect the liability of any party in respect of failure to perform an
obligation under this document.
7.3 This document is governed by and is to be construed in accordance with
the laws in force in the State of New South Wales.
7.4 Each party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of New South Wales and any courts which have
jurisdiction to hear appeals from any of those courts and waives any
right to object to any proceedings being brought in those courts.
<PAGE> 11
11
THE COMMON SEAL of
CHIP APPLICATION TECHNOLOGIES [SEAL]
LIMITED
is affixed in the
presence of:
/S/ JOHN WEIHEN /S/ DAVID MAC SMITH
- --------------------------- ------------------------------------
Company Secretary Director
/S/ JOHN WEIHEN /S/ DAVID MAC SMITH
- --------------------------- ------------------------------------
Name of Company Secretary/(print) Name of Director (print)
NOVATEC INC.
By: /S/ PETER THOMAS HARVEY
- ---------------------------
Name PETER THOMAS HARVEY
Title: [Secretary]
<PAGE> 12
12
SCHEDULE 1
C.A.T. OPTIONS
<TABLE>
<CAPTION>
NO. OF OPTIONS
WITH "CONDITION EXERCISE
NO. OF OPTIONS OF EXERCISE" PRICE EXPIRY DATE (EXERCISE PERIOD)
-------------- ------------ ----- -----------------------------
<S> <C> <C> <C>
3,169,338 $0.75 30 June 2000
521,370 6,370 $0.30 31 March 2001
43,630 43,630 $0.30 31 March 2001
23,333 $0.48 31 March 2001
123,334 $0.50 31 March 2001
393,169 $0.75 31 March 2001
24,527 $0.75 31 May 2001
250,000 $0.33 1 August 2001
250,000 $0.66 1 August 2002
250,000 250,000 $0.99 1 August 2003
500,000 $1.00 (1 July 1999 to anniversary 1 of issue date)
500,000 500,000 $1.15 (1 July 2000 to anniversary 2 of issue date)
500,000 500,000 $1.20 (1 July 2001 to anniversary 4 of issue date)
500,000 $1.60 (1 July 1999 to anniversary 5 of issue date)
295,000 82,500 $0.95 (Range of dates in 1999)
(The vesting date
for 50,000 of these
options is
31 September
1999)
422,500 422,500 $0.95 (Range of dates in 2000)
365,000 365,000 $0.95 (Range of dates in 2001)
130,000 130,000 $0.95 (Range of dates in 2002)
</TABLE>
Note:
The "Condition of Exercise" referred to above is a condition that the
optionholder continue to be employed by C.A.T. as at a particular vesting date.
<PAGE> 1
EXHIBIT 3.1
FORM 204
PROCTOR SERVICES
ATTN: TROY GLOVER
4TH FL
16 BARRACK ST
SYDNEY NSW 2000
CERTIFICATE OF REGISTRATION
OF A COMPANY [AUSTRALIAN SECURITIES COMMISSION LOGO]
Corporations Law Sub-section 121(1)
This is to certify that
CARD TECHNOLOGIES AUSTRALIA LIMITED
AUSTRALIAN COMPANY NUMBER 057 883 333
is a registered company under Division 1 of Part 2.2 of the
Corporations Law of New South Wales and because
of its registration it is an incorporated company.
The company IS LIMITED BY SHARES.
The company is a PUBLIC company.
The day of commencement of registration is
THE TWELFTH DAY OF NOVEMBER 1992.
Given under the seal of the
Australian Securities Commission
on this twelfth day of November, 1992.
[AUSTRALIAN SECURITIES
COMMISSION COMMON SEAL]
/s/ [Signature Illegible]
----------------------------
<PAGE> 1
EXHIBIT 3.2
FORM 245
CARD TECHNOLOGIES AUSTRALIA
UNIT 5
152-162 RILEY ST
EAST SYDNEY NSW 2010
CERTIFICATE OF REGISTRATION [AUSTRALIAN SECURITIES
ON CHANGE OF NAME COMMISSION LOGO]
Corporations Law Sub-section 171 (12)
This is to certify that
CARD TECHNOLOGIES AUSTRALIA LIMITED
AUSTRALIAN COMPANY NUMBER 057 883 333
did on the thirty-first day of October 1997 change its name to
CHIP APPLICATION TECHNOLOGIES LIMITED
AUSTRALIAN COMPANY NUMBER 057 883 333
The company is a public company.
The company is limited by shares.
The company is registered under the Corporations Law of
New South Wales and the date of commencement of
registration is the twelfth day of November, 1992.
Given under the seal of the
Australian Securities Commission
[AUSTRALIAN SECURITIES on this thirty-first day of October, 1997.
COMMISSION COMMON SEAL]
/S/ ALAN CAMERON
------------------------------------------
Alan Cameron
Chairman
<PAGE> 1
EXHIBIT 3.3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 9:00 AM 7/06/1999
991275715 - 3066077
CERTIFICATE OF INCORPORATION
OF
NOVATEC INC.
A STOCK CORPORATION
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby certify as follows:
FIRST: The name of the corporation is NovaTec Inc. (the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware
19805. The name of the Corporation's registered agent at such address is
Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares which the Corporation shall have
authority to issue is 110,000,000 shares, of which 100,000,000 shares shall be
common stock, par value $0.001 per share, and 10,000,000 shares shall be
preferred stock, par value $0.001 per share ("Preferred Stock"). The Preferred
Stock may be divided into and issued in series. The Board of Directors shall
have the authority to divide the Preferred Stock into series and to fix and
determine the powers, designations, preferences, rights, qualifications,
limitations and restrictions of any series of Preferred Stock so established.
FIFTH: Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the Corporation. Meetings of stockholders
may be held within or without the State of Delaware.
SIXTH: To the full extent permitted by the General Corporation Law of the
State of Delaware or any other applicable laws presently or hereafter in effect,
no director of the Corporation shall be personally liable to the Corporation or
its stockholders for or with respect to any acts or omissions in the performance
of his or her duties as a director of the Corporation. Any repeal or
modification of this Article Sixth shall not adversely affect any right or
protection of a director of the Corporation existing immediately prior to such
repeal or modification.
SEVENTH: Each person who is or was or had agreed to become a director or
officer of the Corporation, or each such person who is or was serving or who had
agreed to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the Corporation to the full
extent permitted by the General Corporation Law of the State of Delaware or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter
<PAGE> 2
into one or more agreements with any person which provide for indemnification
greater or different than that provided in this Article. Any repeal or
modification of this Article Seventh shall not adversely affect any right or
protection existing hereunder immediately prior to such repeal or modification.
EIGHTH: In furtherance and not in limitation of the rights, powers,
privileges, and discretionary authority granted or conferred by the General
Corporation Law of the State of Delaware or other statutes or laws of the State
of Delaware, the Board of Directors is expressly authorized to make, alter,
amend or repeal the bylaws of the Corporation, without any action on the part
of the stockholders, but the stockholders may make additional bylaws and may
alter, amend or repeal any by-law whether adopted by them or otherwise. The
Corporation may in its bylaws confer powers upon its Board of Directors in
addition to the foregoing and in addition to the powers expressly conferred
upon the Board of Directors by applicable law.
NINTH: The Corporation reserves the right at any time and from time to
time to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted, in the
manner now or hereafter prescribed herein or by applicable law; and all rights,
preferences and privileges of whatsoever nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this Certificate
of Incorporation in its present form or as hereafter amended are granted
subject to this reservation.
TENTH: The name and mailing address of the incorporator is Tom Modiseur,
3181 Seventeen Mile Drive, Pebble Beach, California 93953.
ELEVENTH: The name and mailing address of the person who is to serve as
the sole director of the Corporation until the first annual meeting of
stockholders or until his successor is elected and qualified is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Tom Modiseur 3181 Seventeen Mile Drive
Pebble Beach
California 93953
</TABLE>
IN WITNESS WHEREOF, I the undersigned, being the incorporator
hereinabove named, do hereby execute this Certificate of Incorporation on this
29 day of June 1999.
/s/ TOM MODISETTE
-------------------------------------
Tom Modisette
<PAGE> 1
EXHIBIT 3.4
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/17/1999
991490911 - 3066077
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
NOVATEC INC.
NovaTec Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the Delaware General Corporation Law, hereby certifies
that:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the "FIRST" paragraph in its entirety and replacing such
paragraph with the following:
FIRST: The name of the corporation is Catuity Inc. (the
"Corporation").
SECOND: In accordance with the provisions of Section 141 of the Delaware
General Corporation Law, the Board of Directors of the Corporation, by unanimous
written consent dated November 15, 1999, approved the foregoing amendment to the
Certificate of Incorporation of the Corporation.
THIRD: The Corporation has not issued nor received payment for any capital
stock of the Corporation.
FOURTH: The foregoing amendment has been duly adopted in accordance with
Section 241 of the Delaware General Corporation Law.
IT WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed in its name and on its behalf by its Secretary this 17th
day of November 1999.
NOVATEC INC.
/s/ PETER HARVEY
----------------------------
Name: Peter Harvey
Title: Secretary
<PAGE> 1
EXHIBIT 3.5
NOVATEC INC.
BYLAWS
<PAGE> 2
BYLAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - MEETINGS OF STOCKHOLDERS...................................1
Section 1. Time and Place of Meetings.........................1
Section 2. Annual Meeting.....................................1
Section 3. Special Meetings...................................1
Section 4. Notice of Meetings.................................1
Section 5. Quorum.............................................1
Section 6. Voting.............................................1
ARTICLE II - DIRECTORS
Section 1. Powers.............................................2
Section 2. Number and Term of Office..........................2
Section 3. Vacancies and New Directorships....................2
Section 4. Regular Meetings...................................2
Section 5. Special Meetings...................................2
Section 6. Quorum.............................................2
Section 7. Written Action.....................................3
Section 8. Participation in Meetings by Conference Telephone..3
Section 9. Committees.........................................3
Section 10. Compensation.......................................3
Section 11. Rules..............................................3
ARTICLE III - NOTICES
Section 1. Generally..........................................3
Section 2. Waivers............................................3
ARTICLE IV - OFFICERS
Section 1. Generally..........................................4
Section 2. Compensation.......................................4
Section 3. Succession.........................................4
Section 4. Authority and Duties...............................4
Section 5. Chairman...........................................4
Section 6. Chief Executive Officer............................4
Section 7. President..........................................4
Section 8. Execution of Documents and Action with
Respect to Securities of Other Corporations......4
Section 9. Vice President.....................................5
Section 10. Secretary and Assistant Secretaries................5
Section 11. Treasurer and Assistant Treasurers.................5
Section 12. Controller.........................................5
Section 13. General Counsel....................................5
ARTICLE V - STOCK
Section 1. Certificates.......................................6
Section 2. Transfer...........................................6
Section 3. Lost, Stolen or Destroyed Certificates.............6
Section 4. Record Date........................................6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE VI - GENERAL PROVISIONS
Section 1. Fiscal Year ............................................ 7
Section 2. Corporate Seal ......................................... 7
Section 3. Reliance upon Books, Reports and Records ............... 7
Section 4. Time Periods ........................................... 7
Section 5. Dividends .............................................. 7
Section 6. ASX Listing Rules ...................................... 7
ARTICLE VII - AMENDMENTS
Section 1. Amendments ............................................. 8
</TABLE>
ii
<PAGE> 4
NOVATEC INC.
BYLAWS
ARTICLE 1
MEETINGS OF STOCKHOLDERS
Section 1. Time and Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at such
time and place, within or without the State of Delaware, as may be designated by
the Board of Directors, or by the Chairman of the Board, the President or the
Secretary in the absence of a designation by the Board of Directors, and stated
in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the stockholders shall be
held at such date and time as shall be designated from time to time by the Board
of Directors, at which meeting the stockholders shall elect by a plurality vote
the directors to succeed those whose terms expire and shall transact such other
business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law or by Certificate of
Incorporation, may be called by the Board of Directors, the Chairman of the
Board or the President, and shall be called by the President or the Secretary at
the request in writing of stockholders owning a majority in interest of the
entire capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall be sent to the President and the Secretary and shall
state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings. Written notice of every meeting of the
stockholders, stating the place, date and hour of the meeting and, in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or by law. When a meeting is adjourned to another
place, date or time, written notice need not be given of the adjourned meeting
if the place, date and time thereof are announced at the meeting at which the
adjournment is taken, provided, however, that if the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, written notice of the place, date and time of the adjourned
meeting shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.
Section 5. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by law or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented.
Section 6. Voting. Except as otherwise provided by law or by the
Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Corporation
on the record date for the meeting and such votes may be cast either in person
or by written proxy. Every proxy must be duly executed and filed with the
Secretary of the Corporation. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument
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in writing revoking the proxy or another duly executed proxy bearing a later
date with the Secretary of the Corporation. The vote upon any question brought
before a meeting of the stockholders may be by voice vote, unless the holders of
a majority of the outstanding shares of all classes of stock entitled to vote
thereon present in person or by proxy at such meeting shall so determine. Every
vote taken by written ballot shall be counted by one or more inspectors of
election appointed by the Board of Directors. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock which has voting
power present in person or represented by proxy shall decide any question
properly brought before such meeting, unless the question is one upon which by
express provision of law, the Certificate of Incorporation or these bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
ARTICLE II
DIRECTORS
Section 1. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the Corporation and do all such lawful acts and things as
are not by law or by the Certificate of Incorporation directed or required to be
exercised or done by the stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
consist of one or more members. The number of directors shall be fixed by
resolution of the Board of Directors or by the stockholders at the annual
meeting or a special meeting. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article,
and each director elected shall hold office until his successor is elected and
qualified, except as required by law. Any decrease in the authorized number of
directors shall not be effective until the expiration of the term of the
directors then in office, unless, at the time of such decrease, there shall be
vacancies on the Board which are being eliminated by such decrease.
Section 3. Vacancies and New Directorships. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
which occur between annual meetings of the stockholders may be filled by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so elected shall hold office until
the next annual meeting of the stockholders and until their successors are
elected and qualified, except as required by law.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President on one day's written
notice to each director by whom such notice is not waived, given either
personally or by mail, e-mail or fax, and shall be called by the President or
the Secretary in like manner and on like notice on the written request of any
two directors.
Section 6. Quorum. At all meetings of the Board of Directors, a majority
of the total number of directors then in office shall constitute a quorum for
the transaction of business, and the act of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time to another place, time or date, without notice other than announcement at
the meeting, until a quorum shall be present.
2
<PAGE> 6
Section 7. Written Action. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes or proceedings of the Board or Committee.
Section 8. Participation in Meetings by Conference Telephone. Members
of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any such
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other, and such participation in a meeting shall constitute presence in person
at the meeting.
Section 9. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation
and each to have such lawfully delegable powers and duties as the Board may
confer. Each such committee shall serve at the pleasure of the Board of
Directors. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Except as otherwise provided by law, any such
committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Any committee or committees so designated by
the Board shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless otherwise
prescribed by the Board of Directors, a majority of the members of the
committee shall constitute a quorum for the transaction of business, and the
act of a majority of the members present at a meeting at which there is a
quorum shall be the act of such committee. Each committee shall prescribe
its own rules for calling and holding meetings and its method of procedure,
subject to any rules prescribed by the Board of Directors, and shall keep a
written record of all actions taken by it.
Section 10. Compensation. The Board of Directors may establish such
compensation for, and reimbursement of the expenses of, directors for
attendance at meetings of the Board of Directors or committees, or for other
services by directors to the Corporation, as the Board of Directors may
determine.
Section 11. Rules. The Board of Directors may adopt such special rules
and regulations for the conduct of their meetings and the management of the
affairs of the Corporation as they may deem proper, not inconsistent with law
or these bylaws.
ARTICLE III
NOTICES
Section 1. Generally. Whenever by law or under the provisions of the
Certificate of Incorporation or these bylaws, notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same shall be deposited in the mail. Notice to directors may also
be given by e-mail, fax or telephone.
Section 2. Waivers. Whenever any notice is required to be given by law or
under the provisions of the Certificate of Incorporation or these bylaws, a
waiver thereon in writing, signed by the person or persons entitled to such
notice, whether before or after the time of the event for which notice is to be
3
<PAGE> 7
given, shall be deemed equivalent to such notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE IV
OFFICERS
Section 1. Generally. The officers of the Corporation shall be elected
by the Board of Directors and shall consist of a President, a Secretary and a
Treasurer. The Board of Directors may also choose any or all of the following:
a Chairman of the Board of Directors, a Chief Executive Officer one or more
Vice Presidents, a Controller, a General Counsel, and one or more Assistant
Secretaries and Assistant Treasurers. Any number of officers may be held by the
same person.
Section 2. Compensation. The compensation of all officers and agents
of the Corporation who are also directors of the Corporation shall be fixed by
the Board of Directors. The Board of Directors may delegate the power to fix
the compensation of other officers and agents of the Corporation to an officer
of the Corporation.
Section 3. Succession. The officers of the Corporation shall hold office
until their successors are elected and qualified. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors.
Section 4. Authority and Duties. Each of the officers of the Corporation
shall have such authority and shall perform such duties as are stated in these
bylaws or as may be specified by the Board of Directors in a resolution which
is not inconsistent with these bylaws.
Section 5. Chairman. The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors and he shall have such other duties
and responsibilities as may be assigned to him by the Board of Directors. The
Chairman may delegate to any qualified person authority to chair any meeting of
the stockholders, either on a temporary or a permanent basis.
Section 6. Chief Executive Officer. The Chief Executive Officer shall
be the head of the Corporation and shall have the general control and
management of all the business and affairs of the Corporation. He shall also
exercise such further powers and perform such other duties as may from time to
time be conferred upon or assigned by these bylaws or the Board of Directors. He
shall from time to time make such recommendations to the Board of Directors and
any committee of the Board of Directors as he thinks proper and shall bring
before the Board of Directors and any committee such information as may be
required, relating to the business and property of the Corporation.
Section 7. President. The President shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. He shall
sign all certificates of stock, and under the supervision of the Board of
Directors shall have general care and direction of the affairs of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
Section 8. Execution of Documents and Action with Respect to Securities
of Other Corporations. The President shall have and is hereby given full power
and authority, except as otherwise required by
4
<PAGE> 8
law or directed by the Board of Directors, (a) to execute, on behalf of the
Corporation, all duly authorized contracts, agreements, deeds, conveyances or
other obligations of the Corporation, applications, consents, proxies and other
powers of attorney, and other documents and instruments, and (b) to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders (or with respect to any action of such stockholders) of
any other corporation in which the Corporation may hold securities and
otherwise to exercise any and all rights and powers which the Corporation may
possess by reason of its ownership of securities of such other corporation. In
addition, the President may delegate to other officers, employees and agents of
the Corporation the power and authority to take any action which the President
is authorized to take under this Section 7, with such limitations as the
President may specify; such authority so delegated by the President shall not
be re-delegated by the person to whom such execution authority has been
delegated.
Section 9. Vice President. Each Vice President, however titled, shall
perform such duties and services and shall have such authority and
responsibilities as shall be assigned to or required from time to time by the
Board of Directors or the President.
Section 10. Secretary and Assistant Secretaries. (a) The Secretary shall
amend all meetings of the stockholders and all meetings of the Board of
Directors and record all proceedings of the meetings of the stockholders and
the Board of Directors and shall perform like duties for the standing
committees when requested by the Board of Directors or the President. The
Secretary shall give, or cause to be given, notice of all meetings of the
stockholders and meetings of the Board of Directors. The Secretary shall
perform such duties as may be prescribed by the Board of Directors or the
President. The Secretary shall have charge of the seal of the Corporation and
authority to affix the seal to any instrument. The Secretary or any Assistant
Secretary may attest to the corporate seal by handwritten or facsimile
signature. The Secretary shall keep and account for all books, documents,
papers and records of the Corporation except those for which some other
officer or agent has been designated or is otherwise properly accountable. The
Secretary shall have authority to sign stock certificates.
(b) Assistant Secretaries, in the order of their seniority, shall assist
the Secretary and, if the Secretary is unavailable or fails to act, perform the
duties and exercise the authorities of the Secretary.
Section 11. Treasurers and Assistant Treasurers. (a) The Treasurer shall
have the custody of the funds and securities belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Treasurer with the prior approval of the Board of Directors or the President.
The Treasurer shall disburse the funds and pledge the credit of the Corporation
as may be directed by the Board of Directors and shall render to the Board of
Directors and the President, as and when required by them, or any of them, an
account of all transactions by the Treasurer.
(b) Assistant Treasurers, in the order of their seniority, shall assist
the Treasurer and, if the Treasurer is unable or fails to act, perform the
duties and exercise the powers of the Treasurer.
Section 12. Controller. The Controller shall be the chief accounting
officer of the Corporation. The Controller shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation
in accordance with accepted accounting methods and procedures. The Controller
shall initiate periodic audits of the accounting records, methods and systems
of the Corporation. The Controller shall render to the Board of Directors and
the President as and when required by them, or any of them, a statement of the
financial condition of the Corporation.
Section 13. General Counsel. The General Counsel shall be the chief legal
officer of the Corporation. The General Counsel shall provide legal counsel and
advice to the Board of Directors and to the officers with respect to compliance
with applicable laws and regulations. The General Counsel shall
5
<PAGE> 9
also provide or obtain legal representation of the Corporation in proceedings by
or against the Corporation. The General Counsel shall render to the Board of
Directors and the President, as and when required by them, or any of them, a
report on the status of claims against, and pending litigation of, the
Corporation.
ARTICLE V
STOCK
Section 1. Certificates. Certificates representing shares of stock of the
Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable legal requirements. Such certificates shall be
numbered and their issuance recorded in the books of the Corporation, and such
certificate shall exhibit the holder's name and the number of shares and shall
be signed by, or in the name of the Corporation by the Chairman of the Board or
the President and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Corporation. Any or all of the signatures and the
seal of the Corporation, if any, upon such certificates may be facsimiles,
engraved or printed.
Section 2. Transfer. (a) Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
(b) Subject to the requirements of applicable Australian law, the
Corporation shall refuse to register any transfer of "restricted" securities not
made in accordance with the provisions of Regulation S under the US Securities
Act of 1933, pursuant to registration under the Act or pursuant to an available
exemption from registration.
Section 3. Lost, Stolen, or Destroyed Certificates. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates previously issued by the Corporation alleged to have
been lost, stolen or destroyed upon the making of an affidavit of that fact,
satisfactory to the Secretary, by the person claiming the certificate of stock
to be lost, stolen or destroyed. As a condition precedent to the issuance of a
new certificate or certificates the Secretary may require the owner of such
lost, stolen or destroyed certificate or certificates to give the Corporation a
bond in such sum and with such surety or sureties as the Secretary may direct as
indemnity against any claims that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed or the
issuance of the new certificate.
Section 4. Record Date. (a) In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before
the date of such meeting. If no record is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
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(b) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be fixed
from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may adopt a corporate
seal and use the same by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 3. Reliance upon Books, Reports and Records. Each director, each
member of a committee designated by the Board of Directors, and each officer of
the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the records of the Corporation and upon
such information, opinions, reports or statements presented to the Corporation
by any of the Corporation's officers or employees, or committees of the Board
of Directors, or by any other person as to matters the director, committee
member or officer believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of
the Corporation.
Section 4. Time Periods. In applying any provision of these bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded and the day of the event shall be included.
Section 5. Dividends. The Board of Directors may from time to time declare
and the Corporation may pay dividends upon its outstanding shares of capital
stock, in the manner and upon the terms and conditions provided by law and the
Certificate of Incorporation.
Section 6. ASX Listing Rules. A reference to the Listing Rules in these
bylaws has effect if, and only if, at the relevant time the Corporation is
Listed, and must otherwise be disregarded. If the Corporation is Listed, the
following clauses apply:
(a) Notwithstanding anything contained in these bylaws, if the Listing
Rules prohibit an act being done, the act shall not be done.
(b) Nothing contained in these bylaws shall prevent an act being done that
the Listing Rules require to be done.
(c) If the Listing Rules require an act to be done or not to be done,
authority is given for that act to be done or not to be done, as the
case may be.
7
<PAGE> 11
(d) If the Listing Rules require these bylaws to contain a provision and it
does not contain such a provision, then these bylaws are deemed to contain
that provision.
(e) If the Listing Rules require these bylaws not to contain a provision and
it contains such a provision, then these bylaws are deemed not to contain
that provision.
(f) If any provision of these bylaws is or becomes inconsistent with the
Listing Rules, these bylaws are deemed not to contain that provision to
the extent of the inconsistency.
"ASX" means the Australian Stock Exchange Limited.
"Listing Rules" means the Official Listing Rules of the ASX as amended from
time to time and as modified from time to time by the ASX in their application
to the Corporation.
ARTICLE VII
AMENDMENTS
Section 1. Amendments. These bylaws may be altered, amended or
repealed, or new bylaws may be adopted, by the stockholders or by the Board of
Directors.
8
<PAGE> 1
EXHIBIT 10.1
ALEXANDER S. DAWSON
NOVATEC INC.
CHIP APPLICATION TECHNOLOGIES LIMITED
PUT AND CALL OPTION DEED
IN RESPECT OF SHARES IN CHIP APPLICATION TECHNOLOGIES LIMITED
CORRS CHAMBERS WESTGARTH
Lawyers
Level 32, Governor Phillip Tower
1 Farrer Place
SYDNEY NSW 2000
AUSTRALIA
Tel: (02) 9210 6500
Fax: (02) 9210 6611
DX: 133 Sydney
Ref: MGL
CHIP5050-3333456
<PAGE> 2
2
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CONTENTS
<TABLE>
<S> <C>
INTERPRETATION 3
CONDITION PRECEDENT AND CONSOLIDATION 6
NOTICE OF EXERCISE OF C.A.T. OPTIONS 6
PUT OPTION 6
CALL OPTION 7
SHARE SWAP 7
WARRANTIES 8
EXPIRY OF C.A.T. OPTIONS UNEXERCISED 9
NOTICES 10
MISCELLANEOUS 11
</TABLE>
<PAGE> 3
3
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THIS DEED is made on 2 September 1999
BETWEEN ALEXANDER S. DAWSON of 52 St Marks Roads, Randwick, NSW, 2031,
Australia]/
("GRANTOR")
AND NOVATEC INC., (ARBN 089 327 882) a company incorporated in the
State of Delaware, United States of America whose Australian
registered office is located at Level 15, The Ernst & Young
Building, 321 Kent Street, Sydney, NSW, 2000, Australia
("NOVATEC INC.")
AND CHIP APPLICATION TECHNOLOGIES LIMITED (ACN 057 883 333) of
Level 5, Cabcharge House, 152-162 Riley Street, East Sydney,
NSW, 2000, Australia ("C.A.T.")
RECITALS
A The Grantor is the registered holder of the C.A.T. Options.
B NovaTec Inc. has agreed to grant the Grantor an option to require
NovaTec Inc. to purchase the Underlying C.A.T. Shares on and subject
to the terms of this document.
C The Grantor has agreed to grant NovaTec Inc. an option to purchase
the Underlying C.A.T. Shares on and subject to the terms of this
document.
IT IS AGREED
1 INTERPRETATION
1.1 DEFINITIONS
In this document:
"BUSINESS DAY" means a day on which banks are open for business in
Sydney, Australia and Delaware, United States of America, excluding
a Saturday, Sunday or public holiday.
"CALL OPTION" has the meaning given to it in CLAUSE 5.1.
"CALL OPTION NOTICE" means the notice substantially in the form of
SCHEDULE 1.
"COMPLETION DATE" means three Business Days after the date of
exercise of the Put Option or Call Option, as the case may be.
"COMPLETION PLACE" means the principal offices of C.A.T. in Sydney,
Australia or such other place as is agreed in writing by the
parties.
"C.A.T. OPTION EXERCISE DATE" means the date on which the Grantor,
in his absolute discretion, exercises the C.A.T. Options.
"C.A.T. OPTION RULES" means the terms and conditions that apply to
the C.A.T. Options as set out in Part 10.3 of the C.A.T. prospectus
dated 15 May 1997 in respect of the offer of 3,333,333 ordinary
shares at an issue price of 30 cents per share.
<PAGE> 4
4
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"C.A.T. OPTIONS" means the Number of options in C.A.T. with an
expiry date of 30 June 2000
registered in the name of the Grantor and exercisable at AUD 75
cents each, together with any additional options in C.A.T. acquired
by the Grantor between the Operative Date and the Effective Date,
subject to adjustment in accordance with CLAUSE 2.2
"CLOSE OF REGISTERS" means 5:00pm (Sydney, Australia time) or in the
case of proper SCH transfers, such time as permitted by SCH, on the
date 5 Business Days after the date on which an office copy of the
order of the Court to approve the Schemes of Arrangement is lodged
with the Australian Stock Exchange Limited.
"COURT" means the Supreme Court of New South Wales or such other
court from whom approval is sought by C.A.T. for the Schemes of
Arrangement under the Corporations Law.
"DEED OF ACCESSION" means the deed substantially in the form of
SCHEDULE 3.
"ENCUMBRANCE" means any mortgage, charge (whether fixed or
floating), pledge, lien or security interest of any kind.
"EFFECTIVE DATE" means the date on which the Shares Scheme of
Arrangement is implemented with approval of the Court.
"NOVATEC INC. SHARE" means a fully paid share of common stock of
NovaTec Inc.
"NUMBER" means: 164,838 where applicable, increased or reduced to
reflect changes in the holding of options by the Grantor between the
Operative Date and the Effective Date.
"OPERATIVE DATE" means the date of this document.
"OPTION PERIOD" means the 30 day period commencing at 9.00 am
(Sydney, Australia time) on the first day after the C.A.T. Option
Exercise Date and ending at 5.00pm (Sydney, Australia time) on the
30th day thereafter, inclusive of that first day.
"PUT OPTION" has the meaning given to it in CLAUSE 4.1.
"PUT OPTION NOTICE" means the notice substantially in the form of
SCHEDULE 2.
"SCH" means the securities clearing house.
"SCHEMES OF ARRANGEMENT" means the schemes of arrangement between
C.A.T. and its shareholders and optionholders, so described in the
Information Memorandum shortly to be issued by C.A.T. to its
members, in the form in which they are implemented with approval of
the Court.
"SECURITIES ACT" means the US Securities Act of 1933.
"SHARES SCHEME OF ARRANGEMENT" means the scheme of arrangement
between C.A.T. and its shareholders, so described in the Information
Memorandum shortly to be issued by C.A.T. to its members, in the
form in which it is implemented with approval of the Court.
"UNDERLYING C.A.T. SHARES" means the fully paid ordinary shares in
C.A.T. which will be issued to the Grantor on exercise of all or any
of the C.A.T. Options.
1.2 CONSTRUCTION
Unless expressed to the contrary:
(a) words importing:
(i) the singular include the plural and vice versa; and
<PAGE> 5
5
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(ii) any gender includes the other genders;
(b) if a word or phrase is defined, cognate words and phrases have
corresponding definitions;
(c) a reference to:
(i) a person includes a firm, unincorporated association,
corporation and a government or statutory body or
authority;
(ii) a person includes its legal personal representatives,
successors and assigns;
(iii) a statute, ordinance, code or other law includes
regulations and other statutory instruments under it
and consolidations, amendments, re-enactments or
replacements of any of them;
(iv) a right includes a benefit, remedy, discretion,
authority or power;
(v) an obligation includes a warranty or representation and
a reference to a failure to observe or perform an
obligation includes a breach of warranty or
representation; and
(vi) AUD means the lawful currency of Australia.
2 CONDITION PRECEDENT AND CONSOLIDATION
2.1 CONDITION PRECEDENT
All the obligations of the parties under this document are subject to
implementation of the Schemes of Arrangement.
2.2 CONSOLIDATION
The parties agree that immediately prior to the Close of Registers, the
C.A.T. Options (without further act or authority) will be consolidated on
a one-for-ten basis ("Consolidation"). Where the Consolidation
yields a number of C.A.T. Options which is not a whole number, then the
number of consolidated C.A.T. Options shall be rounded-up to the nearest
whole number.
3 NOTICE OF EXERCISE OF C.A.T. OPTIONS
The Grantor shall give NovaTec Inc. a written notice forthwith when he exercises
any or all of the C.A.T. Options. The written notice shall specify the date of
exercise and the number of C.A.T. Options exercised.
4 PUT OPTION
4.1 GRANT OF PUT OPTION
<PAGE> 6
6
- -------------------------------------------------------------------------------
Subject to the conditions of exercise in CLAUSE 4.2 and consideration of
one Australian dollar, (receipt of which is hereby acknowledged), NovaTec
Inc. irrevocably grants to the Grantor an option for the Grantor to
require NovaTec Inc. to purchase all or any of the Underlying C.A.T.
Shares at any time during the Option Period (the "PUT OPTION") and the
Grantor accepts the same.
4.2 CONDITIONS OF EXERCISE
The Grantor may not exercise the Put Option unless, at the time of
exercise, all of the following conditions have been fulfilled:
(a) the condition precedent in CLAUSE 2.1 has been satisfied;
(b) the Grantor has not exercised the Call Option; and
(c) the Underlying C.A.T. Shares relevant to the exercise of the
Put Option have been allotted to the Grantor by C.A.T. or
C.A.T. is under a legal obligation to allot them, in either
case as a result of the Grantor having exercised the C.A.T.
Options.
4.3 MANNER OF EXERCISE
The Grantor may only exercise the Put Option during the Option Period by
giving a Put Option Notice to the Grantor.
5 CALL OPTION
5.1 GRANT OF CALL OPTION
Subject to the conditions of exercise in CLAUSE 5.2 and consideration of
one Australian dollar, (receipt of which is hereby acknowledged), the
Grantor irrevocably grants to NovaTec Inc. an option to purchase all or
any of the Underlying C.A.T. Shares at any time during the Option Period
(the "CALL OPTION") and NovaTec Inc. accepts the same.
5.2 CONDITIONS OF EXERCISE
NovaTec Inc. may not exercise the Call Option unless, at the time of
exercise, all of the following conditions have been fulfilled:
(a) the condition precedent in CLAUSE 2.1 has been satisfied;
(b) the Grantor has not exercised the Put Option; and
(c) the Underlying C.A.T. Shares relevant to the exercise of the
Call Option have been allotted to the Grantor by C.A.T. or
C.A.T. is under a legal obligation to allot them, in either
case as a result of the Grantor having exercised the C.A.T.
Options.
5.3 MANNER OF EXERCISE
<PAGE> 7
7
- -------------------------------------------------------------------------------
NovaTec Inc. may only exercise the Call Option during the Option Period by
giving a Call Option Notice to the Grantor.
6 SHARE SWAP
6.1 EFFECT OF EXERCISE OF OPTIONS
Upon exercise of the Call Option or Put Option:
(a) the Grantor must sell to NovaTec Inc., and NovaTec Inc. must
purchase from the Grantor, the Underlying C.A.T. Shares in
respect of which the option has been exercised free from all
Encumbrances; and
(b) NovaTec Inc. must issue to the Grantor one NovaTec Inc. Share
for each Underlying C.A.T. Share in respect of which the
option has been exercised as consideration for such sale.
6.2 COMPLETION
The sale and purchase of the Underlying C.A.T. Shares under CLAUSE 6.1(A)
and the issuance of the NovaTec Inc. Shares under CLAUSE 6.1(B) shall be
completed (as nearly as is possible) contemporaneously on the Completion
Date at the Completion Place.
6.3 GRANTOR'S OBLIGATIONS ON COMPLETION
On Completion:
(a) if the Underlying C.A.T. Shares in respect of which the Call
Option or Put Option has been exercised are certificated, the
Grantor shall deliver to NovaTec Inc. instruments of transfer
in relation to the relevant Underlying C.A.T. Shares in
registrable form and duly executed by the Grantor together
with the relevant share certificates; or
(b) if the Underlying C.A.T. Shares in respect of which the Call
Option or Put Option has been exercised are uncertificated,
the Grantor shall irrevocably instruct its Controlling
Participant (as defined in the SCH Business Rules) to initiate
a transfer of the relevant Underlying C.A.T. Shares in an
uncertificated holding to a holding specified by NovaTec Inc.
6.4 NOVATEC INC.'S. OBLIGATIONS ON COMPLETION
On Completion NovaTec Inc. shall:
(a) issue to the Grantor the relevant NovaTec Inc. Shares which
are required to be issued to the Grantor pursuant to CLAUSE
6.1(B); and
(b) deliver to the Grantor certificates, registered in the name of
the Grantor or such other names and in such denominations as
are designated by the Grantor, representing the total number
of NovaTec Inc. Shares that are required to be issued to the
Grantor pursuant to CLAUSE 6.1(B).
<PAGE> 8
8
- -------------------------------------------------------------------------------
7 WARRANTIES
7.1 GRANTOR'S WARRANTIES
The Grantor represents, warrants and covenants to NovaTec Inc. that:
(a) on the Operative Date, he is the beneficial owner of the
C.A.T. Options free from Encumbrances;
(b) subject to exercise of the C.A.T. Options to which the
Underlying C.A.T. Shares relate, on the Completion Date and at
all times between the Operative Date and Completion Date he
will be:
(i) the beneficial owner of the relevant Underlying C.A.T.
Shares free from Encumbrances; and
(ii) entitled to sell and transfer the relevant Underlying
C.A.T. Shares to NovaTec Inc. without the consent of any
third party.
(c) he is not a US person and will not acquire the NovaTec Inc.
Shares for the account or benefit of a US person;
(d) he will resell the NovaTec Inc. Shares only in accordance with
the registration or exemption provisions of the Securities Act
or in compliance with Regulation S under that Act;
(e) he will not engage in hedging transactions with regard to the
NovaTec Inc. Shares unless in compliance with the Securities
Act; and
(f) he will accept certificates representing the NovaTec Inc.
Shares subject to the following restrictive legend:
"The securities represented by this certificate may not
be transferred except in a transaction registered under
the US Securities Act of 1933 or an exemption from
registration under that Act or in compliance with
Regulation S under that Act. Hedging transactions
involving these securities may not be conducted unless in
compliance with the Act. Such securities may be sold in
transactions executed through the Australian Stock
Exchange if neither the seller nor any person acting on
its behalf knows that the transaction has been
pre-arranged with a buyer in the United States and no
directed selling efforts have been made in the United
States by the seller, an affiliate or any person acting
on their behalf".
7.2 NOVATEC INC. WARRANTIES
NovaTec Inc. represents and warrants to the Grantor that:
<PAGE> 9
9
- -------------------------------------------------------------------------------
(a) this document is enforceable against it in accordance with its
terms and is not void or voidable;
(b) it has capacity unconditionally to execute and deliver and
comply with its obligations under this document;
(c) it has taken all necessary action to authorise the
unconditional execution and delivery of and the compliance
with its obligations under this document; and
(d) each governmental authorisation necessary to enable it
unconditionally to execute and deliver and comply with its
obligations under this document has been obtained, effected
and complied with.
8 EXPIRY OF C.A.T. OPTIONS UNEXERCISED
8.1 ACKNOWLEDGMENT
Despite anything in this document, NovaTec Inc. acknowledges that the
Grantor is under no obligation of any kind whatsoever to exercise the
C.A.T. Options and any decision to do so is in the absolute discretion of
the Grantor.
8.2 EFFECT OF EXPIRY OF C.A.T. OPTIONS
If the C.A.T. Options expire unexercised in accordance with the C.A.T.
Option Rules, the Put Option and Call Option shall automatically lapse and
except for the obligation in respect of stamp duty under CLAUSE 10.1, each
party is released from their obligations under this document.
9 NOTICES
9.1 GENERAL
A notice, demand, certification or other communication relating to this
document must be given in English language and may be given by an agent of
the sender.
(a) is to be given in writing and in the English language; and
(b) may be given by an agent of the sender.
9.2 METHOD OF SERVICE
In addition to any lawful means a communication may be given by:
(a) being personally served on a party;
(b) being left at the party's current address for service;
(c) being sent to the party's current address for service by
pre-paid ordinary mail or if the address is outside Australia,
by pre-paid air mail; or
(d) facsimile to the party's current number for service.
<PAGE> 10
10
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9.3 PARTICULARS OF SERVICE
(a) The particulars for service are initially:
(i) in the case of the Grantor:
at the address hereinbefore mentioned
(ii) in the case of NovaTec:
at the address hereinbefore mentioned
Fax: (02) 9248 5205
Attention: Australian Agent of NovaTec Inc: Fellstar
Nominees (N.S.W.) Pty Limited
(iii) in the case of C.A.T.:
at the address hereinbefore mentioned
Fax: (02) 9332 1285
Attention: Company Secretary
(b) Each party may from time to time change its particulars for
service by notice to each other party.
9.4 SERVICE
If a communication is given by:
(a) post, it will be deemed received if posted within Australia to
an Australian address three Business Days after posting and in
any other case seven Business Days after posting;
(b) facsimile, and the sender's facsimile machine produces a
transmission confirmation report indicating that the facsimile
was sent to the addressee's facsimile, the report will be
prima facie evidence that the facsimile was received by the
addressee at the time indicated on that report.
10 MISCELLANEOUS
10.1 STAMP DUTY
(a) NovaTec Inc. shall, as between the parties, be liable for and
duly pay all stamp duty (including any fine or penalty except
where it arises from default by the other party) on or
relating to this document and any document executed under it.
(b) If a party other than NovaTec Inc. pays any stamp duty
(including any fine or penalty) on or relating to this
document or any document executed under it, NovaTec Inc. shall
pay that amount to that party upon demand.
<PAGE> 11
11
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10.2 LEGAL COSTS
Subject to any express provision in this document to the contrary, each
party shall bear its own legal and other costs and expenses relating
directly or indirectly to the preparation of, and performance of its
obligations under, this document.
10.3 ASSIGNMENT
(a) Subject to paragraph (b) below, the Put Option and Call Option
are personal to the Grantor and NovaTec Inc. and may not be
transferred or assigned without the prior written consent of
the other party.
(b) If C.A.T. has consented to the transfer or assignment of the
C.A.T. Options to a third party, NovaTec Inc. shall be deemed
to have given its consent to the transfer of the Put Option
and Call Option to the same party, on condition that the
transferee executes a Deed of Accession agreeing to be bound
by the terms of this document.
10.4 AMENDMENT
This document may only be varied or replaced by a document duly executed
by the parties.
10.5 WAIVER AND EXERCISE OF RIGHTS
(a) A single or partial exercise or waiver of a right relating to
this document will not prevent any other exercise of that
right or the exercise of any other right.
(b) A party will not be liable for any loss, cost or expense of
any other party caused or contributed to by the waiver,
exercise, attempted exercise, failure to exercise or delay in
the exercise of a right.
10.6 FURTHER ASSURANCE
Each party shall promptly execute all documents and do all things that any
other party from time to time reasonably requires of it to effect, perfect
or complete the provisions of this document and any transaction
contemplated by it.
10.7 GOVERNING LAW AND JURISDICTION
(a) This document is governed by and is to be construed in
accordance with the laws in force in New South Wales.
(b) Each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of New South Wales
and any courts which have jurisdiction to hear appeals from
any of those courts and waives any right to object to any
proceedings being brought in those courts.
10.8 COUNTERPARTS
<PAGE> 12
12
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This document may consist of a number of counterparts and if so the
counterparts taken together constitute one and the same instrument.
EXECUTION
Executed as a deed.
<PAGE> 1
EXHIBIT 10.2
NOVATEC INC.
ALEXANDER S. DAWSON
CHIP APPLICATION TECHNOLOGIES LIMITED
SHARE OPTION DEED
IN RESPECT OF SHARES IN NOVATEC INC.
CORRS CHAMBERS WESTGARTH
Lawyers
Level 32, Governor Phillip Tower
1 Farrer Place
SYDNEY NSW 2000
AUSTRALIA
Tel: (02) 9210 6500
Fax: (02) 9210 6611
DX: 133 Sydney
Ref: MGL
CHIP5050-3333456
S/816606/10
<PAGE> 2
2
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CONTENTS
<TABLE>
<S> <C>
1 INTERPRETATION 122
2 GRANT OF OPTIONS 124
3 RIGHT TO EXERCISE OPTIONS 125
4 MANNER OF EXERCISE OF OPTIONS 125
5 ADJUSTMENTS 126
6 AMENDMENT OF C.A.T. OPTIONS 127
7 CONSOLIDATION OF C.A.T. OPTIONS 127
8 US SECURITIES LAW 127
9 NOTICES 128
10 MISCELLANEOUS 129
</TABLE>
<PAGE> 3
3
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THIS DEED is made on 2 September 1999
BETWEEN NOVATEC INC., (ARBN 089 327 882) a company incorporated in the
State of Delaware, United States of America, whose Australian
registered office is located at Level 15, The Ernst & Young
Building, 321 Kent Street, Sydney, NSW, 2000, Australia , (
"NOVATEC INC.")
AND ALEXANDER S. DAWSON of 52 St Marks Road, Randwick, NSW, 2031,
Australia
(the "GRANTEE")]/
AND CHIP APPLICATION TECHNOLOGIES LIMITED (ACN 057 883 333) of
Level 5, Cabcharge House, 152-162 Riley Street, East Sydney,
NSW, Australia ("C.A.T.")
RECITALS
NovaTec Inc. has agreed to grant the Grantee options over unissued shares in the
capital of the company on and subject to the terms of this document.
IT IS AGREED
1 INTERPRETATION
1.1 DEFINITIONS
In this document:
"BUSINESS DAYS" means a day on which banks are open for business in
Sydney, Australia and Delaware, United States of America, excluding
a Saturday, Sunday or public holiday.
"C.A.T. OPTION RULES" means the terms and conditions that apply to
the C.A.T. Options as set out in Part 10.3 of the C.A.T. prospectus
dated 15 May 1997 in respect of the offer of 3,333,333 ordinary
shares at an issue price of 30 cents per share.
"C.A.T. OPTIONS" means the Number of options in C.A.T. with an
expiry date of 30 June 2000 registered in the name of the Grantor
and exercisable at AUD 75 cents each, subject to adjustment in
accordance with CLAUSE 7.
"CLOSE OF REGISTERS" means 5:00pm (Sydney, Australia time) or in the
case of proper SCH transfers, such time as permitted by SCH, on the
date 5 Business Days after the date on which an office copy of the
order of the Court to approve the Schemes of Arrangement is lodged
with the Australian Stock Exchange Limited.
"CONSOLIDATION" has the meaning given in CLAUSE 7.
"COURT" means the Supreme Court of New South Wales or such other
court from whom approval is sought by CAT for the Schemes of
Arrangement under the Corporations Law.
"DEED OF ACCESSION" means the deed substantially in the form of
SCHEDULE 3.
"EQUIVALENT C.A.T. OPTIONS" has the meaning given to it in CLAUSE
4.1(b).
"EXERCISE PERIOD" means the period commencing at 9.00am (Sydney,
Australia time) on 1 July 2000 and ending at 5.00pm (Sydney,
Australia time) on 30 July 2000.]
<PAGE> 4
4
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"EXERCISE PRICE" means, subject to any adjustment required to be
made to the exercise price of the NovaTec Options under the terms of
this document.
"NASDAQ" means The Nasdaq SmallCap Market.
"NOVATEC OPTIONS" has the meaning given to it in CLAUSE 2.1.
"OPERATIVE DATE" means the date of this document.
"NUMBER" means:164,838
"SCHEMES OF ARRANGEMENT" means the schemes of arrangement between
C.A.T. and its shareholders and optionholders, so described in the
Information Memorandum shortly to be issued by C.A.T. to its
members, in the form in which they are implemented with approval of
the Court.
"SCH" means the securities clearing house.
"SECURITIES ACT" means the US Securities Act of 1933.
"SHARES" means fully paid shares of common stock of NovaTec Inc.
"SHARES SCHEME OF ARRANGEMENT" means the scheme of arrangement
between C.A.T. and its shareholders, so described in the Information
Memorandum shortly to be issued by C.A.T. to its members, in the
form in which it is implemented with approval of the Court.
1.2 CONSTRUCTION
Unless expressed to the contrary:
(a) words importing:
(i) the singular include the plural and vice versa; and
(ii) any gender includes the other genders;
(b) if a word or phrase is defined cognate words and phrases have
corresponding definitions;
(c) a reference to:
(i) a person includes a firm, unincorporated association,
corporation and a government or statutory body or
authority;
(ii) a person includes its legal personal representatives,
successors and assigns;
(iii)a statute, ordinance, code or other law includes
regulations and other statutory instruments under it and
consolidations, amendments, re-enactments or replacements
of any of them;
(iv) a right includes a benefit, remedy, discretion,
authority or power;
<PAGE> 5
5
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(v) an obligation includes a warranty or representation and
a reference to a failure to observe or perform an
obligation includes a breach of warranty or
representation; and
(vi) "AUD" means the lawful currency of Australia.
2 GRANT OF OPTIONS
2.1 GRANT
NovaTec Inc. grants to the Grantee the Number of options to subscribe for
the Number of Shares exercisable at AUD 75 cents each (THE "NOVATEC
OPTIONS").
2.2 NO ISSUE PRICE
No amount is payable by the Grantee on issue of the NovaTec Options.
2.3 CERTIFICATE
On or shortly after the Operative Date, NovaTec Inc. shall deliver a
certificate to the Grantee in respect of the NovaTec Options. Such
certificate shall contain the restrictive legend set forth in CLAUSE 8(c)
and the following additional legend:
"Immediately prior to the Close of Registers (as defined in the
Share Option Deed in respect of Shares in NovaTec Inc. between
NovaTec Inc., [ ] and Chip Application Technologies Limited dated 2
September 1999), these options will (without further act or
authority) be consolidated on a one-for-ten basis. Where that
consolidation yields a number of options which is not a whole
number, then the number of consolidated options shall be rounded-up
to the nearest whole number."
2.4 PERSONAL
The NovaTec Options are personal to the Grantee and as such may not be
transferred to any other person without the prior written consent of
NovaTec Inc. (which consent shall not be unreasonably withheld) and then
only in accordance with the by laws of NovaTec Inc., and on condition that
the transferee executes a Deed of Accession agreeing to be bound by the
terms of this document.
3 RIGHT TO EXERCISE OPTIONS
3.1 RESTRICTIONS ON EXERCISE
The Grantee may not exercise any of the NovaTec Options unless at the time
of exercise all of the following conditions have been fulfilled:
(a) the Schemes of Arrangement have been implemented;
(b) exactly the same number of C.A.T. Options as the number of
NovaTec Options it is proposed will be exercised have expired
unexercised in accordance with the terms of the C.A.T. Option
Rules (the "EQUIVALENT C.A.T. OPTIONS"); and
<PAGE> 6
6
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(c) the exercise price of each NovaTec Option that it is proposed
will be exercised is the same as the exercise price for each
Equivalent C.A.T. Option (not taking into account any
adjustment which is made to the exercise price of the
Equivalent C.A.T. Options pursuant to the C.A.T. Option Rules
or any adjustment made under the terms of this document to the
Exercise Price of the NovaTec Options that it is proposed will
be exercised).
3.2 EXERCISE PERIOD
The NovaTec Options may only be exercised during the Exercise Period. Any
NovaTec Option that is not exercised by the expiry of the Exercise Period
will automatically expire.
4 MANNER OF EXERCISE OF OPTIONS
4.1 EXERCISE
(a) NovaTec Options may be exercised by written notice to the Secretary
of NovaTec Inc. The exercise notice must specify the number of
shares required to be issued, which number must be a multiple of
1000 (and, following the Consolidation, which number must be a
multiple of 100) if only part of the total NovaTec Options are
exercised, or if the total number of NovaTec Options held is less
than 1000 (or, following the Consolidation, if the total number of
NovaTec Options held is less than 100), then the total of all
NovaTec Options held must be exercised. NovaTec Options will be
deemed to have been exercised on the date that the application is
lodged with the Secretary of NovaTec Inc.
(b) The exercise of less than all of the NovaTec Options will not
prevent the Grantee from exercising the whole or any part of
the balance of the Grantee's entitlement under his remaining
NovaTec Options.
(c) On exercise of the NovaTec Options the Grantee must surrender
the relevant NovaTec Option certificate(s), duly endorsed,
accompanied by a bank cheque to the order of C.A.T Inc., in an
amount equal to the aggregate Exercise Price for the Shares as
to which the NovaTec Options are being exercised.
4.2 ISSUANCE OF SHARES
Within 10 days of receipt of the application for the exercise of the
NovaTec Options and payment by the Grantee of the Exercise Price, NovaTec
Inc. must issue to the Grantee the number of Shares specified in the
application.
5 ADJUSTMENTS
5.1 PARTICIPATION IN STOCK DIVIDENDS AND REPURCHASES
(a) If NovaTec Inc. makes a stock dividend of shares or other
securities convertible into Shares pro rata to holders of
Shares (other than by way of dividend reinvestment pursuant to
any shareholder election), the Grantee will be entitled to
participate in such stock dividend, upon exercise of all or
part of the NovaTec Options on or before the record date for
that stock dividend, on the same basis as the holders of
Shares.
<PAGE> 7
7
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(b) If NovaTec Inc. makes an offer to purchase Shares pro rata to
the holders of Shares, the Grantee will be entitled to
participate in such offer, upon exercise of all or part of the
NovaTec Options on or before the record date for that offer,
on the same basis as the holders of Shares.
(c) NovaTec Inc. must notify the Grantee at least 12 Business Days
before the record date for determining entitlements to an
offer referred to in CLAUSE 5.1(a) or CLAUSE 5.1(b) of:
(i) the proposed terms of the issue of the offer; and
(ii) the right to exercise his NovaTec Options under CLAUSE
5.1(a) or CLAUSE 5.1(b) (as the case may be).
5.2 ADJUSTMENT FOR STOCK DIVIDENDS
If NovaTec Inc. makes a stock dividend of Shares pro rata to holders of
Shares (other than by way of dividend reinvestment pursuant to any
shareholder election), and the Grantee does not participate as provided in
CLAUSE 5.1, then the number of Shares issued on exercise of each NovaTec
Option will include the number of dividend shares that would have been
issued to the Grantee if the NovaTec Option had been exercised prior to
the books closing date for the stock dividend. No change will be made to
the exercise date.
5.3 RECONSTRUCTION
In the event of a reconstruction (including stock split, consolidation,
sub-division, reduction or reclassification) of the issued Shares, the
number of NovaTec Options or the Exercise Price of NovaTec Options or both
shall be reconstructed (as appropriate) in a manner which would not result
in any benefits being conferred in the Grantee which are not conferred on
shareholders of the Grantee (subject to the provisions with respect to
rounding of entitlements as sanctioned by the meeting of shareholders
approving the reconstruction of capital) but in all respects the terms for
the exercise of NovaTec Options shall remain unchanged.
6 AMENDMENT OF C.A.T. OPTIONS
(a) Subject to paragraph (b) below, if the C.A.T. Option Rules or the
terms of the C.A.T. Options are amended such that the amendment
materially affects the rights attaching to the C.A.T. Options, the
terms of this document that relate to the Options shall be deemed to
have been amended to reflect the change to the C.A.T. Option Rules
or the C.A.T. Options.
(b) If any amendment to the C.A.T. Option Rules or the terms of the
C.A.T. Options is inconsistent or conflicts with the existing terms
of this document, the terms of this document shall not be deemed to
have been amended.
7 CONSOLIDATION OF C.A.T. OPTIONS
The parties agree that immediately prior to the Close of Registers, the C.A.T.
Options (without further act or authority) will be consolidated on a one-for-ten
basis ("CONSOLIDATION"). Where the Consolidation yields a number of C.A.T.
Options which is not a whole number, then the number of consolidated C.A.T.
Options shall be rounded-up to the nearest whole number.
<PAGE> 8
8
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8 US SECURITIES LAW
(a) The Grantee hereby certifies that he is not a US person and is not
acquiring the NovaTec Options (or the Shares upon exercise of the
NovaTec Options) for the account or benefit of a US person.
(b) The Grantee agrees to:
(i) resell the Shares issued upon exercise of the NovaTec Options
only in accordance with the registration or exemption
provisions of the Securities Act or in compliance with
Regulation S under that Act; and
(ii) not engage in hedging transactions with regard to Shares
unless in compliance with the Securities Act.
(c) The Grantee acknowledges that each certificate representing the
NovaTec Options shall contain the following restrictive legend:
"These options and the underlying shares of common stock have
not been registered under the US Securities Act of 1933. The
options may not be exercised by or on behalf of any US person
except in a transaction registered under the Act or an
exemption from registration under that Act."
9 NOTICES
9.1 GENERAL
A notice, demand, certification or other communication relating to this
document must be given in English language and may be given by an agent of
the sender.
(a) is to be given in writing and in the English language; and
(b) may be given by an agent of the sender.
9.2 METHOD OF SERVICE
In addition to any lawful means a communication may be given by:
(a) being personally served on a party;
(b) being left at the party's current address for service;
(c) being sent to the party's current address for service by
pre-paid ordinary mail or if the address is outside Australia,
by pre-paid air mail; or
(d) facsimile to the party's current number for service.
9.3 PARTICULARS OF SERVICE
(a) The particulars for service are initially:
(i) in the case of NovaTec Inc.:
<PAGE> 9
9
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at the address hereinbefore mentioned
Fax: (02) 9248 5205
Attention: The Company's Australian Agent: Fellstar
Nominees (N.S.W.) Pty Limited
(ii) in the case of the Grantee:
at the address hereinbefore mentioned
(iii)in the case of C.A.T.:
at the address hereinbefore mentioned
Fax: (02) 9332 1285
Attention: Company Secretary
(b) Each party may from time to time change its particulars for
service by notice to each other party.
9.4 SERVICE
If a communication is given by:
(a) post, it will be deemed received if posted within Australia to
an Australian address three Business Days after posting and in
any other case seven Business Days after posting;
(b) facsimile, and the sender's facsimile machine produces a
transmission confirmation report indicating that the facsimile
was sent to the addressee's facsimile, the report will be
prima facie evidence that the facsimile was received by the
addressee at the time indicated on that report.
10 MISCELLANEOUS
10.1 STAMP DUTY
(a) The Grantee shall, as between the parties, be liable for and
duly pay all stamp duty (including any fine or penalty except
where it arises from default by the other party) on or
relating to this document and any document executed under it.
(b) If a party other than the Grantee pays any stamp duty
(including any fine or penalty) on or relating to this
document or any document executed under it, the Grantee shall
pay that amount to that party upon demand.
10.2 LEGAL COSTS
<PAGE> 10
10
- -------------------------------------------------------------------------------
Subject to any express provision in this document to the contrary, each
party shall bear its own legal and other costs and expenses relating
directly or indirectly to the preparation of, and performance of its
obligations under, this document.
10.3 AMENDMENT
Unless this document is deemed to have been amended under CLAUSE 6, it may
only be varied or replaced by a document duly executed by the parties.
10.4 WAIVER AND EXERCISE OF RIGHTS
(a) A single or partial exercise or waiver of a right relating to
this document will not prevent any other exercise of that
right or the exercise of any other right.
(b) A party will not be liable for any loss, cost or expense of
any other party caused or contributed to by the waiver,
exercise, attempted exercise, failure to exercise or delay in
the exercise of a right.
10.5 FURTHER ASSURANCE
Each party shall promptly execute all documents and do all things that any
other party from time to time reasonably requires of it to effect, perfect
or complete the provisions of this document and any transaction
contemplated by it.
10.6 GOVERNING LAW AND JURISDICTION
(a) This document is governed by and is to be construed in
accordance with the laws in force in New South Wales.
(b) Each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of New South Wales
and any courts which have jurisdiction to hear appeals from
any of those courts and waives any right to object to any
proceedings being brought in those courts.
10.7 COUNTERPARTS
This document may consist of a number of counterparts and if so the
counterparts taken together constitute one and the same instrument.
EXECUTION
Executed as a deed.
<PAGE> 1
EXHIBIT 10.3
[CATUITY INC. LETTERHEAD]
December 5, 1999
CONFIDENTIAL
Mr. Michael Howe
62 Hampton Road,
Grosse Pointe Shores MI 48230
Re: Your Employment Agreement with Catuity, Inc.
Dear Michael:
Catuity Inc., a Delaware corporation (`Catuity'), is pleased to offer you a
position as its President and Chief Executive Officer on the terms set forth in
this letter agreement. As you know, Catuity is the parent company of Chip
Application Technologies Limited ("C.A.T."), an Australian company that has, we
believe, developed some highly competitive network application software for
merchant incentive and other program. Catuity is listed on the Australian Stock
Exchange and proposes to apply for listing on NASDAQ.
This agreement will be effective as of the date hereof (the "Effective Date")
subject to your acceptance by execution of a counterpart copy of this letter
where indicated below. Your start date of employment will be no later than
January 15, 2000. Your right to receive salary, bonus, benefits, shares, etc.
will commence with your start date of employment.
1. REPORTING, DUTIES AND RESPONSIBILITIES, EMPLOYEE INVENTION ASSIGNMENT AND
CONFIDENTIALITY AGREEMENT.
In this position, you will report to the Board of Directors of Catuity.
Your specific duties and responsibilities will be determined by the
Board from time to time but will include executive management of Catuity
and its subsidiaries, development and implementation of strategy and
investment community relations. This offer is for a full-time position,
located at the principal offices of Catuity located in the United States
(to be determined by the board in consultation with you and currently
anticipated to be either Denver, Colorado or Detroit, Michigan) except
as travel to other locations (including overseas locations) may be
necessary to fulfill your responsibilities. You also will execute
Catuity's standard form of Employee Invention Assignment and
Confidentiality Agreement, which is attached.
2. SALARY, BONUS, BENEFITS, AND VACATION.
(a) SALARY.
Your initial base salary will be US$20,000 per month, which is an
annualized salary of US$240,000, and is payable in accordance with
Catuity's customary payroll practice as in effect from time to time;
your salary commences on the date you first report for work with
Catuity. This salary will be reviewed by the Board in conjunction with
your annual performance review, but will not decline.
<PAGE> 2
(b) CASH PERFORMANCE BONUS.
Your cash performance bonus plan (commencing for calendar year 2000)
will be determined each year at the time of budget review as determined
by the Board of Directors, in consultation with you. Your first year
cash performance bonus will be fixed at US$60,000 to be paid in four
equal installments on 31 March, 30 June, 30 September and 31 December,
2000.
(c) STOCK OPTION GRANT.
On the date you first report to work with Catuity, Catuity will be issue
you stock options under our Stock Option Plan (currently being
finalized), exercisable at the lower of
(i) the weighted average trading price of Catuity shares on the
Australian Stock Exchange for the 30 days immediately prior to
NASDAQ listing (converted to US$ at 0.65); and
(ii) the weighted average trading price of Catuity shares on the
NASDAQ market for the 30 days immediately following NASDAQ
listing and
(iii) The weighted average trading price of Catuity shares on the
Australian Stock Exchange for the month of January 20900
(converted to US$ at 0.65).
but not less than 85% of the fair market value of Catuity shares as of
date of grant.
All options will have an expiry date of the earlier of 31 December 2008
and the date six months after cessation of your employment with Catuity,
subject to additional provisions of the Plan.
In total you will be issued stock options on 315,000 shares of Common
Stock (adjusted for any stock splits) in Catuity. The stock options will
have the following vesting provisions (i.e. options will not be
exercisable until vested):
(i) 75,000 options will vest upon the date you first report to work
with Catuity; and
(ii) 12,000 options will vest at the end of each quarter, conditioned
upon your continued employment by Catuity on the last day of each
quarter, commencing on 31 March 2000 and concluding on 31
December 2004.
(d) BENEFITS AND VACATION.
You will be eligible to participate in, without limitation, the
retirement plans and medical, dental, life and disability insurance
plans being established for Catuity; Catuity will reimburse you for
those costs that you incur to exercise your COBRA rights to extend your
existing insurance coverage until the effective date of your Catuity
insurance coverage, which Catuity insurance coverage, will be provided
for the term of this Agreement. In addition, you will be entitled,
without loss of compensation, to three weeks of vacation during the
first year of your employment, three weeks of vacation during the second
year of your employment, and four weeks of vacation during the third and
each successive year of your employment. You may only accrue unused
vacation up to a maximum of six weeks; otherwise, additional vacation
will cease to accrue until you reduce the accrued, unused amount through
use of vacation.
<PAGE> 3
You will further be entitled, at Catuity's expense, to be reimbursed for
10 economy class return airfares from Detroit to the location of
Catuity's principal office in the United States (if other than Detroit)
in each year of employment.
(e) RELOCATION
Catuity will pay reasonable relocation expenses, to the extent
necessary, for you to relocate to within the proximity of the principle
offices of Catuity in the United States when the location of these
offices is determined.
3. TERM AND TERMINATION.
The term of this agreement is for a period of five years commencing upon
the Effective Date.
(a) TERMINATION BY CATUITY FOR CAUSE.
Catuity may only terminate your employment and this agreement without
notice by reason of Termination for Cause. For purposes of this
agreement, "TERMINATION FOR CAUSE" will mean termination of your
employment by Catuity's Board, after consultation with you, for your
dishonesty, fraud, gross negligence in performance of your duties,
material breach of this agreement or any other contractual or fiduciary
obligation to Catuity or under any policy or procedure of Catuity,
intentional engagement in acts seriously detrimental to Catuity's
operations or your being charged by governmental authorities with a
felony. Upon your Termination for Cause by Catuity, you will be entitled
to receive cash and other compensation, which has accrued through the
date of termination, only,
(b) TERMINATION BY CATUITY WITHOUT CAUSE.
Catuity may only terminate your employment and this agreement without
cause on one year's written notice (it being Catuity's right to pay base
salary equal to one year's amount, in lieu of notice, in order to effect
immediate termination; in such case, you will be obligated, in accepting
such payment, to release Catuity from all other obligations other than
Catuity's obligation to pay cash and other compensation, which has
accrued through the date of termination to which you may be entitled.
including 50% of the options entitlement for the year of termination.
(c) TERMINATION BECAUSE OF DEATH, OR INCAPACITY DUE TO DISABILITY.
Your employment with Catuity and this agreement will also terminate upon
your death or by reason of your Incapacity Due to Disability. For
purposes of this agreement, "INCAPACITY DUE TO DISABILITY" means if, at
the end of any month, you are unable to perform substantially all of
your duties under this agreement in the normal and regular manner due to
illness, injury or mental or physical incapacity, and you have been
unable or will be unable, in the good-faith judgement of the Catuity
Board, so to perform for either (1) four consecutive full calendar
months, or (2) 90 or more of the normal working days during any 12
consecutive full calendar months. Nothing in this paragraph shall alter
Catuity's obligations under applicable law, which may, in certain
circumstances, result in the suspension or alteration of the foregoing
time periods. Upon your termination for death or Incapacity Due to
Disability, you will be entitled to receive cash and other compensation
which has accrued through the date of termination.
(d) VOLUNTARY TERMINATION BY YOU.
<PAGE> 4
You will be able to voluntarily terminate your employment and this
Agreement at any time, provided that you must give Catuity at least six
months advance written notice. Upon your voluntary termination, you will
be entitled to receive cash and other compensation, which has accrued
through the date of termination.
4. OTHER MATTERS.
You will not bring with you, or use, in the performance of your duties
hereunder any confidential or proprietary material of any former
employer, nor violate any lawful obligation to any former employer in
the performance of your duties hereunder.
Under your signature below, this will become our binding agreement with
respect to the subject matter of this letter, superseding in their
entirety all other or prior agreements and negotiations between us as to
the subject matter of this letter, will be binding upon and inure to the
benefit of our respective successors and assigns (although none of your
rights or obligations hereunder is assignable), and your heirs,
administrators and executors, will be governed by Delaware law, and may
only be amended in a writing signed by you and Catuity.
Mike, we are very excited to have you join us and look forward to working with
you. I think we can have an exciting next few years.
Sincerely,
/S/ DAVID L. MAC SMITH
---------------------------
David L. Mac Smith
Catuity, Inc.
Attachment: Employee Invention Assignment and Confidentiality Agreement
ACCEPTED AND AGREED:
/S/ MICHAEL V. HOWE
- ----------------------
Michael V. Howe
Date signed: _________________________
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE SERVICES AGREEMENT
BETWEEN
CHIP APPLICATION TECHNOLOGIES LIMITED
AND
DAVID LANCELOT MACHATTIE SMITH
(1 JUNE 1999)
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 DEFINITIONS AND INTERPRETATION .................................. 4
1.1 DEFINITIONS ................................................... 4
2 EMPLOYMENT ...................................................... 5
3 TERM ............................................................ 5
4 DUTIES OF EXECUTIVE ............................................. 6
4.1 GENERAL DUTIES ................................................ 6
4.2 DUTY TO REPORT ................................................ 6
5 REMUNERATION .................................................... 6
5.1 BASIC SALARY PACKAGE .......................................... 6
5.2 STARTING SALARY PACKAGE ....................................... 6
5.3 SALARY PACKAGE REVIEW ......................................... 7
5.4 NO DECREASE IN BASIC SALARY PACKAGE ........................... 7
5.5 DIRECTORS' FEES ............................................... 7
6 SUPERANNUATION .................................................. 8
7 EXISTING LOAN SHARE AGREEMENT AMENDMENTS ........................ 8
8 EXPENSES AND OTHER ENTITLEMENTS ................................. 8
8.1 EXPENSES ...................................................... 8
8.2 ENTITLEMENTS .................................................. 9
8.3 FRINGE BENEFITS TAX ........................................... 9
9 MAINTENANCE OF REMUNERATION ..................................... 9
10 LEAVE ENTITLEMENTS .............................................. 10
11 PAYMENT DURING ABSENCE ON MEDICAL GROUNDS ....................... 10
12 CONFIDENTIALITY ................................................. 10
12.1 EXECUTIVE'S OBLIGATIONS ..................................... 11
12.2 SURVIVAL OF OBLIGATIONS ..................................... 11
13 RESTRICTIONS ON OTHER ACTIVITIES OF THE EXECUTIVE ............... 11
13.1 INDUCEMENTS ................................................. 11
13.2 OPTIONAL POST-EMPLOYMENT RESTRAINT .......................... 11
13.3 USE OF THE COMPANY NAME ..................................... 12
14 TERMINATION ..................................................... 12
14.1 TERMINATION BY THE EXECUTIVE ................................ 12
14.2 TERMINATION BECAUSE OF INCAPACITY ........................... 13
14.3 IMMEDIATE TERMINATION BY THE COMPANY ........................ 13
14.4 TERMINATION BY THE COMPANY .................................. 13
14.5 PAYMENTS ON TERMINATION OR FAILURE TO RENEW AGREEMENT ....... 13
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
14.6 TERMINATION PAYMENTS ........................................ 14
14.7 RESIGNATION AS DIRECTOR ..................................... 14
14.8 OBLIGATIONS ON TERMINATION .................................. 14
15 SHARES AND OPTIONS 14
15.1 CONFIRMATION ................................................ 14
15.2 CONFIRMATION OF SHARES SUBJECT TO LIMITED RECOURSE LOANS .... 14
15.3 LIMITED RECOURSE LOAN TERMS ................................. 14
15.4 NEW OPTIONS ................................................. 15
16 INDEMNITY ....................................................... 15
17 GENERAL ......................................................... 15
17.1 NOTICES ..................................................... 15
17.2 GOVERNING LAW AND JURISDICTION .............................. 16
17.3 PROHIBITION, ENFORCEABILITY AND SEVERANCE ................... 16
17.4 WAIVER ...................................................... 16
17.5 ENTIRE AGREEMENT ............................................ 16
13. TAXATION ...................................................... 22
14. UNEXERCISED OPTIONS ........................................... 22
15. CHANGE OF CONTROL ............................................. 23
</TABLE>
3
<PAGE> 4
THIS EXECUTIVE SERVICE AGREEMENT is made on 1 June 1999 between the following
parties:
CHIP APPLICATION TECHNOLOGIES LIMITED (ACN 057 883 333) of Level 5, 152-162
Riley Street, East Sydney, New South Wales ('COMPANY'), AND
DAVID LANCELOT MACHATTIE SMITH of 58 View Street, Woollahra, New South Wales
2025 ('EXECUTIVE').
RECITALS
A. The Company is in the business of developing, marketing and operating
software solutions for multi-application systems over POS and Internet.
(the 'BUSINESS').
B. The Company and the Executive entered into an Employment Agreement dated
1 May 1995 (`Employment Agreement') and Executive Services Agreement dated
14 May 1997 (`Executive Agreement') under which the Executive has been
employed as the Managing Director of the Company (the 'PREVIOUS
AGREEMENTS').
C. The Company and the Executive have agreed to enter into this Agreement
to replace the Previous Agreements and to clarify the terms and
conditions of the Executive's continued employment as Managing Director
and CEO of the Company.
THE PARTIES AGREE, in consideration of, among other things, the mutual promises
contained in this agreement:
1 DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this agreement:
'BOARD' means the board of directors of the Company,
'GROUP' means the Company and any Group Company;
'GROUP COMPANY' means a 'related body corporate' of the Company as that
expression is defined in the Corporations Law;
'INFORMATION' means any information in respect of the Company's Business
which is not in the public domain and includes, but is not limited to,
any document, book, account, process, patent, specification, drawing,
design or know-how which is:
(a) supplied by the Company to the Executive; or
(b) generated by the Executive in the course of performing the
Executive's obligations;
'MONTH' means calendar month;
'SALARY REVIEW DATE' means 1 May of each year that this Agreement is in
effect;
'SUBSIDIARY' means any 'subsidiary' of the Company as that expression is
defined in the Corporations Law,.
4
<PAGE> 5
1.2 INTERPRETATION
In this agreement, headings are for convenience only and do not affect
the interpretation of this agreement and, unless the context otherwise
requires:
(a) a reference to termination of this agreement includes a
reference to termination of the Executive's contract of
employment;
(b) words importing the singular include the plural and vice versa;
(c) words importing a gender include any gender;
(d) other parts of speech and grammatical forms of a word or phrase
defined in this agreement have a corresponding meaning;
(e) an expression importing a natural person includes any company,
partnership, joint venture, association, corporation or other
body corporate and vice versa;
(f) a reference to any thing (including, but not limited to, any
right) includes a part of that thing;
(g) a reference to a party to a document includes that party's
successors and permitted assigns;
(h) a reference to a statute, regulation, proclamation, ordinance or
by-law includes all statutes, regulations, proclamations,
ordinances or by-laws varying, consolidating or replacing it,
and a reference to a statute includes all regulations,
proclamations, ordinances and by-laws issued under that statute;
and
(i) a reference to a document or agreement includes all amendments
or supplements to, or replacements or novations of, that
document or agreement.
2 EMPLOYMENT
(a) Under the Previous Agreements the Company appointed the
Executive as its Managing Director and the Executive accepted
that appointment with effect from 1 May 1995 (the 'Commencement
Date').
(b) The Executive continues to be employed as the Managing Director
and CEO of the Company and from the date of this Agreement that
employment is on the terms contained in this Agreement.
3 TERM
(a) The appointment of the Executive as CEO & Managing Director of
the Company began on the Commencement Date under the terms of
the Previous Agreements.
(b) The appointment of the Executive as Managing Director and CEO of
the Company will continue until 1 June 2002, unless terminated
at some earlier time in accordance with the terms of this
Agreement.
5
<PAGE> 6
4 DUTIES OF EXECUTIVE
4.1 GENERAL DUTIES
The Executive must:
(a) devote the whole of the Executive's time, attention and skill
during normal business hours, and at other times as reasonably
necessary, to the duties of office and the Executive shall not
be entitled to receive any remuneration for work performed
outside such normal business hours;
(b) faithfully and diligently perform the duties and exercise the
powers:
(i) consistent with the position of Managing Director and
CEO; and
(ii) assigned to the Executive by the Board; and
(c) promote the interests of the Company and any Group Company.
4.2 DUTY TO REPORT
The Executive must:
(a) report directly to the Board or as directed by the Board;
(b) provide prompt and full information to the Board regarding the
conduct of the business of the Company by the Executive; and
(c) comply with reasonable directions given to the Executive by the
Board.
5 REMUNERATION
5.1 BASIC SALARY PACKAGE
(a) During the period that the Executive serves the Company under
this Agreement, the Company must pay the Executive a basic
salary package, determined under this clause, the salary
component of which is payable fortnightly in arrears by direct
deposit into a bank account nominated by the Executive, or as
otherwise agreed between the parties.
(b) At the sole discretion of the Executive as to the nature and
amount of each component, payment by the Company of the basic
salary package may be by way of salary, additional
superannuation contributions, life insurance, health and
incapacity insurance, income protection insurance or such other
components as may otherwise be agreed between the parties. Any
fringe benefits tax payable under the Fringe Benefits Tax
Assessment Act 1986 (Cth) in respect of the nature of each
component will be included in the calculation of the basic
salary package.
5.2 STARTING SALARY PACKAGE
The basic salary package for the period commencing on the date of this
Agreement is $286,624.00 gross per annum.
6
<PAGE> 7
5.3 SALARY PACKAGE REVIEW
(a) The basic salary package is subject to review on each Salary
Review Date.
(b) The basic salary package for the period after a review is the
amount per annum agreed between the parties.
(c) At each review, the basic salary package may be increased having
regard to:
(i) the cost of living;
(ii) the responsibilities of the Executive and remuneration
available in the workforce outside the Company for a
person with responsibilities and experience equivalent
to those of the Executive;
(iii) the performance of the Executive;
(iv) the performance of the Company; and
(v) any increases awarded to employees of the Company.
(d) In the absence of agreement under clause 3.3(b), the basic
salary package for the period after a Salary Review Date will be
the greater of.
(i) an amount equal to any percentage increase in the All
Groups Consumer Price Index ('CPI') for Sydney as
published by the Australian Bureau of Statistics; or
(ii) the average increase granted across the Company's
employees, in respect of the 12-month period preceding
the Salary Review Date.
(e) The parties must commence review of the basic salary package 1
month before the Salary Review Date, with a view to the parties
reaching an agreement for the purposes of clause 3.3(b), by the
Salary Review Date.
5.4 NO DECREASE IN BASIC SALARY PACKAGE
The basic salary package of the Executive must not decrease on any
salary package review.
5.5 DIRECTORS' FEES
The basic salary package includes directors' fees. In the event this
Agreement is terminated for whatever reason and the Executive remains as
a director of the Company, then director's fees shall be payable to the
Executive on a similar basis to other non-executive directors (other
than the Chairman).
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<PAGE> 8
6 SUPERANNUATION
(a) The Company warrants that as at the date of this Agreement the
Company has fully complied with its obligations under the
Superannuation Guarantee Charge Legislation in relation to the
employment of the Executive since 1 May 1995.
(b) The Company must, during the continuation of this Agreement,
ensure that the minimum superannuation contributions required to
be made for the benefit of the Executive by the Superannuation
Guarantee Charge Legislation are made to the trustees of a
complying superannuation fund (within the meaning of the Income
Tax Assessment Act 1936 (Cth)).
(c) The Company's superannuation contributions under this clause 4
form part of the Executive's basic salary package under clause 3
of this Agreement, except that any increases after the date of
this Agreement to the minimum superannuation contribution
required to be made for the benefit of the Executive pursuant to
the Superannuation Guarantee Charge Legislation as at the date
of this Agreement will be paid by the Company in addition to,
and will not form part of, the Executive's basic salary package
under clause 3 of this Agreement. In addition the Executive will
be compensated (by way of increased basic salary or otherwise)
by the Company for any negative financial impact of any other
amendments to prevailing superannuation legislation.
7 EXISTING LOAN SHARE AGREEMENT AMENDMENTS
(a) The Executive agrees to waive the obligation of the Company to buy-back
shares up to a maximum one million dollars.
(b) The Company agrees that the Executive may transfer Loan Shares to
members of the Executives family or entities controlled by one or more
members of the Executive's family, and not necessarily the Executive,
without any obligation to repay the Loan related to such shares. However
on sale, transfer or any disposal of such shares to any third party or
any third party assuming control of such entity, the Executive will
repay the Loan applicable to such shares.
8 EXPENSES AND OTHER ENTITLEMENTS
8.1 EXPENSES
(a) The Company must reimburse the Executive for all reasonable work related
out-of-pocket expenses (approved by the Chairman or another director)
incurred by the Executive on Company Business, including but not limited
to:
- telephone calls, rentals and charges; home facsimile charges;
internet expenses, travelling expenses; entertainment expenses;
hotel expenses;
- car parking expenses;
- expenses associated with the use of the Executive's own car,
calculated at the rates allowed by the Australian Taxation
Office for the purposes of determining deductibility; and
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<PAGE> 9
- any other expenditure reasonably made by the Executive on behalf
of the Company.
(b) No amount may be reimbursed pursuant to clause 6.1 before the Executive
has provided written evidence of expenses incurred to the Company.
(c) The Executive will be entitled to full reimbursement of all overseas
travel (business class), accommodation and other costs for the
Executive's wife on two trips with the Executive (each trip not to
exceed 30 days) at any time prior to 1 June 2002, notwithstanding the
early termination of the agreement for whatever reason.
8.2 ENTITLEMENTS
(a) In addition to the payments under clause 3, 4, 5 and this clause 6, the
Company agrees to provide the Executive the following benefits:
- the Company will provide the Executive with a portable computer,
facsimile, mobile telephone and an internet service for use at
home or out of the office;
- the Company will provide the Executive with car parking at or
near the Company's premises;
- the Company will ensure that all overseas travel is at least
business class
- for the duration of his employment by the Company, the Company
will ensure that the Executive is covered by workers
compensation insurance as required by legislation and directors'
and officers' liability insurance world-wide; and
- the Company will pay all of the costs associated with the
parties entering into this Agreement, including payment of stamp
duty and up to $6,000 of the Executive's legal costs.
(b) In relation to the benefits at clauses 8.2(a) the Company will pay all
leasing and other costs associated therewith. In the event that the
Executive pays for any part of the costs associated with these benefits
the Company will reimburse the Executive for such amounts.
(c) In relation to the benefits at clause 8.2(a), on termination of this
Agreement for whatever reason the Executive may at his sole discretion
purchase such items from the Company at the depreciated value of the
items at the time of termination.
8.3 FRINGE BENEFITS TAX
The Company must pay any fringe benefits tax payable under the Fringe Benefits
Tax Assessment Act 1986 (Cth) in relation to any remuneration or benefit
provided by the Company to the Executive under this Agreement except as
specifically referred to in Clause 5.1 (b).
9 MAINTENANCE OF REMUNERATION
If there is any change in:
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<PAGE> 10
(a) the corporate structure under which the Company or any Group Company
operates the Business;
(b) the accounting methods of the Company or its accountants or auditors,
which reduces or diminishes the total value of the remuneration payable to the
Executive, the Company must ensure that the total value of the remuneration
payable to the Executive is maintained at a level not less than that which
existed before the change.
10 LEAVE ENTITLEMENTS
(a) The Executive is entitled to public holidays, long service leave and
annual leave in conformity with statutory entitlements. The parties
agree that annual leave and long service leave shall be taken at such
time as is agreed by the parties provided that it does not unreasonably
inconvenience or disrupt the Business or the Company. In addition to
normal leave the Executive will be entitled to 1.5 days of special
holiday leave for each overseas trip exceeding 21 days with a maximum
entitlement of 5 days of special leave for each 100 days overseas.
(b) The Company acknowledges that, at the date of this agreement, the
Executive is currently entitled to 38 working days holiday as part of
annual leave and that the Executive is entitled to long service leave of
24 working days. If upon termination of the agreement for whatever
reason, the Executive is entitled to annual leave or long service leave,
the Company will pay the Executive the full entitlement upon such
termination.
11 PAYMENT DURING ABSENCE ON MEDICAL GROUNDS
(a) Where the Executive is at any time incapacitated from performing his
duties for a period in excess of six months, where such incapacity is
due to illness, injury, accident or any other circumstance, the Company
may discontinue payment in whole or in part of the Executive's salary
until such time as the incapacity shall cease or the Executive's
employment is terminated in accordance with the terms of this Agreement.
(b) The Company shall give written notice to the Executive of its intention
to discontinue payment of salary and the notice shall specify the date
from which payment of salary will be discontinued. The notice may be
given at any time after the expiration of six months, so long as the
incapacity remains.
(c) The Executive shall be entitled to no more than six months' sick leave
in total throughout the term of this Agreement and the Company must
continue to pay the Executive's salary in full during this period.
(d) The Executive shall undertake such medical checks and blood tests as may
be reasonably required to enable the Company to obtain Key Man insurance
or other insurance coverage over the life of the Executive.
12 CONFIDENTIALITY
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<PAGE> 11
12.1 EXECUTIVE'S OBLIGATIONS
The Executive must:
(a) keep any Information secret and confidential,
(b) take all reasonable and necessary precautions to maintain the secrecy
and prevent the disclosure of any Information; and
(c) not disclose Information to any third party without first obtaining the
written consent of the Board except, provided however that these
obligations do not to apply to Information:
(d) that is in the public domain other than through breach of this
Agreement;
(e) that the Executive is required by law to disclose;
(f) that is required to be disclosed by the Executive in the ordinary and
proper course of employment with the Company; or
(g) that has been disclosed to the Executive by a third party who is not
under any duty of confidentiality with respect to that Information.
12.2 SURVIVAL OF OBLIGATIONS
The Executive's obligations under this part survive the termination of the
Executive's employment with the Company.
13 RESTRICTIONS ON OTHER ACTIVITIES OF THE EXECUTIVE
13.1 INDUCEMENTS
Other than under this agreement the Executive must not accept any payment or
other benefit as an inducement or reward for any act in connection with the
Business of the Company or any Group Company.
13.2 OPTIONAL POST-EMPLOYMENT RESTRAINT
(a) The Executive and the Company agree that notwithstanding termination of
this agreement for whatever reason, the Company may, at its option, pay
the Executive an additional one year's basic salary package as per
clause 5.1 of this Agreement in consideration for the Executive agreeing
to the post-employment restraints in clause 13.2(d) of this Agreement.
(b) The Executive may elect to have the amount payable under clause 13.2(a)
paid monthly or in a lump sum on exercise of the option. If a lump sum
is elected, the lump sum shall be discounted by the Discount Rate. For
the purposes of this paragraph, the Discount Rate shall be equal to the
Bank Bill Interest Rate at the date of termination, plus three
percentage points.
(c) The total amount referred to in clause 13.2(a) is payable in addition to
any other payment to the Executive under this Agreement.
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<PAGE> 12
(d) On exercise of the option by the Company, the Executive agrees that for
a period of 12 months from either:
(i) the expiry of the term of this Agreement; or
(ii) the date of termination (for any cause or by any means) of his
employment with the Company, whichever is the first to occur,
the Executive will not undertake or carry on (either alone or in
partnership) or be employed or interested, whether directly or
indirectly, in any capacity whatsoever, in the Restraint Area,
in a business which is the same as or substantially similar to
the Business or competes with the Company or the Business.
(e) In clause 13.2(d), 'Restraint Area' means:
(i) all countries in which the Company, or any related body
corporate of the Company, carry on business;
(ii) Australia;
(iii) New South Wales.
(f) Clause 13.2(d) has the effect of several separate and individual
covenants and restraints consisting of each separate covenant and
restraint set out in clause 13.2(d) combined with each separate area set
out in clause 13.2(e).
(g) If any of the several separate and independent covenants and restraints
referred to in clause 13.2(f) are or become invalid or unenforceable for
any reason, then that invalidity or unenforceability will not effect the
validity of enforceability of any of the other separate and independent
covenants and restraints.
13.3 USE OF THE COMPANY NAME
The Executive agrees with the Company that at any time after termination (for
any cause or by any means) of his employment with the Company, he will not use
the name of the Company or any Group Company for any purpose, in connection with
his own or any other name, in any way which might suggest his continued
association with the Company or any Group Company (other than as a shareholder
or director of the Company, if he continues so to be).
14 TERMINATION
14.1 TERMINATION BY THE EXECUTIVE
This Agreement may be terminated by the Executive at any time by the Executive
giving six months' notice in writing to the Company. If any one entity or
person, acting alone or in association with others,
a) lodges with the Company, or any parent of the Company, a substantial
shareholders notice indicating an interest or
b) in any way obtains an interest in
12
<PAGE> 13
more than 30% of the issued capital of the Company, or any parent of the
Company, then the Executive may terminate this agreement at any time for a
period of six months following such event on three months written notice to the
Company.
14.2 TERMINATION BECAUSE OF INCAPACITY
This Agreement will automatically terminate if the Company gives notice to the
Executive in accordance with clause 11.
14.3 IMMEDIATE TERMINATION BY THE COMPANY
The Company may terminate this Agreement immediately if the Executive:
(a) is guilty of grave misconduct or wilful neglect in the unanimous opinion
of all other directors; or
(b) is of unsound mind or becomes liable to be dealt with under any law
relating to mental health.
14.4 TERMINATION BY THE COMPANY
(a) Subject to clauses 14.2 and 14.3, this Agreement may only be terminated
by the Company in accordance with this clause 14.4.
(b) If prior to 1 June 2001, the Company and the Executive have not entered
into an agreement for the continued employment of the Executive, then
this agreement will be deemed to have been terminated by the Company
effective from 1 September 2001 and the Executive will cease to be an
Executive of the Company from the 1 September 2001.
14.5 PAYMENTS ON TERMINATION OR FAILURE TO RENEW AGREEMENT
Upon termination of the Executive's employment by either party and for whatever
reason (including clause 14.4), the Company shall:
(a) pay the Executive his then prevailing basic salary package for 12 months
from the effective date of termination notwithstanding that the
Executive no longer provides any services under this Agreement and
notwithstanding any other benefits or entitlements to which the
Executive is entitled under other terms of this Agreement. That amount
is to be paid monthly in arrears in twelve equal instalments and is to
be secured by a bank guarantee, or such other instalments (or lump sum)
and security as otherwise mutually agreed by the parties.
(b) pay the Executive all outstanding entitlements under this Agreement
including, but not limited to, unpaid salary due and payable up to the
date of termination and a sum representing any holiday or long service
entitlements which have accrued, but not been taken, up to and including
that date; and
(c) facilitate the Executive in transferring to another superannuation fund
the balance standing to the credit of his superannuation fund hereunder.
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<PAGE> 14
14.6 TERMINATION PAYMENTS
The Company will ensure that all and any termination payments under this
agreement, including payments under clause 13.2 and 14.5, minimise the
Executives personal tax liability in respect of such payments, but the Company
shall not be obligated to make any payment in such a form as to be non tax
deductible to the Company.
14.7 RESIGNATION AS DIRECTOR
(a) On termination of this Agreement by operation of clause 14.3, the
Executive must resign from office as a director of the Company or any
Group Company.
(b) On termination of this Agreement for any reason other than under clause
14.3, the Executive shall be under no obligation to resign from office
as a director of the Company or any Group Company, but is required to
stand for reappointment as a director at the next meeting at which any
other person is required to stand for appointment or reappointment as a
director.
14.8 OBLIGATIONS ON TERMINATION
On termination of this Agreement, the Executive must return to the
Company immediately all tangible property of the Company or any Group
Company including, but not limited to, all books, documents, papers,
materials, credit cards, cars, computer records and keys held by the
Executive or under the Executive's control.
15 SHARES AND OPTIONS
15.1 CONFIRMATION
The Company and the Executive confirm that the Executive is entitled to
all shares and options referred to in the Previous Agreements under the
terms of such Previous Agreements and nothing in this agreement will
alter or otherwise effect the Executives rights, title and interest in
such shares and options.
15.2 CONFIRMATION OF SHARES SUBJECT TO LIMITED RECOURSE LOANS
The Company and the Executive confirm that the shares and options
detailed in Schedule A to the Executive Agreement have been issued to
the Executive in accordance with the agreed interpretation of the terms
of the Previous Agreements. The Company hereby warrants to the Executive
that the shares and options detailed in Schedule A of the Executive
Agreement have been properly issued.
15.3 LIMITED RECOURSE LOAN TERMS
The Company and the Executive agree that the terms of the Limited
Recourse Loans made by the Company to the Executive for the purpose of
acquiring the shares referred to in Schedule A of the Executive
Agreement are as set out in Schedule B to the Executive Agreement.
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<PAGE> 15
15.4 NEW OPTIONS
The Company warrants to the Executive that the options detailed in
Schedule A of this Agreement have been properly issued.
16 INDEMNITY
To the extent permitted by law, the Company indemnifies the
Executive:
(a) against any liability incurred by him as an employee, officer
and or director of the Company, a subsidiary of the Company or
any parent of the Company to a person other than the Company or
a related body corporate of the Company; and
(b) against any loss, cost, damage, expense or liability which the
Executive suffers or incurs as a result of any litigation,
proceeding or judgment arising in connection with this
agreement, unless the liability, loss, cost, damage or expense
arises out of conduct on the part of the Executive which:
(a) is in material breach of this agreement;
(b) involves a lack of good faith, fraud, grave misconduct
or wilful neglect; or
(c) is contrary to the Company's express instructions in
relation to the management of the Company's business.
17 GENERAL
17.1 NOTICES
Any notice or other communication including, but not limited to, any
request, demand, consent or approval, to or by a party to this
agreement:
(a) must be in legible writing and in English addressed as shown at
the commencement of this agreement, or as specified to the
sender by any party by notice;
(b) where the sender is a company, must be signed by an officer or
under the common seal of the sender;
(c) is regarded as being given by the sender and received by the
addressee:
(i) if by delivery in person, when delivered to the
addressee;
(ii) if by post, three Business Days from and including the
date of postage/on delivery to the addressee; or
(iii) if by facsimile transmission, whether or not legibly
received, when received by the addressee, but if the
delivery or receipt is on a day which is not a Business
Day or is after 4.00 pm (addressee's time) it is
regarded as received at 9.00 am on the following
Business Day.
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17.2 GOVERNING LAW AND JURISDICTION
(a) This agreement is governed by the laws of New South Wales.
(b) The parties irrevocably submit to the exclusive jurisdiction of
the courts of New South Wales.
17.3 PROHIBITION, ENFORCEABILITY AND SEVERANCE
(a) Any provision of, or the application of any provision of, this
agreement which is prohibited in any jurisdiction is, in that
jurisdiction, ineffective only to the extent of that
prohibition.
(b) Any provision of, or the application of any provision of, this
agreement which is void, illegal or unenforceable in any
jurisdiction does not affect the validity, legality or
enforceability of that provision in any other jurisdiction or of
the remaining provisions in that or any other jurisdiction.
(c) If a clause is void, illegal or unenforceable, it may be severed
without affecting the enforceability of the other provisions in
this agreement.
17.4 WAIVER
(a) The failure of either party at any time to require performance
by the other party of any provision of this agreement does not
affect the party's right to require the performance at any time.
(b) The waiver by either party of a breach of any provision must not
be held to be a waiver of any succeeding breach of the provision
or a waiver of the provision itself.
17.5 ENTIRE AGREEMENT
This agreement supersedes all previous agreements in respect of the
Executive's terms of employment by the Company and embodies the entire
agreement between the parties, except for such terms of the Previous
Agreements that relate to shares, options and the Limited Recourse Loan.
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<PAGE> 17
EXECUTED by the parties as an agreement.
SIGNED BY CHIP APPLICATION
TECHNOLOGIES LIMITED
(ACN 057 883 333) by authority of the
Board of Directors by its duly authorised
representative Lance D. O'Connor Director
in the presence of
/S/ LANCE DENIS O'CONNER
-------------------------------
Lance Denis O'Connor; Director
/S/ illegible
- ------------------------------------
Name of-Witness
SIGNED BY DAVID LANCELOT
MACHATTIE SMITH in the presence of
Signature of witness
/s/ DAVID MAC SMITH
-------------------------------
David Lancelot Machattie Smith
/S/ illegible
- ------------------------------------
Name of witness (print)
illegible
17
<PAGE> 18
SCHEDULE A
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2. COLUMN 3.
NO. OF OPTION EXERCISE OPTION
DETAILS OPTIONS PRICE EXPIRY DATE
------- ------- ----- -----------
<S> <C> <C> <C>
Options to be unconditionally issued by the 500,000 A$1.00 1 July 2000
Company to the Executive on 1 June 1999
Options to be unconditionally issued by the 500,000 A$1.60 1 July 2004
Company to the Executive on 1 June 1999
Options issued conditional upon and will not 500,000 $A1.15 1 July 2002
vest unless the Executive is an Executive of
the Company on 1 June 2000 (`vesting date')
Options issued conditional upon and will not 500,000 $A1.20 1 July 2004
vest unless the Executive is an Executive of
the Company on 1 June 2001 (`vesting date')
</TABLE>
18
<PAGE> 19
OTHER TERMS AND CONDITIONS OF OPTIONS
The terms and conditions of the options are as follows:
1. ENTITLEMENT
The Option holder is entitled to subscribe for one fully paid ordinary
share in the capital of the Company for each Option held.
2. ISSUE PRICE
No amount is payable on issue of the Options.
3. EXERCISE PRICE
The exercise price of each Option is the exercise price referred to in
Column 2 of Schedule A.
4. OPTION PERIOD
Each Option may be exercised in whole or in part at any time prior to
the Option Expiry Date set out in Column 3 of Schedule A. Any Option
that is not exercised will automatically expire on the Option Expiry
Date.
5. TRANSFERABILITY
The Options may not be transferred without the prior consent of the
Company (which consent will not be unreasonably withheld) and only in
accordance with the Articles of Association of the Company.
6. PARTICIPATION IN BONUS ISSUES AND CASH ISSUES
6.1 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the Option holder
will be entitled to participate in such issue, upon exercise of all or
part of the Options on or before the books closing date for that issue,
on the same basis as the holders of ordinary shares in the capital of
the Company.
6.2 If the Company makes an offer to subscribe for cash of ordinary shares
pro rata to the holders of ordinary shares the Option holder will be
entitled to participate in such offer, upon exercise of all or part of
the Options on or before the books closing date for that offer, on the
same basis as the holders of ordinary shares in the capital of the
Company.
6.3 The Company must notify the Option holder at least 12 business days
before the books closing date for determining entitlements to an offer
referred to in Clauses 6.1 or 6.2 of:
a) the proposed terms of the issue of the offer, and
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<PAGE> 20
b) the right to exercise his Options under Clause 6,1 or 6.2 (as
the case may be).
7. ADJUSTMENTS FOR BONUS ISSUES AND CASH ISSUES
7.1 If the Company is listed on the Australian Stock Exchange and makes an
offer for cash of ordinary shares pro rata to the holders of ordinary
shares, the exercise price of each Option shall be reduced by the value
of the theoretical rights entitlement per cum rights share (E) provided
that the exercise price of each Option shall not be reduced to less than
the nominal value of the Company" ordinary shares, where E is calculated
in accordance with the following formula:
E = P - (S + D)
----------
N + 1
Where:
E = theoretical value of the rights entitlement attached to each share
(quoted cum rights).
P = the weighted average market price of fully paid ordinary shares of
the Company sold in the ordinary course of trading on the Australian
Stock Exchange Limited during the five trading days after the
announcement of the rights issue
S = subscription price (application money plus calls) for new shares
D = any dividends due but not yet paid on existing shares which will not
be payable in respect of new shares issued under the rights issue
N = number of cum rights shares required to be held to receive a right
to one new share
No change will be made to the number of shares to which the Option
holder is entitled.
7.2 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the number of shares
issued on exercise of each Option will include the number of bonus
shares that would have been issued if the Option had been exercised
prior to the books closing date for bonus shares. No change will be made
to the exercise price.
8. RECONSTRUCTION
In the event of a reconstruction (including consolidation, sub-division,
reduction or return) of the issued capital of the Company, the number of
Options or the exercise price of Options or both shall be reconstructed
(as appropriate) in a manner which would not result in any benefits
being conferred on the Option holders which are not conferred on
shareholders (subject to the provisions with respect to rounding of
entitlements as sanctioned by the meeting of shareholders approving the
20
<PAGE> 21
reconstruction of capital) but in all respects the terms for the
exercise of Options shall remain unchanged.
9) RANKING OF SHARES ALLOTTED ON EXERCISE OF OPTIONS
All share allotted pursuant to the exercise of Options will, subject to
the Memorandum and Articles of Association of the Company, rank in all
respects (including rights relating to dividends) pari passu with the
existing ordinary shares of the Company on issue at date of allotment.
10. METHOD OF EXERCISE OF OPTIONS
10.1 Options may be exercised by written notice to the Secretary of the
Company. The exercise notice must specify the number of shares required
to be allotted, which number must be a multiple of 1,000 if only part of
the Options are exercised, or if the total number of Options held is
less than 1,000, then the total of all Options held must be exercised.
Options will be deemed to have been exercised on the date that the
application is lodged with the Secretary of the Company.
10.2 The Option holder must pay the exercise price in full to the Company on
the date of the exercise of the Options.
10.3 The exercise of less than all of the Option holder's Options will not
prevent the Option holder from exercising an Option in respect of the
whole or any part of the balance of the entitlement under his remaining
Options.
10.4 On exercise of the Options the Option holder must surrender his Option
certificate to the Company in respect of those Options being exercised.
10.5 If the Option holder exercises less than the total number of Options
then registered in his name:
a) The Option holder must surrender his Option certificate to the
Company, and
b) the Company must cancel that Option certificate and issue to the
holder a new Option certificate in respect of the Option
holder's unexercised Options.
10.6 Within 10 days of receipt of the application for the exercise of Options
and payment by the Option holder of the exercise price of such Options,
the Company must issue and allot to the Option holder the number of
fully paid ordinary shares in the capital of the Company specified in
the application.
10.7 If the Company is listed on the Australian Stock Exchange then it will
as soon as practicable after issue make application for the shares
issued upon exercise of Options by the Option holder to be granted
official quotation on the Australian Stock Exchange. The Options are not
to be listed on the ASX.
11. COMPULSORY ACQUISITION
If an entity ("Offeror") serves a notice on the option holder in
accordance with section 703(4) of the Corporations Law, all options,
which have not yet vested, become
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<PAGE> 22
vested on the date that notice is served on the option holder,
irrespective of any unfulfilled conditions of vesting.
All options (including all existing options and all options that have
been vested by virtue of the preceding paragraph) will lapse on the date
3 months after delivery of that notice.
Unless waived by written notice from the Company, the option holder must
accept an offer to acquire all options which remain unexercised which is
delivered in accordance with section 703(4) of the Corporations Law.
This obligation is conditional on the terms offered by the Offeror being
no less favourable than the offer price paid or payable by the Offeror
in connection with the acquisition of ordinary shares in the Company
under the Offeror's take-over scheme or take-over announcement, adjusted
to reflect the offer for options rather than ordinary shares or on terms
determined by a Court as contemplated by section 703(8) of the
Corporations Law.
12. OPTION EXPIRY DATE
Subject to clause 11, the Option Expiry Date is the option expiry date
referred to in Column 3 of Schedule A.
13. TAXATION
The Option holder is exclusively and solely responsible for all and any
tax that may be payable as a result of the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options. The issuer makes no warranty or representation in respect of
any taxation that may be applicable to the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options.
14. UNEXERCISED OPTIONS
(a) This clause 14 applies to all Unexercised Options. If there is any
inconsistency between this clause and the other provisions of these
Terms and Conditions in respect of the exercise of Unexercised Options,
this clause prevails to the extent of this inconsistency.
(b) If, at the time an Unexercised Option is exercised:
i) the Company is not listed on ASX; and
ii) the Company is a subsidiary of another company (the "Parent
Company") and
iii) the Parent Company is listed on ASX or any Approved Exchange
the Company may, instead of issuing shares in the capital of the
Company, elect to have the Parent Company issue one fully paid share of
common stock in the Parent Company for each Unexercised Option held.
(c) If the Company makes the election referred to in paragraph (b):
i) in lieu of the Option holder's entitlement under clause 1 to
subscribe for one fully paid ordinary share in the capital of
the Company for each Option held, the Option holder will be
issued one fully paid share of
22
<PAGE> 23
common stock of the Parent Company for each Unexercised Option
held;
ii) in lieu of paying the exercise price to the Company in
accordance with Clause 10.2, the Option holder must pay the full
exercise price (which would have otherwise been payable to the
Company) to the Parent Company on the date of exercise of the
Unexercised Options and the Company is authorised to pay over
any such moneys received by it to the Parent Company without
further act or authority of the Option holder; and
iii) within 10 days of receipt of the application for the exercise of
the Unexercised Options and payment by the Option holder of the
exercise price of such Options, the Parent Company must issue to
the Option holder the number of fully paid shares of common
stock of the Parent Company specified in the application; and
iv) to avoid doubt, the Option holder has no entitlement to be
issued or allotted any shares in the capital of the Company upon
exercise of the Unexercised Options.
(d) In this Clause 14:
"Unexercised Options" means all Options that have been granted but are
unexercised
15. CHANGE OF CONTROL
If any one entity or person, acting alone or in association with others,
a) lodges with the Company, or any parent of the Company, a substantial
shareholders notice indicating an interest or
b) in any way obtains an interest in
more than 30% of the issued capital of the Company, or any parent of the
Company, then all options, which have not yet vested, become immediately vested,
irrespective of any unfulfilled conditions of vesting.
23
<PAGE> 1
EXHIBIT 10.5
DEED OF EMPLOYMENT
DEED dated
BETWEEN Chip Application Technologies Limited, ACN 057 883 333 of
152-162 Riley Street, East Sydney, New South Wales (EMPLOYER)
AND THE EMPLOYEE (AS DEFINED IN SCHEDULE 1).
RECITALS
A. The Employee is currently employed by the Employer
B. The Employer and Employee wish to record the terms on which the Employee
will continue to be employed by the Employer in the capacity set out in
Schedule 1 of this Deed, which from the Effective Date will replace the
terms of the Employee's current employment.
AGREEMENT
1. DEFINITIONS
Effective Date means the 1st April, 1999
Intellectual Property Rights means all intellectual property rights
including without limitation:
a) patents, copyright, rights in circuit layouts, registered
designs, trademarks and the right to have confidential
information kept confidential, and
b) any application or right to apply for registration of any of
those rights.
Options means options over unissued shares in the capital of the
Employer to be granted on the terms set out in Schedule 2 and Schedule
3.
Total Remuneration means the salary and benefits due under Clause 4.1
from time to time.
2. APPOINTMENT
2.1 The Employee has been employed by the Employer since September 1994 and
Employee benefits have accrued since that date.
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<PAGE> 2
2.2 The Employer hereby confirms that the Employee is currently employed as
Vice President Technology for the Company and that this Employment
Contract will commence on the Effective Date and, unless terminated
sooner under clause 11, or extended under Clause 9, will conclude on
30th June, 2001.
3. DUTIES AND RESPONSIBILITIES
3.1 The Employee shall have the duties and responsibilities specified in
Schedule 1.
3.2 Any alteration or modification to the duties and responsibilities of the
Employee specified in Schedule 1 after the Effective Date shall be by
mutual agreement of the parties hereto.
3.3 The Employee must discharge faithfully and to the best of his knowledge,
skill and ability the duties and responsibilities referred to herein in
the best interests of the Employer, within normal and reasonable
business hours.
3.4 The Employee may engage in other business or accept other employment or
directorships provided that:
a) the Employee informs the Employer of the business or employment
immediately upon the engagement in the business, or commencement
of employment.
b) the business or employment in the reasonable opinion of the
Managing Director is not related to the mandate of the Employer
or any member of the Employer unless the Managing Director has
given his prior approval, and
c) the business or employment in the reasonable opinion of the
Managing Director does not interfere with the discharge of the
Employees duties and responsibilities under this agreement
3.5 The Employee may hold shares in other public and private companies.
3.6 The parties agree that, in order to better represent the interests of
the Employer and its members, the Employee shall be an active member of
selected service, commercial, governmental, and advocacy organisations
approved by the Managing Director, in which case(s) the Employer will
provide release time and will cover expenses for membership and other
participation fees and for costs associated with attendance, according
to such terms as it may decide.
3.7 The Employee agrees that it may be necessary for the Employee to travel
overseas for the purpose of the Employers business and the Employee
agrees to such travel subject to any qualifications specified in
Schedule 1.
4. SALARY
4.1 The Employer must remunerate the Employee in accordance with Schedule 1.
2
<PAGE> 3
4.2 On each anniversary of the Effective Date, the Employee's Total
Remuneration will be reviewed and increased by a percentage amount not
less than the percentage increase in the All Groups Consumer Price Index
for Sydney (CPI) as published by the Australian Bureau of Statistics for
the 12-month period preceding the anniversary of the Effective Date.
4.3 In addition to the Employee's Total Remuneration, the Employer will
grant to the Employee options in accordance with and subject to the
conditions in Schedule 2 and 3.
4.4 An increase in salary, once confirmed by the Managing Director, may not
be rescinded or revoked in whole or in part.
4.5 The Employee's Total Remuneration includes contributions made by the
Employer for the Employee into a superannuation fund agreed between the
parties or, if there is no agreement, into a superannuation fund
nominated by the employer, on account of the minimum level of
superannuation contributions which the Employer must make for the
Employee for the purposes of the Superannuation Guarantee
(Administration) Act 1992 and the Superannuation Guarantee Charge Act
1992 (collectively SGC Legislation) as amended from time to time
(contributions). If there is any increase in the minimum level of
superannuation contributions which the employer must make for the
purposes of the SGC Legislation, the Employee's Total Remuneration will
be increased by the amount of the additional superannuation levy payment
up to a maximum of 9% contribution in accordance with the Law. Upon the
commencement of this Contract, the Employee must do everything necessary
for the Employer to make the contributions.
4.6 Within the Employee's Total Remuneration, the Employee has the option to
contribute further amounts to superannuation and/or term life cover.
4.7 The parties agree that any further salary increases shall be on the
basis of merit as measured by the Managing Directors periodic
performance appraisal of the Employee, and the Managing Directors
decision shall be at his sole discretion and shall be within the
percentage range offered to other employees of the company.
5. BENEFITS AND COMPLEMENTARY ACTIVITIES
5.1 The Employer must pay the Employee's membership and subscription fees in
professional and commercial organisations relevant to the Employers
business approved by the Managing Director.
5.2 The Employer, recognising the value to the Employer of the Employee's
participation in professional and commercial organisations, courses,
conferences and meetings, encourages his participation in the same, and
will pay fees, including membership and subscription fees, and other
costs associated with membership and attendance. The Employer expects
the Employee to attend national and/or international conferences and
will provide funding in its annual budget for this activity.
6. LEAVE
3
<PAGE> 4
The Employer must grant the Employee an annual paid vacation of twenty
work days, with such leave to be taken at a time mutually agreed that
does not inconvenience the Employer or restrict the Employee in
discharge of the Employee's duties and responsibilities. In addition the
employer will grant the Employee any special leave entitlements referred
to in Schedule 1.
7. EXPENSES AND ALLOWANCES
7.1 The Employer must reimburse the Employee for travel, entertainment and
any other necessarily incurred and reasonable expenses, including the
cost of transportation, parking, tolls and taxes, food and lodging
incurred in performing any of the duties and responsibilities expected
of the Employee.
7.2 Where the Employee uses his own car for company business, costs will be
reimbursed on a kilometre allowance basis in accordance with the
recommended scale published from time to time by the Australian Tax
Office.
7.3 The Employer must pay for the costs of telephone calls relevant to the
Employers business or reimburse the Employee for the amount expended on
telephones.
8. ILLNESS OR INJURY
8.1 Subject to Clause 8.2:
a) the Employer must grant the Employee up to 6 days paid sick
leave each year if the Employee is unable to perform the
Employee's duties due to illness or injury, and
b) untaken sick leave will accumulate from year to year to a
maximum of 12 days.
8.2 Before granting paid sick leave, where the leave exceeds three days, the
Employer may require the Employee to provide the Employer with a
certificate signed by a medical practitioner confirming the illness or
injury.
9. RENEWAL
9.1 This Agreement terminates on the Expiry Date specified in Schedule 1,
unless: it is terminated sooner in accordance with the terms of this
Agreement
10. ASSIGNMENT OF INTELLECTUAL PROPERTY
10.1 The Employee:
a) presently assigns to the Employer all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated by
the Employee (whether alone or with the Employer, its other employees or
contractors) for use by the Employer, and
b) acknowledges that by virtue of this clause all such existing rights are
vested in the
4
<PAGE> 5
Employer and, on their creation, all such future rights will vest in the
Employer
10.2 The Employee must do all things reasonably requested by the Employer to
enable the Employer to assure further the rights assigned under Clause
10.1.
11. TERMINATION
11.1 The Employer may terminate this agreement at any time for just cause
without notice to the Employee, or upon thirty days written notice by
the Managing Director to the Employee, if the Employee:
a) is charged with a criminal offence, excluding a traffic offence,
or
b) breaches the Confidentiality Agreement, or
c) the Employee has committed an act of serious misconduct of a
dishonest or fraudulent nature, or
d) breaches any material provision of this Agreement and fails to
rectify such breach within 30 days of being required to do so in
writing, or
e) becomes unable to pay his debts as they became due, or
f) through illness is unable to return to duties within three (3)
months, or
g) is an "injured employee" as defined in Section 91(1) of the
Industrial Relations Act 1996 (NSW) and is not fit to perform
the Employee's duties for three months from the time the
Employee first became unfit for employment
11.2 The Employer may terminate this agreement at any time without just cause
upon expiry of the Employer Notice Period (specified in Schedule 1) by
providing written notice from the Managing Director to the Employee.
11.3 The Employee may terminate this agreement with two months notice if the
Employer breaches any of its material obligations under this contract,
and has not rectified the breach within 30 days of notice of such
breach, and shall be entitled to an amount equal to the balance of the
salary and benefits due under the full term of the contract or six
months salary and benefits, whichever is the lesser.
11.4 The Employee may terminate this agreement for significant and serious
personal or family reasons by providing the Managing Director with prior
notice in writing of a minimum period specified in Schedule 1 as the
Employee notice Period.
11.5 The Employer agrees that the rules of natural justice shall apply in any
termination of the Employee's contract by the Employer.
11.6 This agreement may be terminated at any time by mutual agreement of the
parties.
5
<PAGE> 6
11.7 During any period of notice referred to in this Clause 11, the Employee
must perform his duties and responsibilities under this Agreement unless
the Employer and Employee mutually agree to an alternative arrangement.
12. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT
12.1 The Employer must set off any amounts the Employee owes the Employer
against any amounts the Employer owes the Employee at the date of
termination except for amounts the Employer is not entitled by law to
set off.
12.2 The Employee must return all the Employer's property (including property
leased by the Employer) to the Employer on termination including all
written or machine readable material, software, computers, credit cards,
keys and vehicles.
12.3 The Employee's obligations under the Confidentiality Agreement continue
after termination except in respect of information that is part of the
Employee's general skill and knowledge.
12.4 The Employee must not record any Confidential Information in any form
after termination.
13. RESTRAINT ON THE EMPLOYEE'S CONDUCT
13.1 During the restraint period of 9 months after termination of the
Employee's employment, the Employee must not
a) solicit, canvass, approach or accept any approach from any
person who was at any time during the Employee's last 12 months
with the Employer a client of the Employer in that part or parts
of the business carried on by the Employer in which the Employee
was employed with a view to obtaining the custom of that person
in a business that is the same or similar to the business
conducted by the Employer, or
b) interfere with the relationship between the Employer and its
customers, employees or suppliers, or
c) induce or assist in the inducement of any employee, consultant,
customer, supplier or any other contractor of the employer to
leave their employment or terminate any contract.
13.2 The Employee acknowledges that each restriction specified in clause 13.1
is in the circumstances reasonable and necessary to protect the
Employer's legitimate interests.
13.3 For the purpose of this Clause 13, the Employee acknowledges that the
definition of Employer will include any subsidiary of Chip Application
Technologies Limited.
14. INDEMNITY AND INSURANCE
14.1 The Employer agrees to defend, save harmless and indemnify the
Employee from any demands, claims, suits, actions or other proceedings
which may be brought against him
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<PAGE> 7
arising from the performance of his duties and for any cost, loss,
damage or liability arising therefrom, including all legal fees and
disbursements incurred in connection therewith.
14.2 During the term of this Agreement, and any subsequent renewal of this
Agreement, the Employer will provide the Employee appropriate insurance
cover including where applicable cover under a Directors and Officers
Liability Insurance Policy.
15. GOVERNING LAW AND ARBITRATION
This Agreement is governed by the law applicable in New South Wales. Any
dispute may be decided by the Australian Commercial Disputes Centre or
equivalent body.
16. CANCELLATION OF PREVIOUS AGREEMENTS
From the Effective Date, this Agreement supersedes and takes the place
of all prior oral or written agreements made between the parties, other
than where relevant for the purposes of accruing long service leave and
other employee benefits and confidentiality, and any prior condition,
warranty, indemnity or representation imposed, given or made by a party.
17. WAIVER
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later
time to insist on performance of that or any other provision of this
Agreement, provided that the lack of notice does not prejudice the other
party's ability to rectify its or his performance.
18. NOTICES
Any notice which may be or is required to be given pursuant to this
Agreement shall be sufficiently given if served personally upon the
party for whom it is intended or if mailed by Certified Mail, in the
case of the Employer, to it at its head office for the time being and in
the case of the Employee, to him at his address as last shown on the
books of the Employer. The date of receipt of such notice shall be
deemed to be the date of delivery, if such notice is served personally,
and five (5) days after the date of posting if sent by prepaid Certified
Mail, except in the event of an actual or threatened postal disruption
in which case all notices shall be delivered.
19. ALTERATION
This Agreement (including its schedule) may only be altered by agreement
in writing signed by each party.
20. THIS AGREEMENT IS CONFIDENTIAL
The terms of this Agreement and any subsequent amendments are
confidential and may not be disclosed by the Employee or the Employer
other than in a non-personalised form to any other person or company,
other than for the purpose of obtaining professional legal or
7
<PAGE> 8
accounting advice, or as may be required by law or Australian Stock
Exchange listing or reporting requirements, without the written approval
of both parties.
21. GENERAL
21.1 Headings are for each of reference only and do not affect the meaning of
this Agreement.
21.2 In the event that any term of this agreement is inconsistent with or in
violation of any provision of any law of NSW or Australia, it is hereby
deemed to be amended to the extent required to avoid such inconsistency
or illegality and, if any term of this agreement is thereby annulled,
the remainder of this agreement shall remain in full force and effect.
21.3 Time shall be the essence of this Agreement.
21.4 This agreement shall ensure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns of the
Employer.
21.5 Schedules 1, 2 and 3 annexed to this Agreement are for all purposes an
integral part of this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF the party of the first part has affixed its corporate seal,
duly attested to by the signature of its proper signing officers in that behalf
and the party of the second part has affixed his signature the day and year
first above written.
Signed for and on behalf of CHIP TECHNOLOGIES
AUSTRALIA LIMITED in the presence of
/S/ illegible
- ----------------------------------------
Signature of Witness
- ----------------------------------------
Name of Witness (print)
SIGNED SEALED AND DELIVERED by
___________________ in the presence of
/s/ illegible /s/ BEN GARTON
- ---------------------------------------- -------------------------------
Signature of Witness Ben Garton
- ----------------------------------------
Name of Witness (print)
9
<PAGE> 10
DEED OF EMPLOYMENT SCHEDULES
TO BE READ IN CONJUNCTION WITH AND PART OF THE STANDARD EMPLOYMENT
CONTRACT APRIL 1999
SCHEDULE 1 - TOTAL REMUNERATION
Employee means Ben Garton of 65 Wilson Street, Newtown, New South Wales 2042
The Employee is currently employed in the capacity as Manager Technology
Under this agreement, the Employee will be employed in the following capacity:-
The Employee shall be employed as Vice President Product Management and
Development or other position of equal or like status to be performed
from the Sydney office and the Employee will be provided with the
appropriate office, support staff and facilities to enable his
responsibilities to be performed and the Employee shall be and agrees to
be responsible and accountable to the Managing Director or such other
person nominated by the Managing Director from time to time.
The Effective Date is 1 April 1999
The Initial Employment Date was September 1994
Travel under Clause 3.7 will be limited such that the time frame of any one trip
is not more than 1 month and the total period of such travel in any one calendar
year does not exceed 3 months.
A remuneration package (inclusive of fringe benefits tax) to the value of $165,
000 gross per annum
Base Salary $159,600
Superannuation $5,400
The Employee's salary will be paid by equal fortnightly instalments by
electronic funds transfer commencing on 1 April 1999.
The Employee's first and last instalments will be proportionate if necessary.
As a special leave entitlement and in addition to any other leave entitlements,
the Employee will be entitled to take 1 days per month leave (on full pay) but
if this entitlement at any time exceeds 2 days, then the balance will be
forfeited.
The Expiry Date of this agreement is 30 June 2001 unless prior to 31 March 2001,
the Employee elects to renew for a further period of one year on the same terms,
The Employer Notice Period for termination without cause by the Employer
referred to in Clause 11.2 is 9 months.
The Employee Notice Period for termination referred to in Clause 11.4 is 6
months.
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<PAGE> 11
SCHEDULE 2 - BASIS FOR GRANT OF OPTIONS
The Employee is exclusively and solely responsible for all and any tax that may
be payable as a result of the issue and or exercise of the Options and or the
sales of shares resulting from the exercise of the Options. The Employer makes
no warranty or representation in respect of any taxation that may be applicable
to the issue and or exercise of the Options and or the sales of shares resulting
from the exercise of the Options.
Subject to clause 11 in Schedule 3, options are exercisable at any time prior to
the Option Expiry Date which is the earlier of 5.00 PM Eastern Australian
Standard Time on the day 90 days after the effective termination of the Option
holder's employment with the Company or the date referred to in Column 3 below.
<TABLE>
<CAPTION>
COLUMN 3.
COLUMN 2. OPTION
OPTION EXERCISE EXPIRY DATE
COLUMN 1. PRICE (SEE ABOVE &
NO. OF (CLAUSE 3 OF CLAUSE 11 & 12
DETAILS OPTIONS SCHEDULE 3) OF SCHEDULE 3)
------- -------- --------------- --------------
<S> <C> <C> <C>
Options to be conditionally issued by the 500,000
Employer to the Employee on 1 July 1999
OTHER TERMS AND CONDITIONS OF
OPTIONS VESTING AND EXERCISE (in
addition to Schedule 3)
Options are conditional upon and will not 150,000 $A0.95 30 June 2001
vest unless the Employee is an Employee of
the Employer on 1 July 1999 (`vesting date')
Options are conditional upon and will not 75,000 $A0.95 30 June 2002
vest unless the Employee is an Employee of
the Employer on 1 July 2000 (`vesting date')
Options are conditional upon and will not 75,000 $A0.95 30 June 2003
vest unless the Employee is an Employee of
the Employer on 30 June 2001 (`vesting date')
Options are conditional upon and will not 200,000 $A0.95 30 June 2004
vest unless the Employee is an Employee of
the Employer on 30 June 2002 (`vesting date')
</TABLE>
11
<PAGE> 12
SCHEDULE 3 - OTHER TERMS AND CONDITIONS OF OPTIONS
The terms and conditions of the options are as follows:
1. ENTITLEMENT
The Option holder is entitled to subscribe for one fully paid ordinary
share in the capital of the Company for each Option held.
2. ISSUE PRICE
No amount is payable on issue of the Options.
3. EXERCISE PRICE
The exercise price of each Option is the exercise price referred to in
Schedule 2.
4. OPTION PERIOD
Each Option may be exercised in whole or in part at any time prior to
the Option Expiry Date set out below. Any Option that is not exercised
will automatically expire on the Option Expiry Date.
5. TRANSFERABILITY
The Options may not be transferred without the prior consent of the
Company (which consent will not be unreasonably withheld) and only in
accordance with the Articles of Association of the Company.
6. PARTICIPATION IN BONUS ISSUES AND CASH ISSUES
6.1 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the Option holder
will be entitled to participate in such issue, upon exercise of all or
part of the Options on or before the books closing date for that issue,
on the same basis as the holders of ordinary shares in the capital of
the Company.
6.2 If the Company makes an offer to subscribe for cash of ordinary shares
pro rata to the holders of ordinary shares the Option holder will be
entitled to participate in such offer, upon exercise of all or part of
the Options on or before the books closing date for that offer, on the
same basis as the holders of ordinary shares in the capital of the
Company.
6.3 The Company must notify the Option holder at least 12 business days
before the books closing date for determining entitlements to an offer
referred to in Clauses 6.1 or 6.2 of:
a) the proposed terms of the issue of the offer, and
b) the right to exercise his Options under Clause 6,1 or 6.2 (as
the case may be).
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<PAGE> 13
7. ADJUSTMENTS FOR BONUS ISSUES AND CASH ISSUES
7.1 If the Company is listed on the Australian Stock Exchange and makes an
offer for cash of ordinary shares pro rata to the holders of ordinary
shares, the exercise price of each Option shall be reduced by the value
of the theoretical rights entitlement per cum rights share (E) provided
that the exercise price of each Option shall not be reduced to less than
the nominal value of the Company" ordinary shares, where E is calculated
in accordance with the following formula:
E = P - (S + D)
-----------
N + 1
Where:
E = theoretical value of the rights entitlement attached to each share
(quoted cum rights).
P = the weighted average market price of fully paid ordinary shares of
the Company sold in the ordinary course of trading on the Australian
Stock Exchange Limited during the five trading days after the
announcement of the rights issue
S = subscription price (application money plus calls) for new shares
D = any dividends due but not yet paid on existing shares which will not
be payable in respect of new shares issued under the rights issue
N = number of cum rights shares required to be held to receive a right
to one new share
No change will be made to the number of shares to which the Option
holder is entitled.
7.2 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the number of shares
issued on exercise of each Option will include the number of bonus
shares that would have been issued if the Option had been exercised
prior to the books closing date for bonus shares. No change will be made
to the exercise price.
8. RECONSTRUCTION
In the event of a reconstruction (including consolidation, sub-division,
reduction or return) of the issued capital of the Company, the number of
Options or the exercise price of Options or both shall be reconstructed
(as appropriate) in a manner which would not result in any benefits
being conferred on the Option holders which are not conferred on
shareholders (subject to the provisions with respect to rounding of
entitlements as sanctioned by the meeting of shareholders approving the
reconstruction of capital) but in all respects the terms for the
exercise of Options shall remain unchanged.
9) RANKING OF SHARES ALLOTTED ON EXERCISE OF OPTIONS
All share allotted pursuant to the exercise of Options will, subject to
the Memorandum and Articles of Association of the Company, rank in all
respects (including rights relating to
13
<PAGE> 14
dividends) pari passu with the existing ordinary shares of the Company
on issue at date of allotment.
10. METHOD OF EXERCISE OF OPTIONS
10.1 Options may be exercised by written notice to the Secretary of the
Company. The exercise notice must specify the number of shares required
to be allotted, which number must be a multiple of 1,000 if only part of
the Options are exercised, or if the total number of Options held is
less than 1,000, then the total of all Options held must be exercised.
Options will be deemed to have been exercised on the date that the
application is lodged with the Secretary of the Company.
10.2 The Option holder must pay the exercise price in full to the Company on
the date of the exercise of the Options.
10.3 The exercise of less than all of the Option holder's Options will not
prevent the Option holder from exercising an Option in respect of the
whole or any part of the balance of the entitlement under his remaining
Options.
10.4 On exercise of the Options the Option holder must surrender his Option
certificate to the Company in respect of those Options being exercised.
10.5 If the Option holder exercises less than the total number of Options
then registered in his name:
a) The Option holder must surrender his Option certificate to the
Company, and
b) the Company must cancel that Option certificate and issue to the
holder a new Option certificate in respect of the Option
holder's unexercised Options.
10.6 Within 10 days of receipt of the application for the exercise of Options
and payment by the Option holder of the exercise price of such Options,
the Company must issue and allot to the Option holder the number of
fully paid ordinary shares in the capital of the Company specified in
the application.
10.7 If the Company is listed on the Australian Stock Exchange then it will
as soon as practicable after issue make application for the shares
issued upon exercise of Options by the Option holder to be granted
official quotation on the Australian Stock Exchange. The Options are not
to be listed on the ASX.
11. COMPULSORY ACQUISITION
If an entity ("Offeror") serves a notice on the option holder in
accordance with section 703(4) of the Corporations Law, all options,
which have not yet vested, become vested on the date that notice is
served on the option holder.
All options (including all existing options and all options that have
been vested by virtue of the preceding paragraph) will lapse on the date
3 months after delivery of that notice.
Unless waived by written notice from the Company, the option holder must
accept an offer to acquire all options which remain unexercised which is
delivered in accordance with section 703(4) of the Corporations Law.
This obligation is conditional on the terms offered by the Offeror being
no less favourable than the offer price paid or payable by the Offeror
in
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<PAGE> 15
connection with the acquisition of ordinary shares in the Company under
the Offeror's take-over scheme or take-over announcement, adjusted to
reflect the offer for options rather than ordinary share's or on terms
determined by a Court as contemplated by section 703(8) of the
Corporations Law".
12. OPTION EXPIRY DATE
Subject to clause 11, the Option Expiry Date is the option expiry date
referred to in Schedule 2.
13. TAXATION
The Employee is exclusively and solely responsible for all and any tax
that may be payable as a result of the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options. The Employer makes no warranty or representation in respect of
any taxation that may be applicable to the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options.
14. UNEXERCISED OPTIONS
(a) This clause 14 applies to all Unexercised Options. If there is any
inconsistency between this clause and the other provisions of these
Terms and Conditions in respect of the exercise of Unexercised Options,
this clause prevails to the extent of this inconsistency.
(b) If, at the time an Unexercised Option is exercised:
i) the Company is not listed on ASX; and
ii) the Company is a subsidiary of another company (the "Parent
Company") and
iii) the Parent Company is listed on ASX or any Approved Exchange
the Company may, instead of issuing shares in the capital of the
Company, elect to have the Parent Company issue one fully paid share of
common stock in the Parent Company for each Unexercised Option held.
(c) If the Company makes the election referred to in paragraph (b):
i) in lieu of the Option holder's entitlement under clause 1 to
subscribe for one fully paid ordinary share in the capital of
the Company for each Option held, the Option holder will be
issued one fully paid share of common stock of the Parent
Company for each Unexercised Option held;
ii) in lieu of paying the exercise price to the Company in
accordance with Clause 10.2, the Option holder must pay the full
exercise price (which would have otherwise been payable to the
Company) to the Parent Company on the date of exercise of the
Unexercised Options and the Company is authorised to pay over
any such moneys received by it to the Parent Company without
further act or authority of the Option holder; and
iii) within 10 days of receipt of the application for the exercise of
the Unexercised Options and payment by the Option holder of the
exercise price of such Options, the Parent Company must issue to
the Option holder the number of fully paid shares of common
stock of the Parent
15
<PAGE> 16
Company specified in the application; and
iv) to avoid doubt, the Option holder has no entitlement to be
issued or allotted any shares in the capital of the Company upon
exercise of the Unexercised Options.
(d) In this Clause 14:
"Unexercised Options" means all Options that have been granted but are
unexercised
16
<PAGE> 1
EXHIBIT 10.6
Confidential
EMPLOYMENT CONTRACT AMENDMENT
BETWEEN Chip Application Technologies Limited, ACN 057 883 333 of
152-162 Riley Street, East Sydney, New South Wales (EMPLOYER)
AND Justin Wescombe of 14/339 Edgecliff Road, Woollahra, NSW 2025
(EMPLOYEE).
RECITALS
A. The Employee is currently employed by the Employer.
B. The Employer has requested and the Employee has accepted that the
Employee should be assigned to an overseas location for a minimum
period of 2 years.
C. The parent company of the Employer proposes to appoint a North American
based President and CEO ("President") in the near future.
D. The Employer and the Employee have agreed to amend the Employee
Contract dated [______] ("Employment Contract") to reflect this change.
AGREEMENT
1. CONFLICTS
In any conflicts between this Agreement and the Employment Contract,
this agreement will prevail.
2. APPOINTMENT
2.1 The Employee will be employed in a senior position with line
responsibility. The Employee will retain the title and position of
Senior vice President Sales and Marketing until the President has had
an opportunity to review the management structure of the Employer and
interview appropriately qualified people (whether current employees or
otherwise) for senior management positions. At the Presidents
discretion and in consultation with the Employee, the duties and
responsibilities and title of the Employee may change but the Employee
will continue to be employed in a senior position with line
responsibility.
2.2 The employer and Employee agree that the Employee will be employed
overseas in the Location for the Term unless mutually agreed otherwise
("International Assignment")
3. SALARY AND REMUNERATION
3.1 A remuneration package (inclusive of fringe benefits tax, supannuation
and any other generally accepted employee deductions) to the value of
US$130,000 gross per annum paid monthly to an account nominated by the
Employee. All payments in shares will cease
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 1 OF 4
<PAGE> 2
Confidential
as at the date of this agreement. The Employee's first and last
instalments will be proportionate if necessary.
3.2 The Employee may determine the final structure of the remuneration
package as long as it does not create any increased financial liability
on the Employer.
4. OTHER BENEFITS AND ENTITLEMENTS
4.1. The Employer will be responsible for paying all costs associated with
accommodation for the Employee and family during the Term of this
International Assignment. All accommodation will to be agreed with the
President prior to commitment to rental.
4.2. The Employer will be responsible for paying all utility costs incurred
by the Employee during the Term of this International Assignment. This
includes, but is not limited to: power, water, heating, telephone (but
excluding non-business related calls), state and federal taxes and
other charges associated with the accommodation.
4.3 The Employer will be responsible for all professional insurance
indemnity, that is required and appropriate during the Term of this
International Assignment.
4.4 The Employer will be responsible for all professional fees associated
with this International Assignment both prior to, during and after the
assignment that are directly related to the International Assignment.
4.5. The Employer will be responsible for all airfares for the transfer
of the Employee and family to all Locations associated with the
International Assignment.
4.6. The Employer will provide one business class return airfare per
annum for the Employee and each member of his family from the Location
of the International Assignment to Australia or to another location for
which the total airfare does not exceed the cost of the return airfare
to Australia.
4.7. The Employer will be responsible for the cost of packing and
insurance and shipping all personal household effects to the Location
of the International Assignment and return to Australia at the end of
the Term of the International Assignment. This will include the airfare
for the return of the Employee and family from the Location of the
International Assignment to Australia at the end of the Term.
5. LOCATION
5.1 The Employer will be located initially in North America at a place to
be agreed with the President and in the event of any disagreement shall
be in close proximity to the Employers principle offices in North
America ("Location"). During the Term the Location may change by mutual
agreement between the parties and the Employer will pay any relocation
expenses associated with any relocation.
6. TERM
The Employee will be employed on International Assignment for a minimum
period of two years from the date hereof and the Expiry Date of the
Employment Contract is hereby changed to read the date 2 years from the
date of this agreement.
7. REPORTING
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 2 OF 4
<PAGE> 3
Confidential
7.1 The Employee will report directly to the President or such other person
nominated by the President from time to time.
7.2 In the Employment Contract where the term "Managing Director or CEO"
appears, the term "President" will be read.
8. TERMINATION
8.1 If the Employee is terminated without cause under Clause 11.2 of the
Employment Contract, the Employee will be entitled to receive
(a) severance pay of an amount equivalent to eight months at the
remuneration rate referred to in Clause 3.1 of this agreement
(b) all entitlements under Clauses 4.1 and 4.2, of this agreement
for a period of three months from the date of termination
(c) all entitlements under clause 4.7 in relation to the end of
the Term.
8.2 If the Employee terminates the agreement for any reason, the Employee
will be entitled to the benefit of Clause 4.7 of this agreement.
8.3 If for any reason the Employer assigns the Employee to a Location in
Australia, the Employee may elect to terminate the Employment Contract
by giving 3 months written notice and the Employee will be entitled to
the benefit of Clause 4.7 of this agreement.
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 3 OF 4
<PAGE> 4
Confidential
IN WITNESS WHEREOF the party of the first part has affixed its corporate seal,
duly attested to by the signature of its proper signing officers in that behalf
and the party of the second part has affixed his signature the day and year
first above written.
Signed for and on behalf of CHIP APPLICATION
TECHNOLOGIES LIMITED in the presence of
/s/ [SIGNATURE ILLEGIBLE]
.................................. ..................................
Company Secretary Director
9/12/99
SIGNED SEALED AND DELIVERED BY
THE EMPLOYEE in the presence of Agreed
/s/ JUSTIN WESTCOMBE
/s/ L.D. O'CONNOR 9/12/99
.................................. ..................................
Signature of Witness
L.D. O'CONNOR
..................................
Name of Witness (print)
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 4 OF 4
<PAGE> 5
Confidential
EMPLOYMENT CONTRACT
BETWEEN Chip Application Technologies Limited, ACN 057 883 333 of 152-162
Riley Street, East Sydney, New South Wales (EMPLOYER)
AND THE EMPLOYEE (AS DEFINED IN SCHEDULE 1).
RECITALS
A. The Employee is currently employed by the Employer
B. The Employer and Employee wish to record the terms on which the
Employee will continue to be employed by the Employer in the capacity
set out in Schedule 1 of this Deed ("Future Capacity"), which from the
Effective Date will replace the terms of the Employee's current
employment.
AGREEMENT
1. DEFINITIONS
Effective Date means the date referred to in Schedule 1 as the
effective date.
Intellectual Property Rights means all intellectual property rights
including without limitation.
a) patents, copyright, rights in circuit layouts, registered
designs, trademarks and the right to have confidential
information kept confidential, and
b) any application or right to apply for registration of any of
those rights.
Options means options over unissued shares in the capital of the
Employer to be granted on the terms set out in Schedule 2 and Schedule
3.
Total Remuneration means the salary and benefits due under Clause 4.1
from time to time.
2. APPOINTMENT
2.1 The Employee has been employed by the Employer since the Initial
Employment Date referred to in Schedule 1 and Employee benefits have
accrued since that date.
2.2 The Employer hereby confirms that the Employee is currently employed in
the capacity referred to in Schedule 1 for the Company ('Current
Capacity') and that this Employment Contract will commence on the
Effective Date and, unless terminated sooner under clause 11, or
extended under Clause 9, will conclude on the Expiry Date referred to
in Schedule 1
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<PAGE> 6
Confidential
3. DUTIES AND RESPONSIBILITIES
3.1 The Employee shall have the Duties and Responsibilities specified in
Schedule 1
3.2 Any alteration or modification to the Duties and Responsibilities of
the Employee specified in Schedule 1 after the Effective Date shall be
by mutual written agreement of the parties hereto.
3.3 The Employee must discharge faithfully and to the best of his
knowledge, skill and ability the Duties and Responsibilities referred
to herein in the best interests of the Employer, within normal and
reasonable business hours.
3.4 The Employee may engage in other business or accept other employment or
directorships provided that:
a) the Employee informs the Employer of the business or
employment immediately upon the engagement in the business, or
commencement of employment,
b) the business or employment in the reasonable opinion of the
Managing Director is not related to the mandate of the
Employer or any member of the Employer unless the Managing
Director has given his prior approval, and
C) the business or employment in the reasonable opinion of the
Managing Director does not interfere with the discharge of the
Employees Duties and Responsibilities under this agreement
3.5 The Employee may hold shares in other public and private companies.
3.6 The parties agree that, in order to better represent the interests of
the Employer and its members, the Employee may be an active member of
selected service, commercial, governmental, and advocacy organisations
approved by the Managing Director, in which case(s) the Employer will
provide release time and will cover expenses for membership and other
participation fees and for costs associated with attendance, according
to such terms as it may decide.
3.7 The Employee agrees that it may be necessary for the Employee to travel
overseas for the purpose of the Employers business and the Employee
agrees to such travel subject to any qualifications specified in
Schedule 1.
4. SALARY
4.1 The Employer must remunerate the Employee in accordance with Schedule
1.
4.2 On each anniversary of the Effective Date, the Employee's Total
Remuneration will be reviewed and increased by a percentage amount not
less than the percentage increase in the All Groups Consumer Price
Index for Sydney (CPI) as published by the Australian
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 2 OF 9
<PAGE> 7
Confidential
Bureau of Statistics for the 12-month period preceding the anniversary
of the Effective Date.
4.3 In addition to the Employee's Total Remuneration, the Employer will
grant to the Employee options in accordance with and subject to the
conditions in Schedule 2 and 3.
4.4 An increase in salary or any aspect of the salary package, once
confirmed in writing by the Managing Director, may not be rescinded or
revoked in whole or in part.
4.5 The Employee's Total Remuneration includes contributions made by the
Employer for the Employee into a superannuation fund agreed between the
parties or, if there is no agreement, into a superannuation fund
nominated by the employer, on account of the minimum level of
superannuation contributions which the Employer must make for the
Employee for the purposes of the Superannuation Guarantee
(Administration) Act 1992 and the Superannuation Guarantee Charge Act
1992 (collectively SGC Legislation) as amended from time to time
(contributions). If there is any increase in the minimum level of
superannuation contributions which the employer must make for the
purposes of the SGC Legislation, the Employee's Total Remuneration will
be increased by the amount of the additional superannuation levy
payment up to a maximum of 9% contribution in accordance with the Law.
Upon the commencement of this Contract, the Employee must do everything
necessary for the Employer to make the contributions.
4.6 Within the Employee's Total Remuneration, the Employee has the option
to contribute further amounts to superannuation and/or term life cover.
4.7 The parties agree that any further salary increases shall be on the
basis of merit as measured by the Managing Directors periodic
performance appraisal of the Employee, and the Managing Directors
decision shall be at his sole discretion and shall be at least within
the percentage range offered to other employees of the company.
5. BENEFITS AND COMPLEMENTARY ACTIVITIES
5.1 The Employer must pay the Employee's membership and subscription fees
in professional and commercial organisations relevant to the Employers
business approved by the Managing Director.
5.2 The Employer, recognising the value to the Employer of the Employee's
participation in professional and commercial organisations, courses,
conferences and meetings, encourages his participation in the same, and
will pay fees, including membership and subscription fees, and other
costs associated with membership and attendance. The Employer expects
the Employee, to attend national and/or international conferences and
will provide funding in its annual budget for this activity.
6. LEAVE
The Employer must grant the Employee an annual paid vacation of twenty
work days, with such leave to be taken at a time mutually agreed that
does not inconvenience the Employer
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<PAGE> 8
Confidential
or restrict the Employee in discharge of the Employee's duties and
responsibilities. In addition the employer will grant the Employee any
special leave entitlements referred to in Schedule 1 ('Special Leave').
7. EXPENSES and ALLOWANCES
7.1 The Employer must reimburse the Employee for travel, entertainment and
any other necessarily incurred and reasonable expenses, including the
cost of transportation, parking, tolls and taxes, food and lodging
incurred in performing any of the duties and responsibilities expected
of the Employee.
7.2 Where the Employee uses his own car for company business, costs will be
reimbursed on a kilometre allowance basis in accordance with the
recommended scale published from time to time by the Australian Tax
Office.
7.3 The Employer must pay for the costs of telephone calls relevant to the
Employers business or reimburse the Employee for the amount expended on
telephones.
7.4 Any reimbursement under this Part 7 shall be made by electronic
transfer to a bank account nominated by the Employee or by cheque
delivered to the Employee within 7 business days (or 20 business days
for reimbursements of less then $100) of receipt (on paper or via
e-mail or other electronic form) of completed expense forms approved by
the Employer for use by the Employee for this purpose. If any part of
the reimbursement is disputed, the undisputed amount shall be paid.
Where any reimbursements (whether disputed or not) is not paid in
accordance with this clause, the Employer will in addition pay interest
at the rate equivalent to the prevailing 90 day bank bill rate (as
published in the Australian Financial Review on the due date) plus 5%
for the period from the due date for payment to the actual payment
date.
7.5 The completed expense forms referred to in Clause 7.4 will be
accompanied by such invoices or receipts as may reasonably evidence the
expense and payment thereof by the Employee. In the case of overseas
expenses such invoices or receipts will be delivered to the Employer as
soon a practically possible following submission of the completed
expense form.
8. ILLNESS OR INJURY
8.1 Subject to Clause 8.2:
a) the Employer must grant the Employee up to 6 days paid sick
leave each year if the Employee is unable to perform the
Employee's duties due to illness or injury, and
b) untaken sick leave will accumulate from year to year to a
maximum of 12 days.
8.2 Before granting paid sick leave, where the leave exceeds three days,
the Employer may require the Employee to provide the Employer with a
certificate signed by a medical practitioner confirming the illness or
injury.
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 4 OF 9
<PAGE> 9
Confidential
9. RENEWAL
9.1 This Agreement terminates on the Expiry Date specified in Schedule 1,
unless: it is terminated sooner in accordance with the terms of this
Agreement or extended by mutual agreement. If this Agreement is not
renewed or any substitute agreement entered into by 1 March 2001, then
each party will be entitled to assume that the agreement will terminate
on the 30 July 2001 and that all appropriate notices have been given.
10. ASSIGNMENT OF INTELLECTUAL PROPERTY
10.1 The Employee:
a) presently assigns to the Employer all existing and future
Intellectual Property Rights in all inventions, models,
designs, drawings, plans, software, reports, proposals and
other materials created or generated by the Employee (whether
alone or with the Employer, its other employees or
contractors) for use by the Employer, and
b) acknowledges that by virtue of this clause all such existing
rights are vested in the Employer and, on their creation, all
such future rights will vest in the Employer
10.2 The Employee must do all things reasonably requested by the Employer to
enable the Employer to assure further the rights assigned under Clause
10.1.
11. TERMINATION
11.1 The Employer may terminate this agreement at any time (or just cause
without notice to the Employee, if the Employee:
a) is charged with a criminal offence, excluding a traffic
offence, or
b) breaches the Confidentiality Agreement, or
c) the Employee has committed an act of serious misconduct of a
dishonest or fraudulent nature, or
d) breaches any material provision of this Agreement and fails to
rectify such breach within 30 days of being required to do so
in writing, or
e) becomes unable to pay his debts as they became due, or
f) through illness is unable to return to duties within three (3)
months, or
g) is an "injured employee" as defined in Section 91(1) of the
Industrial Relations Act 1996 (NSW) and is not fit to perform
the Employee's duties for three months from the time the
Employee first became unfit for employment
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 5 OF 9
<PAGE> 10
\
Confidential
11.2 The Employer may terminate this agreement at any time without just
cause upon expiry of the Employer Notice Period (specified in Schedule
1) by providing written notice from the Managing Director to the
Employee.
11.3 The Employee may terminate this agreement with 30 days notice if the
Employer breaches any of its material obligations under this contract,
and has not rectified the breach within 30 days of notice of such
breach, and shall be entitled to an amount equal to the balance of the
salary and benefits due under the full term of the contract or six
months salary and benefits, whichever is the lesser.
11.4 The Employee may terminate this agreement for significant and serious
personal or family reasons by providing the Managing Director with
prior notice in writing of a minimum period specified in Schedule 1 as
the Employee Notice Period.
11.5 The Employer agrees that the rules of natural justice shall apply, in
any termination of the Employee's contract by the Employer.
11.6 This agreement may be terminated at any time by mutual agreement of the
parties.
11.7 During any period of notice referred to in this Clause 11, the Employee
must perform his duties and responsibilities under this Agreement
unless the Employer and Employee mutually agree to an alternative
arrangement.
11.8 If there is a change in control as a result of a change in shareholders
in the Employer, or any parent of the Employer such that a majority of
Directors are appointed by a controlling shareholder and the Board of
Directors implement a change in the Chief Executive Officer or Managing
Director, then the Employee may, by notice in writing within 60 days of
such events, terminate this agreement by giving 6 months notice.
12. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT
12.1 The Employer may set off any amounts the Employee owes the Employer
against any amounts the Employer owes the Employee at the date of
termination except for amounts the Employer is not entitled by law to
set off.
12.2 The Employee must return all the Employer's property (including
property leased by the Employer) to the Employer on termination
including all written or machine readable material, software,
computers, credit cards, keys and vehicles.
12.3 The Employee's obligations under the Confidentiality Agreement continue
after termination except in respect of information that is part of the
Employee's general skill and knowledge.
12.4 The Employee must not record any Confidential Information in any form
after termination.
13. RESTRAINT ON THE EMPLOYEE'S CONDUCT
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 6 OF 9
<PAGE> 11
Confidential
13.1 During the restraint period of 9 months after termination of the
Employee's employment, the Employee must not
a) solicit, canvass, approach or accept any approach from any
person who was at any time during the Employee's last 12
months with the Employer, a Client of the Employer in that
part or parts of the business carried on by the Employer in
which the Employee was employed with a view to obtaining the
custom of that person in a business that is the same or
similar to the business conducted by the Employer, or
b) interfere with the relationship between the Employer and its
customers, employees or suppliers, or
c) induce or assist in the inducement of any employee,
consultant, customer, supplier or any other contractor of the
Employer to leave their employment or terminate any contract.
For the purposes of this clause 13.1, a Client of the Employee shall
mean any company or entity with whom the Employer has a signed
agreement (other than a Confidentiality Agreement) under which the
Employee has been actively involved in implementing.
13.2 The Employee acknowledges that each restriction specified in clause
13.1 is in the circumstances reasonable and necessary to protect the
Employees legitimate interests.
13.3 For the purpose of this Clause 13, the Employee acknowledges that the
definition of Employer will include any subsidiary or parent of Chip
Application Technologies Limited.
14. INDEMNITY AND INSURANCE
14.1 The Employer agrees to defend, save harmless and indemnify the Employee
from any demands, claims, suits, actions or other proceedings which may
be brought against him arising from the performance of his duties and
for any cost, loss, damage or liability arising therefrom, including
all legal fees and disbursements incurred in connection therewith.
14.2 During the term of this Agreement, and any subsequent renewal of this
Agreement, the Employer will provide the Employee appropriate insurance
cover including where applicable cover under a Directors and Officers
Liability Insurance Policy, medical,
15. GOVERNING LAW AND ARBITRATION
This Agreement is governed by the law applicable in New South Wales.
Any dispute may be decided by the Australian Commercial Disputes Centre
or equivalent body.
16. CANCELLATION OF PREVIOUS AGREEMENTS
From the Effective Date, this Agreement supersedes and takes the place
of all prior oral or written agreements made between the parties, other
than where relevant for the purposes
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 7 OF 9
<PAGE> 12
Confidential
of accruing long service leave and other employee benefits and confidentiality,
and any prior condition, warranty, indemnity or representation imposed, given or
made by a party.
17. WAIVER
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later
time to insist on performance of that of any other provision of this
Agreement, provided that the lack of notice does not prejudice the
other party's ability to rectify its or his performance.
18. NOTICES
Any notice which may be or is required to be given pursuant to this
Agreement shall be sufficiently given if served personally upon the
party for whom it is intended or if mailed by Certified Mail, in the
case of the Employer, to it at its head office for the time being and
in the case of the Employee, to him at his address as last shown on the
books of the Employer. The date of receipt of such notice shall be
deemed to be the date of delivery, if such notice is served personally,
and five (5) days after the date of posting if sent by prepaid
Certified Mail, except in the event of an actual or threatened, postal
disruption in which case all notices shall be delivered.
19. ALTERATION
This Agreement (including its schedules) may only be altered by
agreement in writing signed by each party.
20. THIS AGREEMENT IS CONFIDENTIAL
The terms of this Agreement and any subsequent amendments are
confidential and may not be disclosed by the Employee or the Employer
other than in a non-personalised form to any other person or company,
other than for the purpose of obtaining professional legal or
accounting advice, or as may be required by law or Australian Stock
Exchange listing or reporting requirements, without the written
approval of both parties.
21. GENERAL
21.1 Headings are for reference only and do not affect the meaning of this
Agreement.
21.2 In the event that any term of this agreement is inconsistent with or in
violation of any provision of any law of NSW or Australia, it is hereby
deemed to be amended to the extent required to avoid such inconsistency
or illegality and, if any term of this agreement is thereby annulled,
the remainder of this agreement shall remain in full force and effect.
21.3 Time shall be the essence of this Agreement.
21.4 Schedules 1, 2 and 3 annexed to this Agreement are for all purposes an
integral part of this Agreement.
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Confidential
IN WITNESS WHEREOF the party of the first part has affixed its corporate seal,
duly attested to by the signature of its proper signing officers in that behalf
and the party of the second part has affixed his signature the day and year
first above written.
Signed for and on behalf OF CHIP APPLICATION
TECHNOLOGIES LIMITED in the presence of
/s/ [SIGNATURE ILLEGIBLE]
- ----------------------------------- ---------------------------------
Company Secretary Director
SIGNED SEALED AND DELIVERED BY
THE EMPLOYEE in the presence of
/s/ L.D. O'CONNOR /s/ JUSTIN WESCOMBE
- ----------------------------------- ---------------------------------
Signature of Witness 5 July 1996
/s/ L.D. O'CONNOR
- -----------------------------------
Name of Witness (print)
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 9 OF 9
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[FILE TO COME]
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 1 OF 7
<PAGE> 15
[FILE TO COME]
TO BE READ IN CONJUNCTION WITH SCHEDULES 1, 2 & 3 PAGE 2 OF 7
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Confidential
EMPLOYMENT CONTRACT (CLAUSE 4.3)
SCHEDULE 3
OTHER TERMS AND CONDITIONS OF OPTIONS
The terms and conditions of the options are as follows:
1. ENTITLEMENT
The Option holder is entitled to subscribe for one fully paid ordinary
share in the capital of the Company for each Option held.
2. ISSUE PRICE
No amount is payable on issue of the Options.
3. EXERCISE PRICE
The exercise price of each Option is the exercise price referred to in
Schedule 2.
4. OPTION PERIOD
Each Option may be exercised in whole or in part at any time prior to
the Option Expiry Date set out below. Any Option that is not exercised
will automatically expire on the Option Expiry Date.
5. TRANSFERABILITY
The Options may not be transferred without the prior consent of the
Company (which consent will not be unreasonably withheld) and only in
accordance with the Articles of Association of the Company.
6. PARTICIPATION IN BONUS ISSUES AND CASH ISSUES
6.1 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the Option holder
will be entitled to participate in such issue, upon exercise of all or
part of the Options on or before the books closing date for that issue,
on the same basis as the holders of ordinary shares in the capital of
the Company.
6.2 If the Company makes an offer to subscribe for cash of ordinary shares
pro rata to the holders of ordinary shares the Option holder will be
entitled to participate in such offer, upon exercise of all or part of
the Options on or before the books closing date for that offer, on the
same basis as the holders of ordinary shares in the capital of the
Company
6.3 The Company must notify the Option holder at least 12 business days
before the books closing date for determining entitlements to an offer
referred to in Clauses 6.1 or 6.2 of
a) the proposed terms of the issue of the offer, and
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<PAGE> 17
Confidential
b) the right to exercise his Options under Clause 6.1 or 6.2 (as
the case may be).
7. ADJUSTMENTS FOR BONUS ISSUES AND CASH ISSUES
7.1 If the Company is listed on the Australian Stock Exchange and makes an
offer for cash of ordinary shares pro rata to the holders of ordinary
shares, the exercise price of each Option shall be reduced by the value
of the theoretical rights entitlement per cum rights share (E) provided
that the exercise price of each Option shall not be reduced to less
than the nominal value of the Company" ordinary shares, where E is
calculated in accordance with the following formula:
E = P - (S + D)
-----------
N + 1
Where:
E = theoretical value of the rights entitlement attached to each share
(quoted cum rights)
P = the weighted average market price of fully paid ordinary shares of
the Company sold in the ordinary course of trading on the Australian
Stock Exchange Limited during the five trading days after the
announcement of the rights issue
S = subscription price (application money plus calls) for new shares
D = any dividends due but not yet paid on existing shares which will
not be payable in respect of new shares issued under the rights issue
N = number of cum rights shares required to be held to receive a right
to one new share
No change will be made to the number of shares to which the Option
holder is entitled.
7.2 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the number of
shares issued on exercise of each Option will include the number of
bonus shares that would have been issued if the Option had been
exercised prior to the books closing date for bonus shares. No change
will be made to the exercise price.
8. RECONSTRUCTION
In the event of a reconstruction (including consolidation,
sub-division, reduction or return) of the issued capital of the
Company, the number of Options or the exercise price of Options or both
shall be reconstructed (as appropriate) in a manner which would not
result in any benefits being conferred on the Option holders which are
not conferred on shareholders (subject to the provisions with respect
to rounding of entitlements as sanctioned by the meeting of
shareholders approving the reconstruction of capital) but in all
respects the terms for the exercise of Options shall remain unchanged.
9. RANKING OF SHARES ALLOTTED ON EXERCISE OF OPTIONS
TO BE READ IN CONJUNCTION WITH THE EMPLOYMENT CONTRACT Page 4 of 7
<PAGE> 18
Confidential
All share allotted pursuant to the exercise of Options will, subject to
the Memorandum and Articles of Association of the Company, rank in all
respects (including rights relating to dividends) pari passu with the
existing ordinary shares of the Company on issue at date of allotment.
10. METHOD OF EXERCISE OF OPTIONS
10.1 Options may be exercised by written notice to the Secretary of the
Company. The exercise notice must specify the number of shares required
to be allotted, which number must be a multiple of 1,000 if only part
of the Options are exercised, or if the total number of Options held is
less than 1,000, then the total of all Options held must be exercised.
Options will be deemed to have been exercised on the date that the
application is lodged with the Secretary of the Company.
10.2 The Option holder must pay the exercise price in full to the Company on
the date of the exercise of the Options.
10.3 The exercise of less than all of the Option holder's Options will not
prevent the Option holder from exercising an Option in respect of the
whole or any part of the balance of the entitlement under his remaining
Options.
10.4 On exercise of the Options the Option holder must surrender his Option
certificate to the Company in respect of those Options being exercised.
10.5 If the Option holder exercises less than the total number of Options
then registered in his name:
a) The Option holder must surrender his Option certificate to the
Company, and
b) the Company must cancel that Option certificate and issue to
the holder a new Option certificate in respect of the Option
holder's unexercised Options.
10.6 Within 10 days of receipt of the application for the exercise of
Options and payment by the Option holder of the exercise price of such
Options, the Company must issue and allot to the Option holder the
number of fully paid ordinary shares in the capital of the Company
specified in the application.
10.7 If the Company is listed on the Australian Stock Exchange then it will
as soon as practicable after issue make application for the shares
issued upon exercise of Options by the Option holder to be granted
official quotation on the Australian Stock Exchange. The Options are
not to be listed on the ASX.
11. COMPULSORY ACQUISITION
If an entity ("Offeror") serves a notice on the option holder in
accordance with section 703(4) of the Corporations Law, all options,
which have not yet vested, become bested on the date that notice is
served on the option holder.
All options (including all existing options and all options that have
been vested by virtue of the preceding paragraph) will lapse on the
date 3 months after delivery of that notice.
TO BE READ IN CONJUNCTION WITH THE EMPLOYMENT CONTRACT Page 5 of 7
<PAGE> 19
Confidential
Unless waived by written notice from the Company, the option holder
must accept an offer to acquire all options which remain unexercised
which is delivered in accordance with section 703(4) of the
Corporations Law. This obligation is conditional on the terms offered
by the Offeror being no less favourable than the offer price paid or
payable by the Offeror in connection with the acquisition of ordinary
shares in the Company under the Offeror's takeover scheme or take-over
announcement, adjusted to reflect the offer for options rather than
ordinary shares or on terms determined by a Court as contemplated by
section 703(8) of the Corporations Law".
12. OPTION EXPIRY DATE
Subject to clause 11, the Option Expiry Date is the option expiry date
referred to in Schedule 2.
13, TAXATION
The Employee is exclusively and solely responsible for all and any tax
that may be payable as a result of the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options. The Employer makes no warranty or representation in respect of
any taxation that may be applicable to the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options.
14. UNEXERCISED OPTIONS
(a) This clause 14 applies to all Unexercised Options. If there is any
inconsistency between this clause and the other provisions of these
Terms and Conditions in respect of the exercise of Unexercised Options,
this clause prevails to the extent of this inconsistency.
(b) If, at the time an Unexercised Option is exercised:
i) the Company is not listed on ASX: and
ii) the Company is a subsidiary of another company (the "Parent
Company") and
iii) the Parent Company is listed on A$X or any Approved Exchange
the Company may, instead of issuing shares in the capital of the
Company, elect to have the Parent Company issue one fully paid share of
common stock in the Parent Company for each Unexercised Option held.
(c) If the Company makes the election referred to in paragraph (b):
i) in lieu of the Option holder's enticement under clause 1 to
subscribe for one fully paid ordinary share in the capital of
the Company for each Option held, the Option holder will be
issued one fully paid share of common stock of the Parent
Company for each Unexercised Option held;
ii) in lieu of paying the exercise price to the Company in
accordance wit Clause 10.2, the Option holder must pay the
full exercise price (which would have otherwise been payable
to the Company) to the Parent Company on the date of exercise
of the Unexercised Options and the Company is authorised to
pay over any such moneys received by it to the Parent Company
without further act or authority of the Option holder; and
TO BE READ IN CONJUNCTION WITH THE EMPLOYMENT CONTRACT Page 6 of 7
<PAGE> 20
Confidential
iii) within 10 days of receipt of the application for the exercise
of the Unexercised Options and payment by the Option holder of
the exercise price of such Options, the Parent Company must
issue to the Option holder the number of fully paid shares of
common stock of the Parent Company specified in the
application; and
iv) to avoid doubt, the Option holder has no entitlement to be
issued or allotted any shares in the capital of the Company
upon exercise of the Unexercised Options.
(d) In this Clause 14:
"Unexercised Options" means all Options that have been granted but are
unexercised
TO BE READ IN CONJUNCTION WITH THE EMPLOYMENT CONTRACT Page 7 of 7
<PAGE> 1
EXHIBIT 10.7
DATED 18/3/1997
CiT CARDS (AUSTRALIA) LIMITED
JOHN WEIHEN
DEED OF EMPLOYMENT
MINTER ELLISON
Lawyers
Minter Ellison Building
44 Martin Place
SYDNEY NSW 2000
DX 117 Sydney
Telephone (02) 9210 4444
Facsimile (02) 9235 2711
Ref: ATM:MAP
14
<PAGE> 2
CONFIDENTIAL
DEED OF EMPLOYMENT
DEED dated 18 March 1997
BETWEEN CiT CARDS (AUSTRALIA) LIMITED ACN 072 773 052 of 152 - 162
Riley Street, East Sydney, New South Wales ('EMPLOYER')
AND JOHN WEIHEN of 17 Bayswater Road, Lindfield, New South Wales 2070
('EMPLOYEE')
RECITALS
A. The Employee is currently employed by the Employer.
B. The Employer's parent company, Card Technologies Australia Limited (ACN 057
883 333) ("CTA") is taking steps to offer shares in CTA to the public and
listing as a public company on the Australian Stock Exchange.
C. The Employer and Employee wish to record the terms on which the Employee
will continue to be employed by the Employer in the capacity set out in clause 3
of this Deed, which will replace the terms of the Employees current employment.
AGREEMENT
1. Definitions
'Effective Date' means the 1 November 1996
'Intellectual Property Rights' means all intellectual property rights including
without limitation:
(a) patents, copyright, rights in circuit layouts, registered designs,
trademarks and the right to have confidential information kept
confidential; and
(b) any application or right to apply for registration of any of those rights.
'Forecast Net Profit' means for the 1997 financial year a loss of $1.0 million
and for the 1998 financial year a profit of $2.0 million in CTA
'Options' means options over unissued shares in the capital of CTA to be granted
on the terms set out in SCHEDULE 2 and SCHEDULE 3.
'Total Remuneration' means the salary and benefits due under CLAUSE 4.1 from
time to time.
2. Appointment
2.1 The Employee has been employed by the Employer since October 1994 (and
Employee benefits have accrued since that date) and will continue to be employed
under this contract.
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<PAGE> 3
CONFIDENTIAL
2.2 The Employer hereby confirms that the Employee is currently employed as
Director of Operations for the Company and that this Employment Contract will
commence on the Effective Date and, unless terminated sooner under CLAUSE 11,
or extended under clause 9, will conclude on 30 June 1999.
3. Duties and Responsibilities
3.1 The Employee shall be employed as Director of Operations or other position
of equal or like status to be performed from the Sydney office and the Employee
will be provided with the appropriate office, support staff and facilities to
enable his responsibilities to be performed and the Employee shall be and
agrees to be responsible and accountable to the Managing Director.
3.2 Any alteration or modification to the duties and responsibilities of the
Employee after the Effective Date shall be by mutual agreement of the parties
hereto.
3.3 The Employee must discharge faithfully and to the best of his knowledge,
skill, and ability the duties and responsibilities referred to herein in the
best interests of the Employer, within normal and reasonable business hours.
3.4 The Employee may engage in other business or accept other employment or
directorships provided that:
(a) the Employee informs the Employer of the business or employment
immediately upon the engagement in the business, or commencement of
employment,
(b) the business or employment in the reasonable opinion of the Managing
Director is not related to the mandate of the Employer or any member of the
Employer unless the Managing Director has given his prior approval, and
(c) the business or employment in the reasonable opinion of the Managing
Director does not interfere with the discharge of the Employees duties and
responsibilities under this agreement.
3.5 The employee may hold shares in other public and private companies.
3.6 The parties agree that, in order to better represent the interests of the
Employer and its members, the Employee should be an active member of
selected service, commercial, governmental, and advocacy organisations
approved by the Managing Director, in which case(s) the Employer will
provide release time and will cover expenses for membership and other
participation fees and for costs associated with attendance, according to
such terms as it may decide.
4. Salary
4.1 The Employer must remunerate the Employee in accordance with SCHEDULE 1.
4.2 On each anniversary of the Effective Date, the Employee's Total
Remuneration will be reviewed and increased by a percentage amount not less
than the percentage increase in the All Groups Consumer Price Index for Sydney
('CPI') as published by the Australian Bureau of Statistics for the 12-month
period preceding the anniversary of the Effective Date.
2
<PAGE> 4
CONFIDENTIAL
4.3 In addition to the Employee's Total Remuneration, the Employer must grant
to the Employee Options in accordance with SCHEDULE 2 AND SCHEDULE 3.
4.4 An increase in salary, once confirmed by the Managing Director, may not be
rescinded or revoked in whole or in part.
4.5 The Employee's Total Remuneration includes contributions made by the
Employer for the Employee into a superannuation fund agreed between the parties
or, if there is no agreement, into a superannuation fund nominated by the
Employer, on account of the minimum level of superannuation contributions which
the Employer must make for the Employee for the purposes of the Superannuation
Guarantee (Administration) Act 1992 and the Superannuation Guarantee Charge Act
1992 (collectively 'SGC LEGISLATION') as amended from time to time
('CONTRIBUTIONS'). If there is any increase in the minimum level of
superannuation contributions which the Employer must make for the purposes of
the SGC Legislation, the Employee's Total Remuneration will be increased by the
amount of the additional superannuation levy payment. Upon the commencement of
this Contract, the Employee must do everything necessary for the Employer to
make the contributions.
4.6 Within the Employee's Total Remuneration, the Employee has the option to
contribute further amounts to superannuation and/or term life cover.
4.7 The parties agree that any further salary increases shall be on the basis
of merit as measured by the Managing Director's periodic performance appraisal
of the Employee, and shall be within the percentage range offered to other
employees of the company.
5. Benefits and Complementary Activities
5.1 The Employer must pay the Employee's membership and subscription fees in
professional and commercial organisations relevant to the Employers business
approved by the Managing Director.
5.2 The Employer, recognising the value to the Employer of the Employee's
participation in professional and commercial organisations, courses,
conferences and meetings, encourages his participation in the same, and will
pay fees, including membership and subscription fees, and other costs
associated with membership and attendance. The Employer expects the Employee to
attend national and/or international conferences and will provide funding in
its annual budget for this.
6. Leave
The Employer must grant the Employee an annual paid vacation of twenty
work days, with such leave to be taken at a time mutually agreed that does not
inconvenience the Employer or restrict the Employee in discharge of the
Employee's duties and responsibilities.
7. Expenses and Allowances
7.1 The Employer must reimburse the Employee for travel, entertainment and any
other necessarily incurred expenses, including the cost of transportation,
parking, tolls and taxes, food and lodging incurred in performing any of the
duties and responsibilities expected of the Employee.
3
<PAGE> 5
CONFIDENTIAL
7.2 Where the Employee uses his own car for company business, costs will be
reimbursed on a kilometre allowance basis in accordance with the recommended
scale published from time to time by the Australian Tax Office.
7.3 The Employer must provide parking and must pay for the costs of
telephone calls relevant to the Employers business or reimburse the Employee for
the amount expended on parking and telephones.
8. Illness Or Injury
8.1 Subject to clause 8.2:
(a) the Employer must grant the Employee up to 8 days paid sick leave each
year if the Employee is unable to perform the Employee's duties due to
illness or injury; and
(b) untaken sick leave will accumulate from year to year to a maximum of 32
days.
8.2 Before granting paid sick leave, where the leave exceeds three days, the
Employer may require the Employee to provide to the Employer a certificate
signed by a medical practitioner confirming the illness and injury.
9. Renewal
9.1 This Agreement expires on 30 June 1999 unless:
(a) the parties agree that it is to be renewed for a further two years, in
which case this Agreement shall be renewed for a further two years, on
terms to be agreed; or
(b) it is terminated sooner in accordance with the terms of this Agreement;
or
(c) the parties have failed to agree on the terms of renewal on or prior to
31 March 1999.
10. Assignment of Intellectual Property
10.1 The Employee:
(a) presently assigns to the Employer all existing and future Intellectual
Property Rights in all inventions, models, designs, drawings, plans,
software, reports, proposals and other materials created or generated by
the Employee (whether alone or with the Employer, its other employees or
contractors) for use by the Employer; and
(b) acknowledges that by virtue of this clause all such existing rights are
vested in the Employer and, on their creation, all such future rights
will vest in the Employer.
10.2 The Employee must do all things reasonably requested by the Employer to
enable the Employer to assure further the rights assigned under clause 10.1
11. Termination
4
<PAGE> 6
CONFIDENTIAL
11.1 The Employer may terminate this agreement at any time for just cause
without notice to the Employee, or upon thirty days written notice by the
Managing Director to the Employee, if the Employee:
(a) is charged with a criminal offence, excluding a traffic offence; or
(b) breaches the Confidentiality Agreement; or
(c) in the unanimous opinion of the Board, the Employee has committed an act
of serious misconduct of a dishonest or fraudulent nature; or
(d) breaches any material provision of this Agreement and fails to rectify
such breach within 30 days of being required to do so in writing; or
(e) becomes unable to pay the Employee's debts as they became due; or
(f) through illness is unable to return to duties within three months; or
(g) is an "injured employee" as defined in section 91(1) of the Industrial
Relations Act 1996 (NSW) and is not fit to perform the Employee's duties
for three months from the time the Employee first became unfit for
employment.
11.2 The Employer may terminate this agreement at any time without just cause
upon nine months written notice by the Managing Director to the Employee.
11.3 The Employee may terminate this agreement upon two months written notice
if the Employer breaches any of its material obligations under this contract,
and has not rectified the breach within 30 days of notice of such breach, and
shall be entitled to an amount equal to the balance of the salary and benefits
due under the full term of the contract or seven months salary and benefits
after the date of cessation of employment, whichever is the lesser.
11.4 The Employee may terminate this agreement for significant and serious
personal or family reasons by providing the Managing Director with a minimum of
four months' prior notice in writing.
11.5 The Employer agrees that the rules of natural justice shall apply in any
termination of the Employee's contract by the Employer.
11.6 This agreement may be terminated at any time by mutual agreement of the
parties.
11.7 The Employer may terminate this Agreement upon nine months written notice
by the Managing director to the Employee if the Forecast Net Profit for 1997 is
not met.
11.8 During any period of notice referred to in this clause 11, the Employee
must perform his duties and responsibilities under this Agreement unless the
Employer and Employee mutually agree on an alternative arrangement.
12. What Happens After Termination of Employment
12.1 The Employer may set off any amounts the Employee owes the Employer
against any amounts the Employer owes the Employee at the date of termination
except for amounts the Employer is not entitled by law to set off.
5
<PAGE> 7
12.2 The Employee must return all the Employer's property (including property
leased by the Employer) to the Employer on termination including all written or
machine readable material, software, computers, credit cards, keys and vehicles.
12.3 The Employee's obligations under the Confidentiality Agreement continue
after termination except in respect of information that is part of the
Employee's general skill and knowledge.
12.4 The Employee must not record any Confidential Information in any form
after termination.
13. Restraint on the Employee's Conduct
13.1 During the restraint period of 9 months after termination of the
Employee's employment, the Employee must not in Australia:
(a) solicit, canvass, approach or accept any approach from any person
who was at any time during the Employee's last 12 months with the
Employer a client of the Employer in that part or parts of the
business carried on by the Employer in which the Employee was
employed with a view to obtaining the custom of that person in a
business that is the same or similar to the business conducted by
the Employer; or
(b) interfere with the relationship between the Employer and its
customers, employees or suppliers; or
(c) induce or assist in the inducement of any employee, consultant,
customer, supplier or any other contractor of the Employer to leave
their employment or terminate any contract.
13.2 The Employee acknowledges that each restriction specified in CLAUSE 13.1
is in the circumstances reasonable and necessary to protect the Employer's
legitimate interests.
14. Indemnity and Insurance
14.1 The Employer agrees to defend, save harmless and indemnify the Employee
from any demands, claims, suits, actions or other proceedings which may be
brought against him arising from the performance of his duties and for any
cost, loss, damage or liability arising therefrom, including all legal fees and
disbursements incurred in connection therewith.
14.2 During the term of this Agreement, and any subsequent renewal of this
Agreement, the Employer will provide the Employee with cover under a Directors
and Officers Liability Insurance Policy.
Governing Law and Arbitration
This Agreement is governed by the law applicable in New South Wales. Any
dispute may be decided by the Australian Commercial Disputes Centre or
equivalent body.
16. Cancellation of Previous Agreements
This agreement supersedes and takes the place of all prior oral or written
agreements made between the parties, other than where relevant for the purposes
of accruing long service leave and
6
<PAGE> 8
CONFIDENTIAL
other employee benefits, and any prior condition, warranty, indemnity or
representation imposed, given or made by a party.
Waiver
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later time to
insist on performance of that or any other provision of this Agreement,
provided that the lack of notice does not prejudice the other party's ability
to rectify its or his performance.
Notices
Any notice which may be or is required to be given pursuant to this Agreement
shall be sufficiently given if served personally upon the party for whom it is
intended or if mailed by Certified Mail, in the case of the Employer, to it at
its head office for the time being and in the case of the Employee, to him at
his address as last shown on the books of the Employer. The date of receipt of
such notice shall be deemed to be the date of delivery, if such notice is
served personally, and five (5) days after the date of posting if sent by
prepaid Certified Mail, except in the event of an actual or threatened postal
disruption in which case all notices shall be delivered.
Alteration
This Agreement (including its schedule) may only be altered by agreement in
writing signed by each party.
This Agreement is Confidential
The terms of this Agreement and any subsequent amendments are confidential and
may not be disclosed by the Employee or the Employer other than in a
non-personalised form to any other person or company, other than for the
purpose of obtaining professional legal or accounting advice, or as may be
required by law or Australian Stock Exchange listing or reporting requirements,
without the written approval of both parties.
General
21.1 Headings are for ease of reference only and do not affect the meaning of
this Agreement.
21.2 In the event that any term of this agreement is inconsistent with or in
violation of any provision of any law of NSW or Australia, it is hereby deemed
to be amended to the extent required to avoid such inconsistency or illegality
and, if any term of this agreement is thereby annulled, the remainder of this
agreement shall remain in full force and effect.
21.3 Time shall be the essence of this Agreement.
21.4 This agreement shall endure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns of the Employer.
21.5 Schedules 1, 2 and 3 annexed to this Agreement are for all purposes an
integral part of this Agreement.
7
<PAGE> 9
SCHEDULE 1 - TOTAL REMUNERATION
A remuneration package (inclusive of fringe benefits tax) to the value of
$200,000 gross per annum.
Base salary:
Superannuation:
Car parking:
Home telephone rent:
The Employee's salary will be paid by equal fortnightly instalments each
fortnight by electronic funds transfer or cheque commencing on the Effective
Date or the execution date whichever is the later. Any amounts not paid from
the Effective Date will be paid on execution of the contract.
The Employee's first and last instalments will be proportionate if necessary.
NON-RENEWAL OF AGREEMENT
The Employee will be entitled to six months compensation in the event the
Company does not extend the Agreement on the renewal dates and clause 9.1(c)
applies.
8
<PAGE> 10
SCHEDULE 2 -- BASIS FOR GRANT OF OPTIONS
Options to be granted by the Employer to the Employee on 150,000
Effective Date or execution of this contract, whichever is the later:
- --------------------------------------------------------------------------------
Options to be granted by the Employer to the Employee on 31 50,000
March 1998 if the Actual Net Profit for the year ended 31
December 1997 is equal to or exceeds the Forecast Net Profit for
that period
- --------------------------------------------------------------------------------
Options to be granted by the Employer to the Employee on 31 50,000
March 1999 if the Actual Net Profit for the year ended 31
December 1998 is equal to or exceeds the Forecast Net Profit for
that period
- --------------------------------------------------------------------------------
In this Schedule 2 references to the Actual Net Profit for a period are
references to the operating profit before abnormal items and tax as set out in
the Preliminary Final Report for that period lodged with the Australian Stock
Exchange Limited.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GRANT OF OPTIONS IF EMPLOYMENT IS TERMINATED
- --------------------------------------------------------------------------------
1.1 The Employee will be entitled to the Options if the profit for the
period is achieved if the Employee is employed at the date for achievement of
the profit.
- --------------------------------------------------------------------------------
1.2 If the Employee's employment is terminated by the Employer before the
Employee is entitled to be granted any Options, then the Employer must consider
a request made by the Employee within 14 days of the date the Employee is
informed of the termination of the Employee's employment, to be granted Options
early.
- --------------------------------------------------------------------------------
1.3 When considering a request, the Employer must not act unfairly, harshly
or unconscionably and take into account:
(a) the circumstances of the Employee's termination;
(b) the length of time between the date of termination and the date the
Employee would have otherwise been entitled to be granted Options had the
Employee remained in the employment;
(c) the interests of the shareholders of the Employer;
(d) the interests of other employees of the Employer who may become entitled
to be granted Options;
(e) written submissions by the Employee provided within 14 days of the date
the Employee is informed of the termination of the Employee's employment; and
(f) any other matter which the Employer considers to be relevant.
- --------------------------------------------------------------------------------
1.4 The Employee must answer the Employee's request for the early grant of
Options within 30 days of receiving the request. The Employer is not required to
give reasons for its answer.
- --------------------------------------------------------------------------------
1.5 If the Employer approves the Employee's request then the Employee may be
granted the Options upon termination.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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<PAGE> 11
SCHEDULE 3 - TERMS AND CONDITIONS OF OPTIONS
The terms and conditions of the options are as follows:
Entitlement
The Optionholder is entitled to subscribe for one fully paid ordinary share of
$0.30 par value each in the capital of the Company for each Option held.
Issue Price
No amount is payable on issue of the Options.
Exercise Price
The exercise price of each Option is 30 cents.
Option Period
Each Option may be exercised in whole or in part at any time prior to the
Option Expiry Date set out below. Any Option that is not exercised will
automatically expire on the Option Expiry Date.
Transferability
The Options may not be transferred without the prior consent of the Company
(which consent will not be unreasonably withheld) and only in accordance with
the Articles of Association of the Company.
6. Participation in Bonus Issues and Cash Issues
6.1 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares (other
than an issue in lieu of dividends or by way of dividend reinvestment pursuant
to any shareholder election), the Optionholder will be entitled to participate
in such issue, upon exercise of all or part of the Options on or before the
books closing date for that issue, on the same basis as the holders of ordinary
shares in the capital of the Company.
6.2 If the Company makes an offer to subscribe for cash of ordinary shares pro
rata to the holders of ordinary shares the Optionholder will be entitled to
participate in such offer, upon exercise of all or part of the Options on or
before the books closing date for that offer, on the same basis as the holders
of ordinary shares in the capital of the Company.
6.3 The Company must notify the Optionholder at least 12 business days before
the books closing date for determining entitlements to an offer referred to in
clauses 6.1 or 6.2 of:
(a) the proposed terms of the issue of the offer; and
(b) the right to exercise his Options under clause 6.1 or 6.2 (as the case
may be).
Adjustments for bonus issues and cash issues
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<PAGE> 12
CONFIDENTIAL
7.1 If the Company is listed on the Australian Stock Exchange and makes an
offer for cash of ordinary shares pro rata to the holders of ordinary shares,
the exercise price of each Option shall be reduced by the value of the
theoretical rights entitlement per cum rights share ('E') provided that the
exercise price of each Option shall not be reduced to less than the nominal
value of the Company's ordinary shares, where E is calculated in accordance with
the following formula:
E = P - (S + D)
-----------
N + 1
Where:
E = theoretical value of the rights entitlement attached to each share
(quoted cum rights).
P = the weighted average market price of fully paid ordinary shares of
the Company sold in the ordinary course of trading on the Australian
Stock Exchange Limited during the five trading days after the
announcement of the rights issue.
S = subscription price (application money plus calls) for new shares
D = any dividends due but not yet paid on existing shares which will not
be payable in respect of new shares issued under the rights issue.
N = number of cum rights shares required to be held to receive a right
to one new share.
No change will be made to the number of shares to which the Optionholder
is entitled.
7.2 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares (other
than an issue in lieu of dividends or by way of dividend reinvestment pursuant
to any shareholder election), the number of shares issued on exercise of each
Option will include the number of bonus shares that would have been issued if
the Option had been exercised prior to the books closing date for bonus shares.
No change will be made to the exercise price.
Reconstruction
In the event of a reconstruction (including consolidation, sub-division,
reduction or return) of the issued capital of the Company, the number of
Options or the exercise price of Options or both shall be reconstructed (as
appropriate) in a manner which would not result in any benefits being conferred
on the Optionholders which are not conferred on shareholders (subject to the
provisions with respect to rounding of entitlements as sanctioned by the
meeting of shareholders approving the reconstruction of capital) but in all
respects the terms for the exercise of Options shall remain unchanged.
Ranking of shares allotted on exercise of Options
All shares allotted pursuant to the exercise of Options will, subject to the
Memorandum and Articles of Association of the Company, rank in all respects
(including rights relating to dividends) pari passu with the existing ordinary
shares of the Company on issue at date of allotment.
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CONFIDENTIAL
Method of Exercise of Options
10.1 Options may be exercised by written notice to the Secretary of the Company.
The exercise notice must specify the number of shares required to be allotted,
which number must be a multiple of 1,000 if only part of the Options are
exercised, or if the total number of Options held is less than 1,000, then the
total of all Options held must be exercised. Options will be deemed to have been
exercised on the date that the application lodged with the Secretary of the
Company.
10.2 The Optionholder must pay the exercise price in full to the Company on the
date of the exercise of the Options.
10.3 The exercise of less than all of the Optionholder's Options will not
prevent the Optionholder from exercising an Option in respect of the whole or
any part of the balance of the entitlement under his remaining Options.
10.4 On exercise of the Options the Optionholder must surrender his Option
certificate to the Company in respect of those Options being exercised.
10.5 If the Optionholder exercises less than the total number of Options then
registered in his name:
(a) the Optionholder must surrender his Option certificate to the Company; and
(b) the Company must cancel that Option certificate and issue to the holder a
new Option certificate in respect of the Optionholder's unexercised Options.
10.6 Within 10 days of receipt of the application for the exercise of Options
and payment by the Optionholder of the exercise price of such Options, the
Company must issue and allot to the Optionholder the number of fully paid
ordinary shares in the capital of the Company specified in the application.
10.7 If the Company is listed on the Australian Stock Exchange then it will as
soon as practicable after issue make application for the shares issued upon
exercise of Options by the Optionholder to be granted official quotation on the
Australian Stock Exchange. The Options are not to be listed on the ASX.
Option Expiry Date
The Option Expiry Date is the earlier of the day 90 days after the termination
of the Optionholder's employment with the Company or 31 March 2001 whichever is
the earlier.
<PAGE> 14
CONFIDENTIAL
IN WITNESS WHEREOF the party of the first part has affixed its corporate seal,
duly attested to by the signatures of its proper signing officers in that
behalf and the party of the second part has affixed his signature the day and
year first above written.
Signed for and on behalf of CiT CARDS )
(AUSTRALIA) LIMITED BY )
in the presence of )
/s/ [Signature Illegible]
-------------------------
Signature of Witness /s/ A.S. DAWSON
---------------------
A.S. DAWSON.
----------------------------
Name of Witness (print)
------------------
- -------------------------------------------------------------------------------
SIGNED SEALED and DELIVERED by )
JOHN WEIHEN in the presence of ) /s/ M. A. WHITE
) -------------------------
- -------------------------------------------------------------------------------
Signature of witness M. A. White
Name of witness (print) MARINA ANN WHITE
- --------------------------------------------------------------------------------
13
<PAGE> 1
EXHIBIT 10.8
Confidential
SERVICES CONTRACT
BETWEEN Chip Application Technologies Limited, ACN 057 883 333 of 152-162
Riley Street, East Sydney, New South Wales (COMPANY)
AND JONATHAN ADAMS of 10 Willow Lane, Wallingford, Pennsylvania, USA
19806 (THE SERVICE PROVIDER).
RECITALS
A. The Company and Service Provider wish to record the terms on which the
Service Provider will provide services to the Company in the capacity
set out in Schedule A of this Deed ("Future Capacity"), from the
Effective Date
B. It is the intention of the parties that when the Company has completed
its US restructuring, the arrangements between the parties will be
varied to comply with normal US practices,
AGREEMENT
1. DEFINITIONS
Effective Date means the date referred to in Schedule A as the
effective date.
Intellectual Property Rights means all intellectual property rights
including without limitation:
A) patents, copyright, rights in circuit layouts, registered
designs, trademarks and the right to have confidential
information kept confidential, and
b) any application or right to apply for registration of any of
those rights.
Options means options over unissued shares in the capital of the
Company to be granted on the terms set out in Schedule 2 and Schedule
3.
Total Remuneration means the salary and benefits due under Clause 4.1
from time to time.
2. APPOINTMENT
Page 1 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 2
Confidential
2.1 This Services Contract will commence on the Effective Date and, unless
terminated sooner under clause 11, or extended under Clause 9, will
conclude on the Expiry Date referred to in Schedule A.
3. DUTIES AND RESPONSIBILITIES
3.1 The Service Provider shall have the Duties and Responsibilities
specified in Schedule A
3.2 Any alteration or modification to the Duties and Responsibilities of
the Service Provider specified in Schedule A after the Effective Date
shall be by mutual written agreement of the parties hereto.
3.3 The Service Provider must discharge faithfully and to the best of his
knowledge, skill and ability the Duties and Responsibilities referred
to herein in the best interests of the Company.
3.4 The Service Provider may engage in other business or accept other
employment or directorships provided that:
a) the Service Provider informs the Company of the business or
employment immediately upon the engagement in the business, or
commencement of employment.
b) the business or employment in the reasonable opinion of the
Managing Director is not related to the mandate of the Company
or any member of the Company unless the Managing Director has
given his prior approval, and
C) the business or employment in the reasonable opinion of the
Managing Director does not interfere with the discharge of the
Service Providers Duties and Responsibilities under this
agreement
3.5 The Service Provider may hold shares in other public and private
companies.
3.6 The Service Provider agrees that it may be necessary for the Service
Provider to travel overseas for the purpose of the Company's business
and the Service Provider agrees to such travel.
4. SALARY
4.1 The Company must remunerate the Service Provider in accordance with the
annual fee specified in Schedule A.
4.2 On each anniversary of the Effective Date, the Service Provider's Total
Remuneration will be reviewed
Page 2 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 3
Confidential
4.3 In addition to the Service Provider's annual fee and as part of the
Total Remuneration, the Company will grant to the Service Provider
options in accordance with and subject to the conditions in Schedule 2
and 3.
4.4 An increase in the annual fee or any aspect of the Total Remuneration
package, once confirmed in writing by the Managing Director, may not be
rescinded or revoked in whole or in part.
5. BENEFITS AND COMPLEMENTARY ACTIVITIES
5.1 The Company will pay the Service Provider's membership and subscription
fees in professional and commercial organizations relevant to the
Company's business approved by the Managing Director.
6. LEAVE
The Company must grant the Service Provider an annual paid vacation of
20 work days, with such leave to be taken at a time mutually agreed
that does not inconvenience the Company or restrict the Service
Provider in discharge of the Service Provider's duties and
responsibilities.
7. EXPENSES AND ALLOWANCES
7.1 The Company must reimburse the Service Provider for travel,
entertainment and any other necessarily incurred and reasonable
expenses, including the cost of transportation, parking, tolls and
taxes, food and lodging incurred in performing any of the duties and
responsibilities expected of the Service Provider.
7.2 Where the Service Provider uses his own car for company business, costs
will be reimbursed on a kilometer allowance basis in accordance with
the recommended scale published from time to time by the appropriate
taxation authorities.
7.3 The Company must pay for the costs of telephone calls relevant to the
Company's business or reimburse the Service Provider for the amount
expended on telephones.
7.4 Any reimbursement under this Part 7 shall be made by electronic
transfer to a bank account nominated by the Service Provider or by
cheque delivered to the Service Provider within 10 business days (or
20 business days for reimbursements of less then $100) of receipt (on
paper or via e-mail or other electronic form) of completed expense
forms approved by the Company for use by the Service Provider for this
purpose. If any part of the reimbursement is disputed, the undisputed
amount shall be paid.
Page 3 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 4
Confidential
7.5 The completed expense forms referred to in Clause 7.4 will be
accompanied by such invoices or receipts as may reasonably evidence the
expense and payment thereof by the Service Provider. Expense invoices
or receipts will be delivered to the Company as soon a practically
possible following submission of the completed expense form.
8. ILLNESS OR INJURY
8.1 Subject to Clause 8.2: the Company must grant the Service Provider up
to 6 days paid sick leave each year if the Service Provider is unable
to perform the Service Provider's duties due to illness or injury.
8.2 Before granting paid sick leave, where the leave exceeds three days,
the Company may require the Service Provider to provide the Company
with a certificate signed by a medical practitioner confirming the
illness or injury.
9. RENEWAL
9.1 This Agreement terminates on the Expiry Date specified in Schedule A,
unless: it is terminated sooner in accordance with the terms of this
Agreement.
10. ASSIGNMENT OF INTELLECTUAL PROPERTY
10.1 The Service Provider:
a) presently assigns to the Company all future Intellectual
Property Rights in all inventions, models, designs, drawings,
plans, software, reports, proposals and other materials
created or generated by the Service Provider (whether alone or
with the Company, its other Service Providers or contractors)
for use by the Company, and
b) acknowledges that by virtue of this clause all such rights are
vested in the Company and, on their creation, all such future
rights will vest in the Company
10.2 The Service Provider must do all things reasonably requested by the
Company to enable the Company to assure further the rights assigned
under Clause 10.1.
11. TERMINATION
11.1 The Company may terminate this agreement at any time for just cause
without notice to the Service Provider, or upon thirty days written
notice by the Managing Director to the Service Provider, if the Service
Provider:
a) is charged with a criminal offence, excluding a traffic
offence, or
Page 4 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 5
Confidential
b) breaches the Confidentiality Agreement, or
c) the Service Provider has committed an act of serious
misconduct of a dishonest or fraudulent nature, or
d) breaches any material provision of this Agreement and fails to
rectify such breach within 30 days of being required to do so
in writing, or
e) becomes unable to pay his debts as they became due, or
f) through illness is unable to return to duties within three (3)
months, or
g) is, an "injured Service Provider" as defined in appropriate
legislation and is not fit to perform the Service Provider's
duties for three months from the time the Service Provider
first became unfit for employment
11.2 During the first 3 months of this agreement, the Company may terminate
this agreement at any time without just cause upon expiry of the
Company Notice Period (specified in Schedule A) by providing written
notice from the Managing Director to the Service Provider
11.3 The Service Provider may terminate this agreement with 30 days notice
if the Company breaches any of its material obligations under this
contract, and has not rectified the breach within 30 days of notice of
such breach.
11.4 The Service Provider may terminate this agreement for significant and
serious personal or family reasons by providing the Managing Director
with prior notice in writing of a minimum period specified in Schedule
A as the Service Provider Notice Period.
11.5 The Company agrees that the rules of natural justice shall apply in any
termination of the Service Providers contract by the Company.
11.6 This agreement may be terminated at any time by mutual agreement of the
parties.
11.7 During any period of notice referred to in this Clause 11, the Service
Provider must perform his duties and responsibilities under this
Agreement unless the Company and Service Provider mutually agree to an
alternative arrangement.
12. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT
Page 5 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 6
Confidential
12.1 The Company may set off any amounts the Service Provider owes the
Company against any amounts the Company owes the Service Provider at
the date of termination except for amounts the Company is not entitled
by law to set off.
12.2 The Service Provider must return all the Company's property (including
property leased by the Company) to the Company on termination including
all written or machine readable material, software, computers, credit
cards, keys and vehicles.
12.3 The Service Provider's obligations under the Confidentiality Agreement
continue after termination except in respect of information that is
part of the Service Provider's general skill and knowledge.
12.4 The Service Provider must not record any Confidential Information in
any form after termination.
13. RESTRAINT ON THE SERVICE PROVIDER'S CONDUCT
13.1 During the restraint period of 9 months after termination of the
Service Provider's employment, the Service Provider must not
a) solicit, canvass, approach or accept any approach from any
person who was at any time during the term of this contract,
a client of the Company in that part or parts of the business
carried on by the Company in which the Service Provider was
employed with a view to obtaining the custom of that person in
a business that is the same or similar to the business
conducted by the Company, or
b) interfere with the relationship between the Company and its
customers, contractors or suppliers, or
C) induce or assist in the inducement of any employee,
consultant, customer, supplier or any other contractor of the
Employer to leave their employment or terminate any contract.
13.2 The Service Provider acknowledges that each restriction specified in
clause 13.1 is in the circumstances reasonable and necessary to protect
the Company's legitimate interests.
13.3 For the purpose of this Clause 13, the Service Provider acknowledges
that the definition of Company will include any parent or subsidiary of
Chip Application Technologies Limited.
14. INDEMNITY AND INSURANCE
Page 6 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 7
Confidential
14.1 The Company agrees to defend, save harmless and indemnify the Service
Provider from any demands, claims, suits, actions or other proceedings
which may be brought against him arising from the performance of his
duties and for any cost, loss, damage or liability arising therefrom,
including all legal fees and disbursements incurred in connection
therewith, other than grossly negligent or fraudulent conduct.
14.2 During the term of this Agreement, and any subsequent renewal of this
Agreement, the Company will provide the Service Provider appropriate
insurance cover including where applicable cover under a Directors and
Officers Liability Insurance Policy, medical, and similar protection.
15. GOVERNING LAW AND ARBITRATION
This Agreement is governed by the law applicable in New South Wales.
Any dispute may be decided by the Australian Commercial Disputes Centre
or equivalent body.
16. CANCELLATION OF PREVIOUS AGREEMENTS
From the Effective Date, this Agreement supersedes and takes the place
of all prior oral or written agreements made between the parties,
other than where relevant for the purposes of confidentiality, and any
prior condition, warranty, indemnity or representation imposed, given
or made by a party.
17. WAIVER
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later
time to insist on performance of that or any other provision of this
Agreement, provided that the lack of notice does not prejudice the
other party's ability to rectify its or his performance.
18. NOTICES
Any notice which may be or is required to be given pursuant to this
Agreement shall be sufficiently given if served personally upon the
party for whom it is intended or if mailed by Certified Mail, in the
case of the Company, to it at its head office for the time being and in
the case of the Service Provider, to him at his address as last shown
on the books of the Company. The date of receipt of such notice shall
be deemed to be the date of delivery, if such notice is served
personally, and five (5) days after the date of posting if sent by
prepaid Certified Mail, except in the event of an actual or threatened
postal disruption in which case all notices shall be delivered.
19. ALTERATION
Page 7 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 8
Confidential
This Agreement (including its schedules) may only be altered by
agreement in writing signed by each party.
20. THIS AGREEMENT IS CONFIDENTIAL
The terms of this Agreement and any subsequent amendments are
confidential and may not be disclosed by the Service Provider or the
Company other than in a non-personalised form to any other person or
company, other than for the purpose of obtaining professional legal or
accounting advice, or as may be required by law or any Stock Exchange
listing or reporting requirements, without the written approval of both
parties.
21. GENERAL
21.1 Headings are for reference only and do not affect the meaning of this
Agreement.
21.2 In the event that any term of this agreement is inconsistent with or in
violation of any provision of any law of NSW or Australia, it is hereby
deemed to be amended to the extent required to avoid such inconsistency
or illegality and, if any term of this agreement is thereby annulled,
the remainder of this agreement shall remain in full force and effect.
21.3 Time shall be the essence of this Agreement.
21.4 Schedules A, 1, 2 and 3 annexed to this Agreement are for all purposes
an integral part of this Agreement.
Page 8 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 9
Confidential
IN WITNESS WHEREOF the party of the first part has affixed its corporate seal,
duly attested to by the signature of its proper signing officers in that behalf
and the party of the second part has affixed his signature the day and year
first above written.
Signed for and on behalf of CHIP APPLICATION
TECHNOLOGIES LIMITED in the presence of
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
- ----------------------------------- -----------------------------------
Company Secretary Director
SIGNED SEALED AND DELIVERED by
THE SERVICE PROVIDER in the presence of
/s/ LYNNE DALTON ADAMS /s/ JONATHAN ADAMS
- ----------------------------------- -----------------------------------
Signature of Witness
LYNNE DALTON ADAMS
- -----------------------------------
Name of Witness (print)
Page 9 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A, 1, 2 & 3
<PAGE> 10
Confidential
SERVICES CONTRACT SCHEDULE A
TO BE READ IN CONJUNCTION WITH AND PART OF
THE SERVICES CONTRACT
PREAMPLE
'FUTURE CAPACITY' means Vice President CAT System Operations or other
position of equal or like status as agreed from time to time
1. DEFINITIONS
'EFFECTIVE DATE' means 9th August, 1999
2.1 'EXPIRY DATE' means the 9th August 2000 unless prior to 30" April 2000,
the Service Provider and the Company mutually agree in writing an
extension on the same terms or other terms mutually agreed by the
parties.
2.3 'DUTIES AND RESPONSIBILITIES' include the active full time management
of the development of the Company's US based operations including
research and negotiation of operational arrangements for the CAT System,
development of administration and reporting systems for operations,
budgets and accounting reporting and administration of operations,
assistance in market development of the operational infrastructure for
CAT and assistance in the management of CAT relationships with card
organisations and operation partners and suppliers
4.1 A remuneration package to the value of US$125,000 gross per annum
Annual Service Fee US$125,000
The Employee is exclusively and solely responsible for all and any tax
that may be payable on the service fee. The Company makes no warranty or
representation in respect of any taxation that may be applicable to the
annual service fee. The Service Provider will be responsible for health
and medical insurance but will be reimbursed in full by the Company.
The Service Providers fee will be paid by equal fortnightly instalments
by electronic funds transfer commencing 16th August 1999. The Service
Providers first and last instalments will be paid proportionately if
necessary.
11.2 'COMPANY NOTICE PERIOD' means is 2 months.
11.4 'SERVICE PROVIDER NOTICE PERIOD' means is 2 months.
Page 10 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A,1,2 & 3
<PAGE> 11
OPTIONS TERMS AND CONDITIONS
SCHEDULE 1 - DETAILS OF OPTION HOLDER
Jonathan Adams
10 Willow Lane, Wallingford, Pennsylvania 19806 USA
SCHEDULE 2 - TERMS AND CONDITIONS OF THE OPTIONS
1. ISSUE DATE
The Issue Date is 9th August 1999
2. OPTION EXPIRY DATE AND CONDITIONS OF EXERCISE OF OPTION
In addition to the terms and conditions outlined in Schedule 3, all Options are
issued on the condition that the Option can only be exercised if the Option
holder is providing services to the Issuer, its parent or any subsidiary of the
issuer or the parent on the Services Option Exercise Entitlement Date referred
to below.
<TABLE>
<CAPTION>
OPTION
SERVICES OPTION EXPIRY DATE
No.OF EXERCISE ENTITLEMENT OPTION EXERCISE (SEE CLAUSE 11 & 12 OF
OPTIONS DATE PRICE SCHEDULE 3)
------- -------------------- --------------- ----------------------
<S> <C> <C> <C>
15000 31 December 1999 A$0.95 30 June 2001
25000 30 June 2000 A$0.95 30 June 2001
35000 31 December 2000 A$0.95 30 June 2002
35000 30 June 2001 A$0.95 30 June 2002
</TABLE>
Page 1 of 6
<PAGE> 12
SCHEDULE 3 - OTHER TERMS AND CONDITIONS OF THE OPTIONS
1. ENTITLEMENT
The Option holder is entitled to subscribe for one fully paid ordinary
share in the capital of the Company for each Option held.
2. ISSUE PRICE
No amount is payable on issue of the Options.
3. EXERCISE PRICE
The exercise price of each Option is the exercise price referred to in
Schedule 2.
4. OPTION PERIOD
Each Option may be exercised in whole or in part at any time prior to
the Option Expiry Date set out below. Any Option that is not exercised
will automatically expire on the Option Expiry Date.
S. TRANSFERABILITY
The Options may not be transferred without the prior consent of the
Company (which consent will not be unreasonably withheld) and only in
accordance with the Articles of Association of the Company.
6. PARTICIPATION IN BONUS ISSUES AND CASH ISSUES
6.1 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the Option holder
will be entitled to participate in such issue, upon exercise of all or
part of the Options on or before the books closing date for that issue,
on the same basis as the holders of ordinary shares in the capital of
the Company.
6.2 If the Company makes an offer to subscribe for cash of ordinary shares
pro rata to the holders of ordinary shares the Option holder will be
entitled to participate in such offer, upon exercise of all or part of
the Options on or before the books closing date for that offer, on the
same basis as the holders of ordinary shares in the capital of the
Company.
6.3 The Company must notify the Option holder at least 12 business days
before the books closing date for determining entitlements to an offer
referred to in Clauses 6.1 or 6.2 of:
a) the proposed terms of the issue of the offer, and
b) the right to exercise his Options under Clause 6.1 or 6.2 (as
the case may be).
Page 2 of 6
<PAGE> 13
7. ADJUSTMENTS FOR BONUS ISSUES AND CASH ISSUES
7.1 If the Company is listed on the Australian Stock Exchange and makes an
offer for cash of ordinary shares pro rata to the holders of ordinary
shares, the exercise price of each Option shall be reduced by the value
of the theoretical rights entitlement per cum rights share (E) provided
that the exercise price of each Option shall not be reduced to less than
the nominal value of the Company's ordinary shares, where E is
calculated in accordance with the following formula:
E = P - (S + D)
-----------
N + 1
Where:
E = theoretical value of the rights entitlement attached to each share
(quoted cum rights).
P = the weighted average market price of fully paid ordinary shares of
the Company sold in the ordinary course of trading on the Australian
Stock Exchange Limited during the five trading days after the
announcement of the rights issue
S = subscription price (application money plus calls) for new shares
D = any dividends due but not yet paid on existing shares which will not
be payable in respect of new shares issued under the rights issue
N = number of cum rights shares required to be held to receive a right
to one new share
No change will be made to the number of shares to which the Option
holder is entitled.
7.2 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the number of shares
issued on exercise of each Option will include the number of bonus
shares that would have been issued if the Option had been exercised
prior to the books closing date for bonus shares. No change will be made
to the exercise price.
8. RECONSTRUCTION
In the event of a reconstruction (including consolidation, sub-division,
reduction or return) of the issued capital of the Company, the number of
Options or the exercise price of Options or both shall be reconstructed
(as appropriate) in a manner which would not result in any benefits
being conferred on the Option holders which are not conferred on
shareholders (subject to the provisions with respect to rounding of
entitlements as sanctioned by the meeting of shareholders approving the
reconstruction of capital) but in all respects the terms for the
exercise of Options shall remain unchanged.
9. RANKING OF SHARES ALLOTTED ON EXERCISE OF OPTIONS
All share allotted pursuant to the exercise of Options will, subject to
the Memorandum and Articles of Association of the Company, rank in all
respects (including rights relating to dividends) pari passu with the
existing ordinary shares of the Company on issue at date of allotment.
Page 3 of 6
<PAGE> 14
10. METHOD OF EXERCISE OF OPTIONS
10.1 Options may be exercised by written notice to the Secretary of the
Company. The exercise notice must specify the number of shares required
to be allotted, which number must be a multiple of 1,000 if only part of
the Options are exercised, or if the total number of Options held is
less than 1,000, then the total of all Options held must be exercised.
Options will be deemed to have been exercised on the date that the
application is lodged with the Secretary of the Company.
10.2 The Option holder must pay the exercise price in full to the Company on
the date of the exercise of the Options.
10.3 The exercise of less than all of the Option holder's Options will not
prevent the Option holder from exercising an Option in respect of the
whole or any part of the balance of the entitlement under his remaining
Options.
10.4 On exercise of the Options the Option holder must surrender his Option
certificate to the Company in respect of those Options being exercised.
10.5 If the Option holder exercises less than the total number of Options
then registered in his name:
a) The Option holder must surrender his Option certificate to the
Company, and
b) the Company must cancel that Option certificate and issue to the
holder a new Option certificate in respect of the Option
holder's unexercised Options.
10.6 Within 10 days of receipt of the application for the exercise of
Options and payment by the Option holder of the exercise price of such
Options, the Company must issue and allot to the Option holder the
number of fully paid ordinary shares in the capital of the Company
specified in the application.
10.7 If the Company is listed on the Australian Stock Exchange then it will
as soon as practicable after issue make application for the shares
issued upon exercise of Options by the Option holder to be granted
official quotation on the Australian Stock Exchange. The Options are not
to be listed on the ASX.
11. COMPULSORY ACQUISITION
If an entity ("Offeror") serves a notice on the option holder in
accordance with section 703(4) of the Corporations Law, all options,
which have not yet vested, become bested on the date that notice is
served on the option holder.
All options (including all existing options and all options that have
been vested by virtue of the preceding paragraph) will lapse on the date
3 months after delivery of that notice.
Unless waived by written notice from the Company, the option holder must
accept an offer to acquire all options which remain unexercised which is
delivered in accordance with section 703(4) of the Corporations Law.
This obligation is conditional on the terms offered by the Offeror being
no less favourable than the offer price paid or payable by the Offeror
in
Page 4 of 6
<PAGE> 15
connection with the acquisition of ordinary shares in the Company under
the Offeror's take-over scheme or take-over announcement, adjusted to
reflect the offer for options rather than ordinary shares or on terms
determined by a Court as contemplated by section 703(8) of the
Corporations Law".
12. OPTION EXPIRY DATE
Subject to clause 11, the Option Expiry Date is the earlier of
A) 5.00 PM Eastern Australian Standard Time on the day 90 days
after the Option holder ceases to provide services to the
Company, its parent or a subsidiary or
b) 5.00 PM Eastern Australian Standard Time on the option expiry
date referred to in Schedule 2.
13. TAXATION
The Option Holder is exclusively and solely responsible for all and any
tax that may be payable as a result of the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options. The Issuer makes no warranty or representation in respect of
any taxation that may be applicable to the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options.
14. UNEXERCISED OPTIONS
(a) This clause 14 applies to all Unexercised Options. If there is any
inconsistency between this clause and the other provisions of these
Terms and Conditions in respect of the exercise of Unexercised Options,
this clause prevails to the extent of this inconsistency.
(b) If, at the time an Unexercised Option is exercised:
i) the Company is not listed on ASX; and
ii) the Company is a subsidiary of another company (the "Parent
Company") and
iii) the Parent Company is listed on ASX or any Approved Exchange
the Company may, instead of issuing shares in the capital of the
Company, elect to have the Parent Company issue one fully paid share of
common stock in the Parent Company for each Unexercised Option held.
(c) If the Company makes the election referred to in paragraph (b):
i) in lieu of the Option holder's entitlement under clause 1 to
subscribe for one fully paid ordinary share in the capital of
the Company for each Option held, the Option holder will be
issued one fully paid share of common stock of the Parent
Company for each Unexercised Option held;
ii) in lieu of paying the exercise price to the Company in
accordance with Clause 10.2, the Option holder must pay the full
exercise price (which would have otherwise been payable to the
Company) to the Parent Company on the date of exercise of the
Unexercised Options and the Company is authorised to pay over
any such moneys received by it to the Parent Company without
further act or authority of the Option holder; and
Page 5 of 6
<PAGE> 16
iii) within 10 days of receipt of the application for the exercise of
the Unexercised Options and payment by the Option holder of the
exercise price of such Options, the Parent Company must issue to
the Option holder the number of fully paid shares of common
stock of the Parent Company specified in the application; and
iv) to avoid doubt, the Option holder has no entitlement to be
issued or allotted any shares in the capital of the Company upon
exercise of the Unexercised Options.
(D) In this Clause 14:
"Unexercised Options" means all Options that have been granted but are
unexercised
Page 6 of 6
<PAGE> 1
EXHIBIT 10.9
Confidential
SERVICES CONTRACT
BETWEEN Chip Application Technologies Limited, ACN 057 883 333 of 152-162 Riley
Street, East Sydney, New South Wales (COMPANY)
AND Carl H. Fisher of 1607 Damon Way, Salt Lake City, Utah, 84117, USA (THE
SERVICE PROVIDER).
RECITALS
A. The Company and Service Provider wish to record the terms on which the
Service Provider will provide services to the Company in the capacity
set out in Schedule A of this Deed ("Future Capacity"), from the
Effective Date
AGREEMENT
1. DEFINITIONS
Effective Date means the date referred to in Schedule A as the
effective date.
Intellectual Property Rights means all intellectual property rights
including without limitation:
a) patents, copyright, rights in circuit layouts, registered
designs, trademarks and the right to have confidential
information kept confidential, and
b) any application or right to apply for registration of any of
those rights.
Options means options over unissued shares in the capital of the Company
to be granted on the terms set out in Schedule 2 and Schedule 3.
Total Remuneration means the salary and benefits due under Clause 4.1
from time to time.
2. APPOINTMENT
2.1 The Service Provider has been employed by the Company since the Initial
Employment Date referred to in Schedule A and Service Provider benefits
have accrued since that date.
2.2 This Services Contract will commence on the Effective Date and, unless
terminated sooner under clause 11, or extended under Clause 9, will
conclude on the Expiry Date referred to in Schedule A.
Page 1 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A,1,2 & 3
<PAGE> 2
Confidential
3. DUTIES AND RESPONSIBILITIES
3.1 The Service Provider shall have the Duties and Responsibilities
specified in Schedule A
3.2 Any alteration or modification to the Duties and Responsibilities of the
Service Provider specified in Schedule A after the Effective Date shall
be by mutual written agreement of the parties hereto.
3.3 The Service Provider must discharge faithfully and to the best of his
knowledge, skill and ability the Duties and Responsibilities referred to
herein in the best interests of the Company,.
3.4 The Service Provider may engage in other business or accept other
employment or directorships provided that:
a) the Service Provider informs the Company of the business or
employment immediately upon the engagement in the business, or
commencement of employment.
b) the business or employment in the reasonable opinion of the
Managing Director is not related to the mandate of the Company
or any member of the Company unless the Managing Director has
given his prior approval, and
C) the business or employment in the reasonable opinion of the
Managing Director does not interfere with the discharge of the
Service Providers Duties and Responsibilities under this
agreement
3.5 The Service Provider may hold shares in other public and private
companies.
3.6 The Service Provider agrees that it may be necessary for the Service
Provider to travel overseas for the purpose of the Company's business
and the Service Provider agrees to such travel.
4. SALARY
4.1 The Company must remunerate the Service Provider in accordance with the
annual fee specified in Schedule A.
4.2 On each anniversary of the Effective Date, the Service Provider's Total
Remuneration will be reviewed
4.3 In addition to the Service Provider's annual fee and as part of the
Total Remuneration, the Company will grant to the Service Provider
options in accordance with and subject to the conditions in Schedule 2
and 3.
Page 2 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 3
Confidential
4.4 An increase in the annual fee or any aspect of the Total Remuneration
package, once confirmed in writing by the Managing Director, may not be
rescinded or revoked in whole or in part.
5. BENEFITS AND COMPLEMENTARY Activities
5.1 The Company will pay the Service Provider's membership and subscription
fees in professional and commercial organisations relevant to the
Company's business approved by the Managing Director.
6. LEAVE
The Company must grant the Service Provider an annual paid vacation of
20 work days, with such leave to be taken at a time mutually agreed that
does not inconvenience the Company or restrict the Service Provider in
discharge of the Service Provider's duties and responsibilities. The
Service Provider will also be entitled to take normal federal holidays
in the United States.
7. EXPENSES AND ALLOWANCES
7.1 The Company must reimburse the Service Provider for travel,
entertainment and any other necessarily incurred and reasonable
expenses, including the cost of transportation, parking, tolls and
taxes, food and lodging incurred in performing any of the duties and
responsibilities expected of the Service Provider.
7.2 Where the Service Provider uses his own car for company business, costs
will be reimbursed on a kilometre allowance basis in accordance with the
recommended scale published from time to time by the appropriate
taxation authorities.
7.3 The Company must pay for the costs of telephone calls relevant to the
Company's business or reimburse the Service Provider for the amount
expended on telephones.
7.4 Any reimbursement under this Part 7 shall be made by electronic transfer
to a bank account nominated by the Service Provider or by cheque
delivered to the Service Provider within 10 business days (or 20
business days for reimbursements of less then $100) of receipt (on
paper or via e-mail or other electronic form) of completed expense forms
approved by the Company for use by the Service Provider for this
purpose. If any part of the reimbursement is disputed, the undisputed
amount shall be paid.
7.5 The completed expense forms referred to in Clause 7.4 will be
accompanied by such invoices or receipts as may reasonably evidence the
expense and payment thereof by the Service Provider. Expense invoices or
receipts will be delivered to the Company as soon a practically possible
following submission of the completed expense form (presumed on a
monthly basis).
8. ILLNESS OR INJURY
Page 3 of 10
TO BE READ In CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 4
Confidential
8.1 Subject to Clause 8.2: the Company must grant the Service Provider up to
6 days paid sick leave each year if the Service Provider is unable to
perform the Service Provider's duties due to illness or injury.
8.2 Before granting paid sick leave, where the leave exceeds three days,
the Company may require the Service Provider to provide the Company with
a certificate signed by a medical practitioner confirming the illness or
injury.
9. RENEWAL
9.1 This Agreement terminates on the Expiry Date specified in Schedule A,
unless it is terminated or renewed sooner in accordance with the terms
of this Agreement.
10. ASSIGNMENT OF INTELLECTUAL PROPERTY
10.1 The Service Provider:
a) presently assigns to the Company all future Intellectual
Property Rights in all inventions, models, designs, drawings,
plans, software, reports, proposals and other materials created
or generated by the Service Provider (whether alone or with the
Company, its other Service Providers or contractors) for use by
the Company, and
b) acknowledges that by virtue of this clause all such rights are
vested in the Company and, on their creation, all such future
rights will vest in the Company
10.2 The Service Provider must do all things reasonably requested by the
Company to enable the Company to assure further the rights assigned
under Clause 10.1.
11. TERMINATION
11.1 The Company may terminate this agreement at any time for just cause upon
thirty days written notice by the Managing Director to the Service
Provider, if the Service Provider:
a) is charged with a criminal offence, excluding a traffic offence,
or
b) breaches the Confidentiality Agreement, or
C) the Service Provider has committed an act of serious misconduct
of a dishonest or fraudulent nature, or
d) breaches any material provision of this Agreement and fails to
rectify such breach within 30 days of being required to do so in
writing, or
e) becomes unable to pay his debts as they became due, or
f) through illness is unable to return to duties within three (3)
months, or
Page 4 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 5
Confidential
9) is an "injured Service Provider" as defined in appropriate
legislation and is not fit to perform the Service Provider's
duties for three months from the time the Service Provider first
became unfit for employment
11.2 During the first 3 months of this agreement, the Company may terminate
this agreement at any time without just cause upon expiry of the Company
Notice Period (specified in Schedule A) by providing written notice from
the Managing Director to the Service Provider.
11.3 The Service Provider may terminate this agreement with 30 days notice if
the Company breaches any of its material obligations under this
contract, and has not rectified the breach within 30 days of notice of
such breach.
11.4 The Service Provider may terminate this agreement for significant and
serious personal or family reasons by providing the Managing Director
with prior notice in writing of a minimum period specified in Schedule A
as the Service Provider Notice Period.
11.5 The Company agrees that the rules of natural justice shall apply in any
termination of the Service Provider's contract by the Company.
11.6 This agreement may be terminated at any time by mutual agreement of the
parties.
11.7 During any period of notice referred to in this Clause 11, the Service
Provider must perform his duties and responsibilities under this
Agreement unless the Company and Service Provider mutually agree to an
alternative arrangement.
12. WHAT HAPPENS AFTER TERMINATION OF EMPLOYMENT
12.1 The Company may set off any amounts the Service Provider owes the
Company against any amounts the Company owes the Service Provider at the
date of termination except for amounts the Company is not entitled by
law to set off.
12.2 The Service Provider must return all the Company's property (including
property leased by the Company) to the Company on termination including
all written or machine readable material, software, computers, credit
cards, keys and vehicles.
12,3 The Service Provider's obligations under the Confidentiality Agreement
continue after termination except in respect of information that is part
of the Service Provider's general skill and knowledge.
12.4 The Service Provider must not record any Confidential Information in any
form after termination.
13. RESTRAINT ON THE SERVICE PROVIDER'S CONDUCT
13.1 During the restraint period of 9 months after termination of the
Service Provider's employment, the Service Provider must not
Page 5 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 6
Confidential
a) interfere with the relationship between the Company and its
customers, contractors or suppliers, or
b) induce or assist in the inducement of any employee, consultant,
customer, supplier or any other contractor of the Company to
leave their employment or terminate any contract.
13.2 In addition to Clause 13.1, if the agreement is extended for a period of
at least 2 years then during the restraint period of 9 months after
termination of the Service Provider's employment, the Service Provider
must not solicit, canvass, approach or accept any approach from any
person who was at any time during the term of this contract, a client of
the Company in that part or parts of the business carried on by the
Company in which the Service Provider was employed with a view to
obtaining the custom of that person in a business that is the same or
similar to the business conducted by the Company.
13.3 The Service Provider acknowledges that each restriction specified in
clause 13.1 and 13.2 is in the circumstances reasonable and necessary to
protect the Company's legitimate interests.
13.4 For the purpose of this Clause 13, the Service Provider acknowledges
that the definition of Company will include any parent or subsidiary of
Chip Application Technologies Limited.
14. INDEMNITY AND INSURANCE
14.1 The Company agrees to defend, save harmless and indemnify the Service
Provider from any demands, claims, suits, actions or other proceedings
which may be brought against him arising from the performance of his
duties and for any cost, loss, damage or liability arising therefrom,
including all legal fees and disbursements incurred in connection
therewith, other than grossly negligent or fraudulent conduct.
14.2 During the term of this Agreement, and any subsequent renewal of this
Agreement, the Company will provide the Service Provider appropriate
insurance cover including where applicable cover under a Directors and
Officers Liability Insurance Policy, medical, and similar protection..
15. GOVERNING LAW AND ARBITRATION
This Agreement is governed by the law applicable in New South Wales. Any
dispute may be decided by the Australian Commercial Disputes Centre or
equivalent body.
16. CANCELLATION OF PREVIOUS AGREEMENTS
From the Effective Date, this Agreement supersedes and takes the place
of all prior oral or written agreements made between the parties, other
than where relevant for the purposes
Page 6 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 7
Confidential
of confidentiality, and any prior condition, warranty, indemnity or
representation imposed, given or made by a party.
17. WAIVER
The failure of either party at any time to insist on performance of any
provision of this Agreement is not a waiver of its right at any later
time to insist on performance of that or any other provision of this
Agreement, provided that the lack of notice does not prejudice the other
party's ability to rectify its or his performance.
18. NOTICES
Any notice which may be or is required to be given pursuant to this
Agreement shall be sufficiently given if served personally upon the
party for whom it is intended or if mailed by Certified Mail, in the
case of the Company, to it at its head office for the time being and in
the case of the Service Provider, to him at his address as last shown on
the books of the Company. The date of receipt of such notice shall be
deemed to be the date of delivery, if such notice is served personally,
and five (5) days after the date of posting if sent by prepaid Certified
Mail, except in the event of an actual or threatened postal disruption
in which case all notices shall be delivered.
19. ALTERATION
This Agreement (including its schedules) may only be altered by
agreement in writing signed by each party.
20. THIS AGREEMENT IS CONFIDENTIAL
The terms of this Agreement and any subsequent amendments are
confidential and may not be disclosed by the Service Provider or the
Company other than in a non-personalised form to any other person or
company, other than for the purpose of obtaining professional legal or
accounting advice, or as may be required by law or any Stock Exchange
listing or reporting requirements, without the written approval of both
parties.
21. GENERAL
21.1 Headings are for reference only and do not affect the meaning of this
Agreement.
21.2 In the event that any term of this agreement is inconsistent with or in
violation of any provision of any law of NSW or Australia or US law, it
is hereby deemed to be amended to the extent required to avoid such
inconsistency or illegality and, if any term of this agreement is
thereby annulled, the remainder of this agreement shall remain in full
force and effect.
21.3 Time shall be the essence of this Agreement,
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TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 8
Confidential
21.4 Schedules 1, 2 and 3 annexed to this Agreement are for all purposes an
integral part of this Agreement.
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TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 9
Confidential
IN WITNESS WHEREOF the party of the first part has affixed its corporate seal,
duly attested to by the signature of its proper signing officers in that behalf
and the party of the second part has affixed his signature the day and year
first above written.
Signed for and on behalf of CHIP APPLICATION
TECHNOLOGIES LIMITED in the presence of
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
- ----------------------------------- -----------------------------------
Company Secretary Director
SIGNED SEALED AND DELIVERED by
THE SERVICE PROVIDER in the presence of
/s/ CARL H. FISHER
- ----------------------------------- -----------------------------------
Signature of Witness Carl H. Fisher
- -----------------------------------
Name of Witness (print)
Page 9 of 10
TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 10
Confidential
SERVICES CONTRACT SCHEDULE A
TO BE READ IN CONJUNCTION WITH AND PART OF
THE SERVICES CONTRACT
PREAMBLE
'FUTURE CAPACITY' means Senior Vice President US Business Development or
other position of equal or like status as agreed from time to time
1. DEFINITIONS
'EFFECTIVE DATE' means is 1 May 1999
2.1 'INITIAL EMPLOYMENT Date' means 1 May 1999
2.2 'EXPIRY DATE' means the 30 April 2000 unless prior to 28 February 2000,
the Service Provider and the Company mutually agree in writing an
extension on the same terms or other terms mutually agreed by the
parties,
2.3 'DUTIES AND RESPONSIBILITIES' include the active full time management of
the development of the Company's US business including research and
negotiation of acquisition and merger opportunities, development of
administration and financial reporting systems, budgets and accounting
reporting and administration, assistance in market development where
required by marketing with overall responsibility and accountability to
the CEO and Managing Director or such other person nominated by the CEO
and Managing Director from time to time.
4.1 A remuneration package (inclusive of fringe benefits tax) to the value
of US$150,000 gross per annum
Annual Service Fee US $150,000
The Service Provider is exclusively and solely responsible for any tax
that may be payable personally as a Service Provider on the service
fee. The Company makes no warranty or representation to the Service
Provider with respect taxation that the Service Provider may be
applicable to regarding to the annual service fee.
The Service Providers fee will be paid by equal fortnightly instalments
by electronic funds, transfer commencing on 1 May 1999. The Service
Providers first and last instalments will be paid proportionately if
necessary.
11.2 'COMPANY NOTICE PERIOD' means is 2 months.
11.4 'SERVICE PROVIDER NOTICE PERIOD' means is 2 months.
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TO BE READ IN CONJUNCTION WITH SCHEDULES A,1, 2 & 3
<PAGE> 11
Confidential
OPTIONS TERMS AND CONDITIONS
Schedule I - Details of Option Holder
CARL H. FISHER
1607 DAMON WAY
SALT LAKE CITY, UTAH 84117, USA
Schedule 2 -- Terms and Conditions of the Options
1. ISSUE DATE
The Issue Date is 1 May 1999
2. OPTION EXPIRY DATE AND CONDITIONS OF EXERCISE OF OPTION
in addition to the terms and conditions outlined in Schedule 3, all options are
issued on the condition that the Option can only be exercised if the Option
holder is providing services to the issuer, its parent or any subsidiary of the
issuer or the parent on the Services Option Exercise Entitlement Date
referred to below.
<TABLE>
<CAPTION>
OPTION
SERVICES OPTION EXPIRY DATE
NO. OF EXERCISE ENTITLEMENT OPTION EXERCISE (SEE CLAUSE 11 & 12 OF
OPTIONS DATE PRICE SCHEDULE 3)
------- ---- ----- -----------
<S> <C> <C> <C>
12500 31 July 1999 A$0.95 30 June 2001
12500 31 Oct 1999 A$0.95 30 June 2001
12500 31 Jan 2000 A$0.95 30 June 2001
12500 30 April 2000 A$0.95 30 June 2001
</TABLE>
Page 1 of 6
<PAGE> 12
Confidential
SCHEDULE 3 - OTHER TERMS AND CONDITIONS OF THE OPTIONS
1. ENTITLEMENT
The Option holder is entitled to subscribe for one fully paid ordinary
share in the capital of the Company for each Option held.
2. ISSUE PRICE
No amount is payable on issue of the Options.
3. EXERCISE PRICE
The exercise price of each Option is the exercise price referred to in
Schedule 2.
4. OPTION PERIOD
Each Option may be exercised in whole or in part at any time prior to
the Option Expiry Date set out below. Any Option that is not exercised
will automatically expire on the Option Expiry Date.
5. TRANSFERABILITY
The Options may not be transferred without the prior consent of the
Company (which consent will not be unreasonably withheld) and only in
accordance with the Articles of Association of the Company.
6. PARTICIPATION IN BONUS ISSUES AND CASH ISSUES
6.1 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the Option holder
will be entitled to participate in such issue, upon exercise of all or
part of the Options on or before the books closing date for that issue,
on the same basis as the holders of ordinary shares in the capital of
the Company.
6.2 If the Company makes an offer to subscribe for cash of ordinary shares
pro rata to the holders of ordinary shares the Option holder will be
entitled to participate in such offer, upon exercise of all or part of
the Options on or before the books closing date for that offer, on the
same basis as the holders of ordinary shares in the capital of the
Company.
6.3 The Company must notify the Option holder at least 12 business days
before the books closing date for determining entitlements to an offer
referred to in Clauses 6.1 or 6.2 of:
a) the proposed terms of the issue of the offer, and
b) the right to exercise his Options under Clause 6.1 or 6.2 (as
the case may be).
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<PAGE> 13
Confidential
7. ADJUSTMENTS FOR BONUS ISSUES AND CASH ISSUES
7.1 If the Company is listed on the Australian Stock Exchange and makes an
offer for cash of ordinary shares pro rata to the holders of ordinary
shares, the exercise price of each Option shall be reduced by the value
of the theoretical rights entitlement per cum rights share (E) provided
that the exercise price of each Option shall not be reduced to less than
the nominal value of the Company" ordinary shares, where E is calculated
in accordance with the following formula:
E = P - (S + D)
-----------
N + 1
Where:
E = theoretical value of the rights entitlement attached to each share
(quoted cum rights).
P = the weighted average market price of fully paid ordinary shares of
the Company sold in the ordinary course of trading on the Australian
Stock Exchange Limited during the five trading days after the
announcement of the rights issue
S = subscription price (application money plus calls) for new shares
D = any dividends due but not yet paid on existing shares which will not
be payable in respect of new shares issued under the rights issue
N = number of cum rights shares required to be held to receive a right
to one new share
No change will be made to the number of shares to which the Option
holder is entitled.
7.2 If the Company makes a bonus issue of shares or other securities
convertible into ordinary shares pro rata to holders of ordinary shares
(other than an issue in lieu of dividends or by way of dividend
reinvestment pursuant to any shareholder election), the number of shares
issued on exercise of each Option will include the number of bonus
shares that would have been issued if the Option had been exercised
prior to the books closing date for bonus shares. No change will be made
to the exercise price.
8. RECONSTRUCTION
In the event of a reconstruction (including consolidation, sub-division,
reduction or return) of the issued capital of the Company, the number of
Options or the exercise price of Options or both shall be reconstructed
(as appropriate) in a manner which would not result in any benefits
being conferred on the Option holders which are not conferred on
shareholders (subject to the provisions with respect to rounding of
entitlements as sanctioned by the meeting of shareholders approving the
reconstruction of capital) but in all respects the terms for the
exercise of Options shall remain unchanged.
9. RANKING OF SHARES ALLOTTED ON EXERCISE OF OPTIONS
All share allotted pursuant to the exercise of Options will, subject to
the Memorandum and Articles of Association of the Company, rank in all
respects (including rights relating to dividends) pari passu with the
existing ordinary shares of the Company on issue at date of allotment
Page 3 of 6
<PAGE> 14
Confidential
10. METHOD OF EXERCISE OF OPTIONS
10.1 Options may be exercised by written notice to the Secretary of the
Company. The exercise notice must specify the number of shares required
to be allotted, which number must be a multiple of 1,000 if only part of
the Options are exercised, or if the total number of Options held is
less than 1,000, then the total of all Options held must be exercised.
Options will be deemed to have been exercised on the date that the
application is lodged with the Secretary of the Company.
10.2 The Option holder must pay the exercise price in full to the Company on
the date of the exercise of the Options.
10.3 The exercise of less than all of the Option holder's Options will not
prevent the Option holder from exercising an Option in respect of the
whole or any part of the balance of the entitlement under his remaining
Options.
10.4 On exercise of the Options the Option holder must surrender his Option
certificate to the Company in respect of those Options being exercised.
10.5 If the Option holder exercises less than the total number of Options
then registered in his name:
a) The Option holder must surrender his Option certificate to the
Company, and
b) the Company must cancel that Option certificate and issue to the
holder a new Option certificate in respect of the Option
holder's unexercised Options.
10.6 Within 10 days of receipt of the application for the exercise of Options
and payment by the Option holder of the exercise price of such Options,
the Company must issue and allot to the Option holder the number of
fully paid ordinary shares in the capital of the Company specified in
the application.
10.7 If the Company is listed on the Australian Stock Exchange then it will
as soon as practicable after issue make application for the shares
issued upon exercise of Options by the Option holder to be granted
official quotation on the Australian Stock Exchange. The Options are not
to be listed on the ASX.
11. COMPULSORY ACQUISITION
If an entity ("Offeror") serves a notice on the option holder in
accordance with section 703(4) of the Corporations Law, all options,
which have not yet vested, become bested on the date that notice is
served on the option holder.
All options (including all existing options and all options that have
been vested by virtue of the preceding paragraph) will lapse on the date
3 months after delivery of that notice.
Unless waived by written notice from the Company, the option holder must
accept an offer to acquire all options which remain unexercised which is
delivered in accordance with section 703(4) of the Corporations Law.
This obligation is conditional on the terms offered by the Offeror being
no less favourable than the offer price paid or payable by the Offeror
in
Page 4 of 6
<PAGE> 15
Confidential
connection with the acquisition of ordinary shares in the Company under
the Offeror's takeover scheme or take-over announcement, adjusted to
reflect the offer for options rather than ordinary shares or on terms
determined by a Court as contemplated by section 703(8) of the
Corporations Law".
12. OPTION EXPIRY DATE
Subject to clause 11, the Option Expiry Date is the earlier of
a) 5.00 PM Eastern Australian Standard Time on the day 90 days
after the Option holder ceases to provide services to the
Company, its parent or a subsidiary or
b) 5.00 PM Eastern Australian Standard Time on the option expiry
date referred to in Schedule 2.
13. TAXATION
The Option Holder is exclusively and solely responsible for all and any
tax that may be payable as a result of the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options. The Issuer makes no warranty or representation in respect of
any taxation that may be applicable to the issue and or exercise of the
Options and or the sale of shares resulting from the exercise of the
Options.
14. UNEXERCISED OPTIONS
(a) This clause 14 applies to all Unexercised Options. If there is any
inconsistency between this clause and the other provisions of these
Terms and Conditions in respect of the exercise of Unexercised Options,
this clause prevails to the extent of this inconsistency.
(b) If, at the time an Unexercised Option is exercised:
i) the Company is not listed on ASX; and
ii) the Company is a subsidiary of another company (the "Parent
Company") and
iii) the Parent Company is listed on ASX or any Approved Exchange
the Company may, instead of issuing shares in the capital of the
Company, elect to have the Parent Company issue one fully paid share of
common stock in the Parent Company for each Unexercised Option held.
(c) If the Company makes the election referred to in paragraph (b):
i) in lieu of the Option holder's entitlement under clause 1 to
subscribe for one fully paid ordinary share in the capital of
the Company for each Option held, the Option holder will be
issued one fully paid share of common stock of the Parent
Company for each Unexercised Option held;
ii) in lieu of paying the exercise price to the Company in
accordance with Clause 10.2, the Option holder must pay the full
exercise price (which would have otherwise been payable to the
Company) to the Parent Company on the date of exercise of the
Unexercised Options and the Company is authorised to pay over
any such moneys received by it to the Parent Company without
further act or authority of the Option holder; and
Page 5 of 6
<PAGE> 16
Confidential
iii) within 10 days of receipt of the application for the exercise of
the Unexercised Options and payment by the Option holder of the
exercise price of such Options, the Parent Company must issue to
the Option holder the number of fully paid shares of common
stock of the Parent Company specified in the application; and
iv) to avoid doubt, the Option holder has no entitlement to be
issued or allotted any shares in the capital of the Company upon
exercise of the Unexercised Options.
(d) In this Clause 14:
"Unexercised Options" means all Options that have been granted but are
unexercised
Page 6 of 6
<PAGE> 1
EXHIBIT 10.10
Form: 97-07L LEASE Land Titles Office use only
NEW SOUTH WALES
REAL PROPERTY ACT 1900
Licence: LAW/0537/98 Do not affix additional pages here:
use the left-hand corner
STAMP DUTY Office of State Revenue use only
A) TORRENS Property leased: if appropriate, specify the part or premises
ITLE Whole of level 4, 68-72 Wentworth Avenue Surry Hills and being
part of the premises contained in Folio Identifiers 19/6380
and 2/536654
B) LODGED BY LTO Box Name, Address or DX and Telephone CODE
Reference (optional): L
C) LESSOR
MORUBEN NOMINEES PTY. LTD
(ACN 001 923 002)
The lessor leases to the lessee the property referred to above.
D) Encumbrances (if applicable): 1 . 2. 3.
E) LESSEE
CHIP APPLICATION TECHNOLOGIES LIMITED
(ACN 057 883 333) TENANCY:
F)
G) 1. TERM: Four years
2. COMMENCING DATE: 15 December 1999
3. TERMINATING DATE: 14 December 2004
4. With an OPTION TO RENEW for a period of 4 years set out in
Clause 16
5. With an OPTION TO PURCHASE set out in NIL
6. Together with and reserving the RIGHTS set out in ANNEXURE A AND
SCHEDULE I
7. Incorporates the provisions set out in ANNEXURE A AND SCHEDULE 1
hereto.
8. Incorporates the provisions set out in MEMORANDUM filed in the
Land Titles Office as No. NIL
9. I certify that this lease (including any annexure) comprises
pages numbered in sequence with this form.
Full name and position: Signature:
LTO use
Total pages:
All handwriting must be in PAGE 1 OF 2 Checked by:
block capitals.
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We certify this dealing correct for the purposes of the Real Property Act 1900.
DATE:
Signed in my presence by the lessor who is personally known to me.
THE COMMON SEAL of MORUBEN NOMINEES PTY )
LIMITED (A.C.N.001 923 002) is affixed in accordance with its )
Constitution in the presence of: )
Signature of authorised person: Signature of authorised person:
Print Name of authorised person: Print Name of authorised person:
Office held: Office held:
Signed in my presence by the lessee who is personally known to me.
THE COMMON SEAL of CHIP TECHNOLOGIES )
LIMITED (A.C.N. ) is affixed in accordance with its )
Constitution in the presence of: )
Signature of authorised person: Signature of authorised person:
Print Name of authorised person: Print Name of authorised person:
Office held: Office held:
I) STATUTORY DECLARATION
I solemnly and sincerely declare in respect of every option to renew
or purchase in Lease No. 2458364 that the time for exercise of the
option has ended; the lessee under that lease has not exercised the
option; and a variation of lease extending the term has not been
entered into. I make this solemn declaration conscientiously
believing the same to be true and by virtue of the Oaths Act 1900.
Made and subscribed at in the State
of on
in the presence of-
Signature of witness: Signature of lessor:
Name of witness:
Address of witness:
Qualification of witness:
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"A"
TERMS AND CONDITIONS
1. INTERPRETATION
The following expressions shall bear the meanings attributed thereto:-
1.1. Where there are more than one Lessor and/or Lessee the words
"Lessor" and/or "Lessee" shall respectively mean and include all
such Lessors and/or Lessees and each of them and each of their
executors, administrators and assigns.
1.2. The word "premises" shall mean the property hereby referred to
in the front page thereof with the improvement erected thereon
described in ITEM 1 of SCHEDULE 1 hereto. The word "building"
shall mean the whole of the property referred to in ITEM 1 of
SCHEDULE 1 hereto.
1.3. "Lessor's works" shall mean the following:-
1.3.1. Strip out false ceiling and make good roof with
corrugated panelling painted white.
1.3.2. Install air conditioning to the whole of the premises,
false ceiling to be fitted in front office to cover air
conditioning equipment.
1.3.3. Install suspended lighting (similar to level 3 in the
building) including lighting in front office ceiling and
provide sufficient lighting overall for the Lessee's
requirements.
1.3.4. Provide all necessary sprinklers and other fire
protection equipment in order to satisfy the regulations
and Fire Department requirements.
1.3.5. Provide all power outlets along perimeter walls (in
accordance with specifications provided by the Lessee).
1.3.6. Provide power requirements to the computer room at
premises (in accordance with specifications provided by
the Lessee).
1.3.7. Provide power to all columns and cabling to support in
excess of 2 double GPO's at each column (if the Lessee
requires the sockets on the columns will be
repositioned).
1.3.8. Repaint all walls and windows white.
1.3.9. Buff floorboards of the premises and apply two coats of
polish.
1.3.10. Strip and relacquer all columns
1.3.11. Refurbish kitchen areas (which will include installation
of the hot water service, cupboards, work area, sink,
and power points for refrigerator, dishwasher and
microwave. Repair/repaint walls and provide suitable
floor covering.
1.3.12. Refurbish toilets (to the same standard as those on
Level 3 of the building).
1.3.13. Refurbish shower facility ensuring the walls around the
kitchen/storeroom and toilet areas are to be full
height.
1.3.14. Re-paint foyer
1.3.15. Repair and repaint lift door.
1.3.16. Install any panelling or do any work required to cover
up services or utilities.
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1.3.17. Ensure power is connected and available to the premises.
1.3.18. Ensure telephone services (50pr cable) is available for
premises.
1.4. The words importing the singular or plural number shall include
the plural and singular number respectively and the words
importing the masculine gender shall include feminine or neuter
gender.
1.5. Covenants binding more than one Lessee shall be deemed to bind
them and any two or greater number of them jointly and each of
them severally.
1.6. The word "rent" shall mean the amount of rent payable (in
respect of the premises) in accordance with ITEM 6 of SCHEDULE 1
hereto as varied from time to time by the provisions of this
lease.
1.7. The word "Review Date" means the dates specified in the ITEM 5
of SCHEDULE 1 hereto.
1.8. The word "person" includes corporation.
1.9. A reference to a party to this lease shall include in the case
of a natural person a reference to the personal representative
and assigns and in the case of a corporation a reference to its
successors and assigns.
1.10. The SCHEDULE hereto shall be deemed to form part of the lease.
2. EXCLUSION OF STATUTORY PROVISIONS
2.1. The covenants powers and provisions implied in leases by virtue
of Sections 84 and 85 of the Conveyancing Act 1919 shall not
apply in this lease except in so far as the same or some part or
parts thereof are included in the covenants, powers and
provisions hereafter set out.
3. RENTAL AND TERM
3.1. Term
This lease shall be for the term set out in ITEM 3 of SCHEDULE 1
hereto, commencing and terminating on the dates set out in ITEM
2 of SCHEDULE 1 hereto AND BEING a date one day following
completion of the Lessor's works together with such rights in
common (if any) and subject to such reservation (if any) as
specified in SCHEDULE 1 hereto.
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3.2. Rent
The Lessee shall pay to the Lessor the rent in the manner set
out in ITEM 6 of SCHEDULE 1 hereto for the term herein provided
and on and subject to the following covenants, terms, conditions
and provisions.
3.3. Due Date for Payment of Rent
The rental payable under this lease shall be payable by calendar
month instalments in advance on the first day of each month and
every month to the Lessor or to such person, bank, or
corporation as the Lessor may from time to time in writing
direct without any deductions and abatement whatsoever and
whether formally demanded or not.
3.4. In the event of the term hereof commencing on a day other than
the first day of a month the Lessee shall pay to the Lessor in
respect of the broken periods prior to the first complete month
of the term hereof and subsequent to the last complete month of
the term hereof on the first day of each such broken periods a
proportionate part of the appropriate monthly payment payable on
account of the annual rent.
3.5. Review Of Rental
The rent is to be reviewed on the rent Review Dates stated in
ITEM 5 of SCHEDULE 1 hereto and according to the methods as
stated in ITEM 5 of SCHEDULE 1 and such methods are described as
follows:
3.5.1 CONSUMER PRICE INDEX (CPI)
If rent is to be reviewed according to the CPI, then the
rent will be reviewed according to the following
formula:
Rent = R x CP2
CP1
"R" is the rent immediately preceding the rent payable
by the Lessee for the Lease Year ending on the day
immediately preceding the relevant Review Date.
"CP2" is the Consumer Price Index - All Groups - Sydney
as published by the Australian Bureau of Census and
Statistics on the relevant Review Date or (if not
published on that day) last published before that date;
and
"CP1" is the Consumer Price index - All Groups - Sydney
as published by the Australian Bureau of Census and
Statistics on the previous Review Date (and in the case
of the first review, the Commencement date of the said
term) or (if not published on that day) last published
before that date.
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IN THE EVENT there is any suspension or discontinuance
of the Consumer Price Index at a rent to be mutually
agreed upon between the Lessor and the Lessee and in
default of agreement the rent to be determined by method
known as the Current Market Rent and described below.
3.5.2. CURRENT MARKET RENT
If the rent is to be reviewed according to the Current
Market rent then the following procedures shall apply:-
i. Not earlier than three (3) months before or not
later than three (3) months following the Review
Date the Lessor may notify the Lessee in writing
(the "rent review notice") of the Lessor's
assessment of the rent having regard to the
current market rent at the Review Date and to
the directions herein contained and to apply
from that particular Review Date.
ii. Should the Lessee be unable to agree upon the
rent specified in the rent review notice, the
Lessee must notify the Lessor in writing within
fourteen (14) days from the date of service of
the rent review notice (and in which respect
time is of the essence) that the Lessee requires
review of the rent according to this clause.
iii. Unless notice is given by the Lessee within the
dispute periods specified herein than the amount
stated in the rent review notice shall become
the rent reserved by this lease as and from that
particular Review Date.
iv. The Lessor shall not by reason of its failure to
give notice of its assessment of the rent during
the periods specified herein in relation to any
Review Date forfeit its rights to have the rent
reviewed as from any such Review Date (provided
that any such review is undertaken prior to the
next immediately following Review Date) and the
reviewed rent which should have been paid shall
date from and be payable from the particular
Review Date and any receipt for the payment of
rent at a lesser amount due to the Lessor's
failure to review during the period specified
herein shall not prejudice the Lessor's right to
demand payment thereafter of any additional rent
payable by the Lessee as a result of such
review.
3.5.3. Procedure for Non Agreement of Reviewed Rent
Should the Lessee disagree with the Lessor's assessment
of the rent notified in the Lessor's rent review notice
then the following procedure shall apply:
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i. The Lessee shall within fourteen (14) days of
service of the rent review notice (in which
respect time is of the essence) or within such
further period (if any, and in respect of which
time shall be of the essence) as the Lessor may
in its absolute discretion determine by written
notice to the Lessee (the "disputed period")
give written notice to the Lessor (the "dispute
notice") that the Lessee disputes the rent
assessed by the Lessor.
ii. A valuer nominated by either party under this
clause shall be a full member of not less than
five (5) years standing of the Australian
Institute of Valuers and shall be the holder of
a licence to practice as a valuer of the kind of
premises under this lease and shall have at
least three (3) years of experience in valuing
such kind of premises and be active in that
market at the time of his appointment.
iii. Upon receipt of the dispute notice from the
Lessee, the Lessor shall request the president
of the Australian Institute of Valuers to make
an appointment of the independent valuer (being
a valuer provided in this clause and as a
condition of his acceptance undertakes to hand
down his determination of the rent within
twenty-one (21) days of his being instructed to
proceed with his determination).
iv. Should it be necessary for the valuer to
determine the rent, his determination shall be
final and binding on the parties hereto. In
considering his determination the valuer shall
have due regard to any evidence submitted by the
Lessor and Lessee as to their assessment of the
rent and the valuer shall give his determination
and the reason therefor in writing to the Lessor
and Lessee.
3.5.4. Provisions for Fixing Current Market Rent
i. If the procedure referred to above is followed,
the costs of valuation shall be borne equally
between the Lessor and the Lessee
ii. A valuer determining the current market rent
shall do on:
- on the basis of a willing but not
anxious Lessor and a willing and not
anxious Lessee.
- taking no account of any goodwill
attributable to any business carried on
by the Lessee in the premises or the
value of the Lessee's goods
- having regard to the terms and
conditions of this lease and in
particular (without limiting the
generality of the foregoing) the period
of time to the next current market
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rent determination
- disregarding any deleterious condition
of the premises which results from any
breach of this lease by the Lessee;
- on the assumption that all covenants of
the Lessee and the Lessor in this lease
have been performed,
- having regard to such other matters
which are normal valuation
considerations for such a determination.
iii. Any valuer making a determination shall act as
an expert and not as an arbitrator and his
determination shall be final
iv. Any acceptance of rent on or after a
determination date shall not prejudice the
Lessor's rights to demand a payment of any
additional rent becoming payable following
fixing of the current market rent
4. OUTGOINGS
4.1. The Lessee will pay in addition to the rental payable outgoings
for the property in accordance with ITEM 11 of SCHEDULE 1
hereto.
4.2. Such amounts shall be notified by the Lessor to the Lessee
within one month of each Review Date in each year and shall be
paid by the Lessee to the Lessor within one (1) month of written
notification.
4.3. For the purposes of this clause, "outgoings" means the
following:
4.3.1. All rates and taxes (including land tax on a single
holding), charges, assessments, duties and fees of any
public municipal, governmental or semi-governmental body
authority or department levied, assessed or charged in
respect of the building and/or the said land.
4.3.2. All insurance premiums payable by the Lessor in respect
of the building and the fittings and fixtures of the
Lessor therein in their full insurable reinstatement
value against fire, flood, lightning, storm and tempest
and the Lessor against other risk (referable to the
building or the Lessor in relation to the Lessor's
ownership or interest in the building) as the Lessor may
reasonably deem necessary or desirable including other
risks as any head Lessor of the Lessor may request in
respect of the building.
4.3.3. The cost of all metered services supplied to the
building (not including those metered services for the
premises) including but without limiting the generality
of the foregoing, all charges for trade waste, licence
fees, electricity, oil, telephone, sewerage, water
services, garbage services and trade waste commercial
quality charges
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4.3.4. The costs of services provided by the Lessor for tenants
and other occupants in the building and visitors to the
building being those costs for cleaning common areas,
telephone lift/fire line, lift maintenance, pest control
and security.
5. DAMAGE OR DESTRUCTION OF PREMISES AND BUILDING
5.1. If during the term the premises shall be destroyed or damaged by
any cause whatsoever so as to render the whole or any part or
parts of the premises inaccessible or unfit for use and
occupation, the following provisions shall apply:-
5.1.1. Where such destruction or damage is such as to render
the repair or reconstruction of the premises impractical
in the opinion of the Lessor (such opinion to be
reasonably formed)
i. subject to clause 5(a)(ii), the Lessor shall
within a reasonable time after the occurrence of
such destruction or damage give notice in
writing to the Lessee of the Lessor's decision
not to effect repair or reconstruction and upon
giving such notice this lease shall be
determined without compensation to the Lessee
and without prejudice to the rights of either
the Lessor or the Lessee in respect of any
antecedent claim or matter under this lease and
without prejudice to the rights of the Lessor in
respect of any act or omission of the Lessee,
his servants or agents related to such
destruction or damage.
ii. if the occurrence of such destruction or damage
has been wholly or partly caused by any act or
omission of the Lessee his servants or agents
and the Lessor's insurance in relation to such
destruction or damage has thereby been vitiated,
the Lessor shall not be obliged to give notice
referred to in the above clause notwithstanding
that the Lessor may have decided not to effect
repair or reconstruction.
5.1.2. Where the Lessor does not give notice in accordance with
aforementioned clause and where the occurrence of such
destruction or damage has not been wholly caused by the
act or omission of the Lessee his servant or agents and
the Lessor's insurance in relation to such destruction
or damage has not been vitiated, the Lessor shall effect
repair or reconstruction as the case requires in a
proper and workmanlike manner and with reasonable
expedition.
5.1.3. Where the occurrence of such destruction or damage has
not been wholly caused by any act or omission of the
Lessee, his servants or agents and the Lessor's
insurance in relation to such destruction or damage has
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not been vitiated by any such act or omission, then
immediately following the occurrence of such destruction
or damage the payment of rent and any other periodical
payments payable by the Lessee under this lease shall
abate as to the whole (where the premises are rendered
inaccessible or wholly unfit for use or occupation by
the Lessee) or as to a proportion (where the premises
are rendered partly unfit for occupation or use by the
Lessee) according to the extent and nature of such
destruction or damage and the effect thereof upon the
Lessee's use or occupation of the premises for the
period during which the premises shall remain
inaccessible unfit for use and occupation by the Lessee.
IN THE EVENT of a difference arising between the Lessor
and the Lessee as to the extent, nature or period of
such destruction or damage or as to the effect thereof
on the Lessee's access, use or occupation of the
premises or as to the proper proportion of the rent to
be so abated such difference shall be determined by a
member of the Australian Institute of Valuers & Land
Economists (Inc) (NSW Division) (or its successor)
appointed by the President for the time being of the NSW
Division of the said Institute (or its successor) and
the person so appointed shall in making his
determination act as an expert and not as an arbitrator
and his determination shall be borne equally by the
Lessor and Lessee and, save as aforesaid, the Lessee
shall have no claim against, the Lessor for any
compensation of any kind whatsoever in respect of any
such destruction or damage.
6. TAKING OF PREMISES FOR PUBLIC PURPOSES
6.1. If the building or premises is taken for any public purpose, the
Lessee shall have no claim against the Lessor by reason of such
taking.
7. USE OF THE PREMISES
7.1. Permitted Use
Not without the prior written consent of the Lessor, the Lessee
shall not use or permit to be used the whole or part of the
premise other than as set out in ITEM 7 of SCHEDULE 1 hereto
7.2. Save as expressly permitted and set forth in ITEM 7 of SCHEDULE
1 hereto not to carry on or permit to be carried on upon the
premises or any part thereof any noisy, hazardous or offensive
business trade or occupation nor create or permit any nuisance
thereon or in or upon any part of the premises nor do nor suffer
to be done any act matter or thing which shall or may be an
annoyance inconvenience or disturbance to the occupiers or
owners of adjoining lands or premises or the neighbourhood nor
use nor allow the premises or any part thereof to be used for
any purpose of an illegal or improper nature or injurious to the
reputation of the parties hereto or the said building
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7.3. The Lessee shall be responsible at the cost and expense of the
Lessee for the usage of the premises in complying with any Act
or Acts now or at anytime during the term of this lease as are
in force in New South Wales and/or the Commonwealth and all
ordinances, regulations, orders, fines or notices of any person
or body having jurisdiction or authority in respect of the
premises or the use thereof where such provision or obligation
relates to or arises out of the use to which the premises are
put by the Lessee or the manner in which the Lessee uses or
occupies the premises.
8. COVENANTS OF THE LESSEE ALTERATIONS, REPAIRS, MAINTENANCE ETC.
The Lessee covenants as follows:
8.1. Alterations
8.1.1. The Lessee shall not paint, drill, cut, injure or deface
any of the walls or partitions of the premises or any of
the Lessor's fixtures, fittings, chattels and effects
and not to make or permit to be made any alterations or
additions whatsoever in or to the premises or any part
thereof WITHOUT the written consent of the Lessor and
then only at the Lessee's own cost and expense and in
accordance with plans and specifications previously
approved in writing by the Lessor or a representative of
the Lessor. Such consent shall not be unreasonably
withheld but it shall be a condition of such consent
that the Lessee obtain and comply with any necessary
permits, regulations or orders from any authority. In
the event of any structural alterations involving
removal of walls or windows that the Lessee shall if
required on the determination of the tenancy restore the
premises to their original condition. The Lessee shall
also be liable to make good any damage done to any part
of the premises or adjacent premises occasioned by any
alterations so made;
8.1.2. Any such work that is approved shall be carried out in a
proper and workmanlike manner and in accordance with the
requirements of any local government or other authority
having jurisdiction or control in respect of such work
and in carrying out such work the Lessee shall ensure
that a minimum amount of disturbance an inconvenience is
caused to any occupier, tenant or owner of nearby
premises
8.2. Exterior Advertising:
The Lessee shall not paint on or affix any such sign or
advertisement without first obtaining the consent of the Lessor,
such consent not to be unreasonably withheld. On the expiration
or sooner determination of the term hereby granted, the Lessee
must fully remove and/or completely delete all lettering and any
other
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distinctive marks or signs put by or for the benefit of the
Lessee in any part of the premises and from all other parts of
the said building and to reinstate the premises and all damage
or injury as may unavoidably be done and in default to pay to
the Lessor such costs as may be reasonably incurred to restore
the premises and such other parts of the said building to the
original condition;
8.3. Replace Broken Windows and Glass
To replace all windows and other glass in the premises which may
be broken from any cause whatsoever during the said term with
glass of the same quality as that which may be broken and to
make good all loss and damage to the premises sustained as a
result of burglary or attempted burglary on the premises;
8.4. Cleanliness of premises and building
To keep the interior glass windows and the interior of the
premises at all times cleaned in a proper and workmanlike manner
and to keep all waste matter and rubbish in bins and to keep the
premises and appurtenances thereto clean and free of all
rubbish, rodents, vermin and pests;
8.5. Animals
Not to keep any animals or birds on the premises.
8.6. Overloading of floors
Not to bring upon the premises any heavy machinery, equipment,
safe or other heavy material not reasonably necessary or proper
for the conduct of the Lessee's use of the premises as herein
provided and in no event shall such machinery plant equipment or
safe be of such size or nature power or weight as to cause or in
the reasonable opinion of the Lessor be likely to cause any
structural or other damage to the floor, walls or other parts of
the premises and building. the Lessee must inform the Lessor
before bringing in such machinery plant equipment or safe of
such intention and then to install the same in such location as
the Lessor shall direct. The Lessee shall make good at the cost
and expense of the Lessee any damage to the building by the
installation and removal of such machinery plant equipment or
safe in and from the premises;
8.7. Repair and Repainting
The Lessee shall during the term keep the premises in good and
substantial repair and at the expiration or sooner determination
of the term shall peaceably surrender and yield up the premises
to the Lessor in good and substantial repair (having regard to
the condition of the premises at the commencement of the term),
reasonable wear and tear and damage by fire, lightning, flood,
storm, tempest or explosion only excepted. The Lessee shall also
(without limiting the generality of the foregoing) during the
last year of this lease or the last year of
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any Renewed Lease howsoever terminating at his own expense and
in a proper and workmanlike manner with materials and to a
specification to be approved by the Lessor in writing (such
approval not to be unreasonably withheld) paint such parts of
the premises as were painted at the commencement of the term.
8.8. Enter and View
8.8.1. The Lessor (and power is hereby given accordingly ) its
servants or agents upon giving the Lessee reasonable
notice may enter upon the premises to examine and view
the state and condition thereof the premises for any
defects, wants, state of repair for which the Lessee is
liable hereunder and may by notice in writing serve on
the Lessee requiring the Lessee to repair or make good
any such defects, wants, repair and/or breach(s) of
covenants.
8.8.2. The Lessee shall repair and make good the premises under
such notice in accordance with the time stipulated and
that in default of the Lessee making good the premises
under the notice, it shall be lawful but not obligatory
on the Lessor (without prejudice to the right of
re-entry hereinafter contained and without prejudice to
any other of the powers or remedies herein contained or
implied) after having reasonable notice to enter upon
the premises with servants workmen and appliances and to
make good such defects and wants or repair and comply
with such covenants so broken as aforesaid at the
expense of the Lessee in all respects and to recover all
moneys expended for such purposes or any of them as if
the same had been rent in arrears reserved by this lease
or money paid by the Lessor at the request of and on
behalf of the Lessee.
8.9. Enter and Repair
The Lessor or his servant or agents may at all reasonable times
and with reasonable notice during the term and with all
necessary materials and appliances enter the premises for the
purpose of carrying out any alterations or repairs for which the
Lessee may not be liable under this lease or being liable shall
neglect to do or which the Lessor is of the opinion necessary or
desirable to do or for the purpose of complying with any
legislation affecting the building or the premises or with any
notice served by any authority whatsoever having jurisdiction
over in respect of the building or premises involving the
carrying out of cleansing, alterations, repairs or work or for
the purpose of exercising the powers and authorities of the
Lessor under this lease PROVIDED THAT such cleansing,
alterations, repairs or work shall be carried out without
disturbance unnecessary interference with the occupation and use
of the premises by the Lessee.
8.10. Cost of Repairs
The Lessee shall (to the extent to which the Lessee may be
liable in respect
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thereof under the terms of this lease) pay to the Lessor on
demand all moneys expended by the Lessor in making and executing
any such cleansing, alterations, repairs or work as referred to
in this lease and in default of such payment by the Lessee, the
same shall be recoverable as rent in arrears.
8.11. Notice of damage
The Lessee must give notice to the Lessor promptly of all
structural imperfections and/or damage which may appear in the
premises.
8.12. Compliance with Statutes etc
8.12.1. To duly comply at the Lessee's own expense with the
provisions of the Local Government Act or any statutory
re-enactment modification or amendment of any regulation
issued thereunder and any Commonwealth or State
enactment or regulations notices directions orders
requirements or demands of any Government Municipal or
other authority and Fire Brigades Board affecting the
premises and to keep the Lessor indemnified in respect
of any breach thereof PROVIDED ALWAYS that the Lessee
shall not be required hereby to perform or carry out
structural work unless the same be required by reason of
the number persons using the premises or the nature of
the business carried on in the premises and which would
not be required were the premises put to other uses.
8.12.2. The Lessee must obtain the consent of any planning
authority which may be required for the Lessee to carry
on its business in the premises and the failure of the
Lessee to obtain any such consent shall not relieve the
Lessee of its obligation to pay rent and otherwise to
observe and fulfil its obligations hereunder.
8.13. Pests
The Lessee shall take all reasonable precautions to keep the
premises free from rodents, vermin, insects and the like and in
the event of his failure to do so, the Lessor, at the cost of
the Lessee employ pest exterminators to eradicate the same and
such cost shall be recoverable as rent in arrears.
8.14. Misuse of services
To indemnify and keep the Lessor indemnified from all loss and
damage to the premises or any part thereof caused by the
negligent use or mis-use waste or abuse by the Lessee or his
servants agents invitees or licensees of the gas, electricity,
water, sanitary or other apparatus now installed in or serving
or which may be hereafter installed and serve the demised
premises or any part of the said building and to give to the
Lessor prompt notice of any accidents to or defects in the pipes
wiring or fittings thereof.
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8.15. Appurtenances
From time to time throughout the said term, at the Lessee's own
cost and expense without being thereinto specifically requested
to repair maintain and keep the premises and all additions
thereto including all gas electricity water sanitary or other
apparatus now installed in or serving or which may hereafter be
installed AND keep the same cleaned and in good substantial
order and condition AND to pay the cost of all cleaning relative
thereto caused by any stoppage and to make all necessary repairs
renovations and amendments to the premises when where and as
often as the same shall be requisite by fair wear and tear, Act
of God and accidental fire always excepted and the premises and
things so repaired cleaned maintained amended and kept at the
end or sooner determination of the said term to yield up unto
the Lessor together with all additions and improvements made by
the Lessor thereto in the meantime and with all locks keys and
fastenings of the premises complete.
8.16. Environmental Legislation
The Lessee must comply with all provisions of and the
requirement made pursuant to any subsequent environmental
legislation, regulation or by-law affecting the premises
8.17. Legal Costs in Litigious Matters
The Lessee must pay on demand by the Lessor all legal fees (as
between solicitor and client) and disbursements incurred by the
Lessor in respect of the Lessor, without fault on its part,
being a party to any litigation commenced by or against the
Lessee (other than litigation between the Lessor and Lessee) and
arising directly or indirectly out of the Lessee's occupancy of
the premises
8.18. Inclusions
The Lessee must properly maintain all inclusions in ITEM 8 of
SCHEDULE 1 hereto
8.19. Unpaid Gas, Electricity etc
The Lessee must pay all gas, electricity or other metered rents
in connection therewith and all garbage removal charges AND
should the Lessee neglect to pay for same, the Lessor in his
absolute discretion may pay for the same and immediately upon
paying for the same be entitled to recover the amount from time
to time so paid from the Lessee as if such amount were rent in
arrears.
8.20. Chemicals, Gas and Heating
Not, without the written consent of the Lessor, to use
chemicals, burning fluids, acetylene gas or alcohol in lighting
or heating the premises other than in the
<PAGE> 16
14
ordinary course of its business
8.21. Auction Sales
Not to carry on or permit to be carried on or be privy to any
sale by auction on the premises or any party thereof
8.22. Overloading of Services
Not to interfere with or overload any electrical mechanical or
drainage service forming part of or used in connection with the
premises
8,23. Misuse of apparatus
Not to misuse the fire alarm systems and extinguishers the
electrical fittings and apparatus or the sinks wash basins,
water closets and other water services of or belonging to or
used in connection with the premises and not to throw or place
in any sweepings tea leaves rubbish bags ashes or other
unsuitable substances and to pay for any damage which may result
to any such apparatus by misuse thereof.
8.24. Replacement of Bulbs etc
To replace at the Lessee's expense all broken or faulty light
bulbs and fluorescent tubes and to condensers in the premises
8.25. Source of Light and Power
Not to use any form of light power or heat other than electrical
current or gas supplied through the metered services.
8.26. Security
To cause all exterior doors and windows in the premises to be
securely locked and fastened at all times when the premises are
not being used and the Lessee authorises the Lessor and its
agent from time to time to enter the premises for the purposes
of locking any such door or window left unlocked or unfastened
8.27. Removal of Lessee's Chattels
8.27.1. The Lessee may at or prior to the expiration of this
lease at the cost and expense of the Lessee take, remove
and carry away from the premises all fixtures, fittings,
chattels, plant, equipment or other articles upon the
premises in the nature of trade or tenant's fixtures
brought upon the premises by the Lessee but the Lessee
shall in removing such fixtures not damage the premises
and shall make good any damage which the Lessee may
occasion thereto and shall remove all rubbish and shall
leave the
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premises in a clean state and condition.
8.27.2. In the event that the Lessee does not remove and carry
away any such fixtures, fittings, plant, equipment or
other articles at or prior to the determination of this
lease, the Lessor may, at the expense of the Lessee,
remove and dispose of the same and any such fixtures,
fittings, plant, equipment or other articles not so
removed by the Lessee by the date of determination of
this lease shall become the property of the Lessor.
9. ASSIGNMENT, UNDERLETTING, ETC.
9.1. The Lessee shall not at any time or times to mortgage, license,
sub-let, assign, transfer, dispose of or otherwise part with the
possession of the premises or any part thereof for the whole or
any part of the said term or permit or suffer the same to be
done PROVIDED THAT the Lessee may assign or transfer the lease
of the whole of the premises subject to the Lessee obtaining (on
each and every occasion) the prior written consent of the Lessor
and such consent to a proposed assignment sub-letting or
transfer only and of the whole of the premises only shall not be
unreasonably withheld or refused IF:-
9.1.1. the Lessee gives two (2) weeks notice in writing of his
desire to so assign or transfer, AND
9.1.2. the Lessee shall have duly performed and observed all
the covenants conditions and stipulation on the part of
the Lessee herein contained AND
9.1.3. the Lessee proposes to assign or transfer to the
transferee who prior to any such assignment or
transfer:-
i. proves to the satisfaction of the Lessor that he
is a respectable, responsible, solvent and
suitable person or if the transferee is a
company, the Lessee shall provide to the Lessor
such financial statements and records of the
transferee as the Lessor or the Lessor's
solicitor deems appropriate to determine the
solvency or otherwise of the transferee, and
ii. enters into a covenant with the Lessor in the
form required by the Lessor that he will duly
perform and keep the covenants and agreements on
the Lessee's part herein contained, and
iii. if the proposed transferee is a company,
furnishes to the Lessor such guarantee or
guarantees of the performance of the Lessee's
obligations under this lease as the Lessor or
the Lessor's solicitor shall require, and
iv. the Lessee pays to the Lessor the reasonable
cost and disbursements of the Lessor of and
incidental to the giving of the consent, and
v. the Lessee enters into a deed in the form
required by the Lessor under which he releases
the Lessor from all claims which the
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Lessee then has, or may thereafter have against
the Lessor under or in any way arising from this
lease.
9.2. Where the Lessee is a corporation (other than a listed public
company) any change in the principal shareholding thereof or any
change in the principal shareholding of any holding company of
the Lessee which alters the effective control of the Lessee
shall (for the purposes of this clause) be deemed an assignment
of this lease and shall require consent of the Lessor as
required under this lease.
10. COVENANTS BY THE LESSOR:
The Lessor HEREBY COVENANTS with the Lessee:-
10.1. Peace, Quiet and Enjoyment of the Premises
That upon the Lessee paying the rent payable pursuant to the lease and
duly and punctually performing the convents, conditions and stipulation
hereinbefore contained in this lease on the part of the Lessee to be
observed and performed, and the right of termination or re-entry not
having arisen as hereinafter provided, shall and may peaceably and
quietly hold and enjoy the premises and the inclusions referred to in
ITEM 8 of SCHEDULE I hereto during the term hereby granted without any
unreasonable disturbance or interruption by the Lessor or any person
rightfully claiming under or in trust for the Lessor.
10.2. Lessor's Works
Prior to the Commencement Date of this Lease the Lessor shall perform
the Lessor's Works as defined, in a proper and workmanlike manner and
with reasonable expedition.
10.3. Maintenance
The Lessor will maintain the building (in particular the entrance foyer
area) and the premises in good repair, having regard to the condition of
the building and the premises at the Commencement Date of this Lease and
subject to fair wear and tear.
11. INSURANCES
The Lessee further covenants with the Lessor that
11.1. Public Risk Insurance
The Lessee shall at its own risk and cost effect and at all
times keep in full force a policy of Public Risk insurance with
respect to the premises of the business
<PAGE> 19
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carried on in the premises in which limits that Public Risk
shall not be less than $10,000,000.00 as the amount payable
arising out of any one single accident or event. The policy
shall name the Lessor, as owner and any person designated by the
Lessor as mortgagee or otherwise, and the Lessee as tenant. The
Lessee shall deliver to the Lessor on demand, a copy of the
policy and a current certificate of insurance.
11.2. Fixtures, Stock and Plate Glass
The Lessee shall, where relevant, effect and at all times during
the term maintain the following policies of insurance in the
name of the Lessee noting the interest of the Lessor:-
11.2.1. in respect of all the Lessee's fixtures and fittings
materials and goods other than stock-in-trade (whether
owned or leased or hired by the Lessee) for their full
replacement value a reinstatement and replacement policy
against fire and extraneous risks including storm
tempest, rain water and other water damage, flood,
riots, strikes, malicious damage, concussion, explosion,
impact by vehicles or aircraft and including (where
applicable) extra cost insurance with a reasonable sum
for the removal of debris and against such other risks
as may from time to time be agreed upon.
11.2.2. in respect of stock-in-trade for the current value a
fire policy against the same risks as aforementioned.
11.2.3. in respect of plate glass windows, doors and showcases
for their full replacement value against the risk of
breakage and damage
and the Lessee shall pay all premiums and stamp duty in respect
of and for the renewal of the said policies as they fall due and
as often as any of the property insured under any such policy
shall be destroyed or damaged, the Lessee shall at his own
expense, expeditiously repair or replace (as shall be
appropriate) such property to the satisfaction of the Lessor
(who shall act reasonable in this regard) and the proceeds which
shall be recovered or received for or in respect of such
insurance shall be paid out and expended in repairing or
replacing (as shall be appropriate) such property as shall be
destroyed or damaged
11.3. Lessee Not to Void Insurance
11.3.1. The policies referred to in this clause shall contain a
provision that the insured shall not cancel or change
the insurance without giving to the Lessor ten (10) days
prior written notice.
11.3.2. The Lessee will not to do or permit or suffer to be done
any act matter or thing whereby the insurance in respect
of the premises or of the building of which it forms
part may be vitiated or rendered void or voidable or
<PAGE> 20
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(except with the prior approval in writing of the
Lessor) whereby the premium on any such insurance shall
be liable to be increased. The Lessee shall pay all
extra premiums if any required on account of extra risk
caused by the use to which the premises are put by the
Lessee or by bringing or keeping on the premises any
material or substance;
11.4. Insurance Company
All policies of insurance liable or required to be effected by
the Lessee whether in respect of the property or risk either of
the Lessor or Lessee shall be taken out with an insurance
company approved by the Lessor which approval shall not be
unreasonably withheld
11.5. Production of Policies
The Lessee shall in respect of any policy of insurance to be
effected by the Lessee if required by the Lessor forthwith
produce to the Lessor any such policy of insurance and the
receipt for the last premium
12. INDEMNITIES
12.1. The Lessor shall not be liable or in any way responsible to the
Lessee or to any licensee or to any other person for injury,
loss or damage which may be suffered or sustained to any
property or by any person on the premises howsoever occurring
except any injury, loss or damage suffered as a result of any
negligent act or omission of the Lessor PROVIDED HOWEVER that
notwithstanding anything hereinbefore contained, the Lessor
shall not be liable for any damage to stock, goods, furniture or
effects of the Lessee or any licensee or any other person
arising from the overflow of water, sewerage or any other matter
which may leak on to or issue from any part of the premises or
from any part of the property of the Lessor.
12.2. The Lessee agrees to occupy and use the premises at the risk of
the Lessee and, in the absence of any negligence on the part of
the Lessor, the Lessor shall not in any circumstances be liable
to the Lessee for any loss or damage suffered by the Lessee for
any malfunction, disconnection, failure to function or
interruption of or to the water, gas or electricity services,
air conditioning equipment, fire equipment or blockage of any
sewers, wastes, drains, gutters, downpipes or stormwater drain
for any cause whatsoever or any other interference with or
interruption of any services that may now or hereinafter be
available in respect of the premises.
12.3. The Lessee shall indemnify and hold indemnified the Lessor from
and against all actions, claims, demands, damages, cost and
expenses which the Lessor may sustain or incur or for which the
Lessor may become liable whether during or after the term in
respect of the use of the premises by the Lessee or any servant,
<PAGE> 21
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agent, sub-tenant, licensee (or other person claiming through or
under the Lessee) whilst the Lessee is in possession of the
premises.
13. DEFAULT, TERMINATION, ETC
13.1. Re-entry by Lessor
In the case that:
13.1.1. rent or outgoings remain in arrears and unpaid for the
fourteen (14) days next after the due date as detailed
in ITEM 6 of SCHEDULE I hereto (whether demanded or not)
13.1.2. the Lessee sublets or assigns the premises without the
consent of the Lessor
13.1.3. the Lessee neglects and breaches the covenants contained
in the clause in relation to the use of the premise
13.1.4. the Lessee fails to make good within time any repairs or
alterations properly required by the Lessor specified
under notice
13.1.5. the Lessee being an individual becomes bankrupt
13.1.6. the Lessee being a company is declared insolvent or
enters voluntary liquidation or placed in receivership
or under official management.
then and in any of the said cases the Lessor may, if it so
elects, immediately or later and without notice or demand
re-enter the premises or any part thereof and thereby determine
the estate and interest therein of and expel and remove the
effects of the Lessee and those claiming under the Lessee
without being guilty of any manner of trespass and thereupon
this lease shall determine and cease and to this end all terms
in relation to breaches under this clause are essential.
13.2. No Consent or Waivers
In respect of the Lessee's obligation to pay rent, the
acceptance by the Lessor of arrears or of any late payment of
rent or of part payment of rent shall not constitute a waiver of
the essentiality of the Lessee's obligation to pay rent in
respect of those arrears or of the late payments or in respect
of the Lessee's obligation to pay rent during the term.
13.3. Lessor Entitlement to Compensation/Damages
13.3.1. The Lessee covenants to compensate the Lessor in respect
of any breach of an essential term of this lease and the
Lessor is entitled to recover damages from the Lessee in
respect of such breaches. The Lessor's
<PAGE> 22
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entitlement under this clause is in addition to any
other remedy or entitlement to which the Lessor is
entitled (including to terminate the lease)
13.3.2. In the event that the Lessee's conduct (whether act or
omissions) constitutes a repudiation of this lease (or
of the Lessee's obligation under this lease) or
constitutes a breach of any lease covenants, the Lessee
covenants to compensate the Lessor for the loss or
damage suffered by reason of the repudiation or breach
13.3.3. The Lessor's entitlement to recover damages shall not be
affected or limited by any of the following:
i. If the Lessee shall abandon or vacate the
premises
ii. If the Lessor shall elect to re-enter or
terminate the lease
iii. If the Lessor shall accept the Lessee's
repudiation
iv. If the parties conduct shall constitute a
surrender by the operation of law
13.3.4. The Lessor shall be entitled to institute legal
proceedings claiming damages against the Lessee in
respect of the entire term of the lease including the
period before and after any abandonment or vacation of
the premises, any re-entry or termination, any
repudiation or acceptance of repudiation or surrender by
operation of law, whether the proceedings are instituted
either before or after any abandonment or vacation of
the premises, any re-entry or termination, any
repudiation or acceptance of repudiation or surrender by
operation of law.
13.4. Remedy of Default by the Lessor
Where the Lessee has failed to comply with a Notice to remedy a
default the Lessor may without prejudicing any rights that may
accrue under this lease, but shall not be obliged to, remedy at
any time without notice any default by the Lessee under this
lease and whenever the Lessor so elects all costs and
disbursements incurred by the Lessor (including legal costs and
expenses) in remedying a default shall constitute a liquidated
debt and shall be paid by the Lessee to the Lessor on demand
13.5. Interest on Monies Overdue
Without prejudice to any rights powers or remedies otherwise by
this lease conferred on the Lessor to pay to the Lessor interest
at the then Westpac Corporation Bank Bill rate plus 2% per
annum, calculated on a daily basis, on any moneys due and
payable by the Lessee to the Lessor on any account whatsoever
pursuant to the provisions of this lease but unpaid from the due
date for payment. Such interest is to be calculated from the due
date for payment of the moneys in respect of which interest is
chargeable in accordance with the
<PAGE> 23
21
provisions of this lease until the moneys have been paid in full
and shall be recoverable as rent in arrears.
13.6. Lessor's election for monthly tenancy upon default
13.6.1. Where the Lessee continues to be in default according to
this lease after having been given reasonable notice to
remedy such default, the Lessor may (without prejudicing
any of its rights against the Lessee that may accrue
under this lease), with notice in writing elect for this
lease to become a monthly tenancy. Such tenancy shall be
subject to the covenants, terms and conditions hereof as
a monthly tenant at a monthly rental equal to one (1)
month's proportion of the annual rent payable
immediately prior to the expiration of this lease.
13.6.2. If the Lessor makes an election under this sub-clause,
the monthly tenancy is determinable at the will of the
Lessor by one (1) month's notice in writing to the
Lessee other expiring on any day of the week.
13.7. Lessor to Mitigate Damages
13.7.1. In the event of the Lessee vacating the premises,
whether with or without the Lessor's consent, the Lessor
shall be obliged to take reasonable steps to mitigate
the damages and to endeavour to lease the premises at a
reasonable rent and on reasonable terms.
13.7.2. The Lessor's entitlement to damages shall be assessed on
the basis that the Lessor should have observed the
obligation to mitigate damages contained in this
sub-clause.
13.7.3. The Lessor's conduct taken pursuance of the duty to
mitigate damages shall not by itself constitute
acceptance of the Lessee's breach or repudiation or a
surrender by operation of law.
14. SECURITY DEPOSIT
14.1. The Lessee must pay to the Lessor the amounts referred to in
ITEM 10 of SCHEDULE 1 hereto by way of a Bank Guarantee
14.2. If the rent is increased, the Lessee must ensure that the amount
guaranteed is increased to be equivalent to the percentage
increase in the rent.
14.3. The Bank Guarantee is required as security for the payment by
the Lessee of the rent, Outgoings and any other money due from
time to time by the Lessee to the Lessor, under and pursuant to
or incidental to any one or more of the covenants, terms and
conditions of this lease and for the due and punctual observance
and performance of all the covenants, terms and conditions on
the Lessee's part in
<PAGE> 24
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this lease to be observed and performed.
14.4. The Bank Guarantee will be held by the Lessor.
14.5. If any money is over due and unpaid, the Lessor may in its
discretion call upon, appropriate and apply the whole or any
proportion of the Bank Guarantee to the payment of such overdue
and unpaid monies.
14.6. If at any time the Lessee fails to duly and punctually observe
and perform any of its covenants, terms and conditions of this
lease, the Lessor may in its absolute discretion appropriate and
apply so much of the Bank Guarantee as may be necessary in the
opinion of the Lessor to compensate the Lessor for any loss
and/or damages sustained or suffered by the Lessor by reason of
any such default or breach.
14.7. Any such appropriation by the Lessor of the Bank Guarantee or
part thereof shall not be deemed and shall not operate to waive
any default or breach by the Lessee.
14.8. If the Bank Guarantee is appropriated by the Lessor, then the
Lessee shall forthwith upon demand by the Lessor pay to the
Lessor the amount of the sum so appropriated.
14.9. The Lessor must account to the Lessee for the Bank Guarantee
upon the later of the Lessee vacating the premises or the
covenants, terms and conditions of this lease no longer applying
to the Lessee and so much of the Bank Guarantee which has then
not been appropriated by the Lessor shall be refunded to the
Lessee.
15. MISCELLANEOUS PROVISIONS:
15.1. No premium upon granting lease
It is mutually agreed and declared that no premium or other
consideration has been paid or is payable by the Lessee to the
Lessor in the consideration of the granting of this lease.
15.2. Costs of Lease
The Lessee shall pay all legal costs, stamp duties, charges,
expenses and payments which may be incurred or made by the
Lessor in relation to the application by the Lessee for consent
to an assignment or sub-letting of this lease or in the exercise
or enforcement or attempted exercise or enforcement of any power
right or remedy conferred upon the Lessor by this lease or which
the Lessor may in any way incur owing to default in payment of
any money herein reserved or the breach of any covenant or
condition herein contained or implied.
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15.3. Inspection by Prospective Lessees
If the option to renew contained in Clause 16 is not exercised
the Lessee shall at all reasonable times permit the Lessor or
the Lessor's agents during the three (3) months immediately
preceding the determination of the said term to affix and retain
without interference upon any part of the premises a notice for
re-letting the same and to permit persons in the company of the
Lessor or the Lessor's agents at reasonable times of the day to
view the premises.
15.4. Notices
15.4.1. Any notice or other document or writing served or given
by the Lessor under this lease shall be valid and
effectual if served or given under the hand of the
Lessor (being an individual) or under the common seal of
the Lessor or under the hand of any director or attorney
or manager or secretary for the time being of the Lessor
(being a company).
15.4.2. Without prejudice to any other means of giving notice,
any notice or other document required to be served may
be served upon the Lessee by mailing the same in a
properly stamped envelope addressed to the Lessee at the
premises or by leaving the same at the premises and any
such notice or other document or writing shall when
given by post be deemed to have been served at the time
when the same would normally be delivered in the
ordinary course of the post.
15.5. Holding Over
Should the Lessee continue to occupy the premises beyond the
expiration of the term of this lease with the consent of the
Lessor, it shall do so on and subject to the covenants, terms
and conditions hereof as a monthly tenant only at a monthly
rental equal to one (1) month's proportion of the annual rent
payable immediately prior to the expiration of this lease or
such further lease (as the case may be) payable monthly in
advance such tenancy being determinable at the will of either
the Lessor or the Lessee by one (1) month's notice in writing to
the other expiring on any day of the week.
15.6. Alteration to the Building
The Lessor has the right from time to time improve, extend, add
or to reduce the building in any manner whatsoever or deal with
the building PROVIDED THAT in exercising such right the Lessor
will not unreasonably detrimentally effect the Lessee's use of
the premise or access to the building without the Lessee's
consent AND THAT if the Lessor observes its obligations under
this clause, the Lessee will have no claim for compensation,
damages nor have an abatement of rent AND the Lessee consents
hereto to registration of any Plan of Consolidation, Subdivision
and/or Strata PROVIDED THAT the floor space of the premises
<PAGE> 26
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demised hereto and/or any exclusive uses enjoyed under this
Lease by the Lessee is not effected by any such plan of
Consolidation, Subdivision and/or Strata.
15.7. Lessor not Incur Liability for Overflow of Water Supply Or
Rainwater
Notwithstanding any other provision of this Lease that the
Lessor shall not incur any liability for damage caused by the
overflow of water supply or rain water or other substances which
may leak into issue or flow into the premises from any part
thereof or from the building of which they form part or from any
adjoining building or from the pipes or drainage, fire
sprinkling, electrical works or for damage caused by defective
fire sprinkling, electrical, gas or sewerage installations or
structural defects or otherwise whether the same shall occur by
reason of the carelessness or negligence of the Lessor or of any
servant or agent of the Lessor or otherwise.
15.8. Lifts, Escalators, Airconditioning etc
That should any lifts, escalators, air conditioning equipment,
fire sprinkling systems or any other gas, electricity or water
supply installations or sanitary systems in the premises fail to
function from any cause whatsoever except where due to the clear
fault of the Lessor or should the Lessor be compelled to shut
off or remove from the building any of the said installations or
services, the Lessee shall not by reason of such happening or
action be entitled to determine this lease nor shall the Lessee
have any right of action or claim for compensation or damages
against the Lessor in respect thereof.
15.9. Trade Practices Act
It is hereby agreed by and between the parties hereto that these
presents or any instrument incorporating the same or collateral
thereto and all the provisions hereof are to be read and
construed subject to the provisions of the Trade Practices Act,
1974 and to the extent (if any) that any such provisions or any
part thereof would but for this clause be wholly or in Part void
or illegal or would have an operation or effect which would
render any other provision hereof or these presents wholly or in
part void or illegal or unenforceable such provisions or such
part thereof shall constitute no part of these presents and
these presents shall be read and construed as if the same had
never been inserted herein.
15.10. No Representations or Warranties
The terms and conditions set out in this lease contain the
entire agreement between the parties and the notwithstanding any
negotiations or discussions prior to the execution hereof. The
Lessee acknowledges that he was not induced to enter this lease
by any representation verbal or otherwise made by the Lessor
other than as set out in this agreement
<PAGE> 27
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15.11. Representation as to suitability of business
The parties acknowledge that the Lessor does not represent that
the premises or building of which the same form part are
suitable for the business of the Lessee whether referred to
herein or otherwise
15.12. Lessor not in default in some circumstances
Notwithstanding anything hereinbefore contained or implied to
the contrary, the Lessor shall not be deemed in default of the
observance and/or performance of its obligations under this
lease unless the Lessee gives notice to the Lessor of such
default within a reasonable time thereafter to take proper steps
to rectify such default.
15.13. Emergencies
Notwithstanding any other provision of this Lease in the event
of an emergency or service malfunction the Lessee, after having
notified the Lessor, may contact the relevant service provided
as set out in ITEM 12 of SCHEDULE 1 to arrange for the urgent
repairs of any lifts, escalators, air conditioning equipment,
fire sprinkling systems or any other gas, electricity or water
supply installations or sanitary systems.
16. OPTION OF RENEWAL
16.1. The Lessee if it so desires, may take a renewed lease of the
premises for a further term as specified in ITEM 4 of SCHEDULE 1
hereto from the expiration of the term of this lease only if:
16.1.1. the Lessee serves on the Lessor notice in writing
(herein named "the renewal notice") not less than three
(3) calendar months before the end of this lease of its
intentions to exercise this option, and
16.1.2. there is at the time of service of the renewal notice no
outstanding rent or outgoings and shall in the meantime
duly and punctually pay the rent reserved by this lease
at the times herein appointed for the payment thereof,
and
16.1.3. at the time of the service of the renewal notice the
Lessee is not in breach of any obligation, condition or
clause of this lease which have not been remedied in
accordance with the terms and conditions set out by this
lease or if in breach thereof such breaches have been
remedied and shall duly perform and observe the
covenants and agreements by and on the part of the
Lessee contained in this lease up to the expiration of
the term of this lease.
16.2. If this option has been duly exercised, the Lessor will at the
cost of the Lessee
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demise to the Lessee the said premises hereby for a further term
as specified in ITEM 4 of SCHEDULE 1 hereto from the expiration
of the term hereby granted AND the renewed lease shall be on the
same terms and conditions as this lease except this clause shall
be omitted and the clause in relation to rent and the
commencement and termination dates.
17. GUARANTEE
17.1. Guarantee of Guarantor
The Guarantor named in ITEM 9 of SCHEDULE 1 hereto hereby
guarantees to the Lessor all monies due and owing according to
the terms of this lease and the due performance and observance
by the Lessee of all the covenants, terms and provisions
contained or implied in this lease and on the part of the Lessee
to perform and observe.
17.2. Circumstance where the Lessor's Rights Not to be Affected
The rights remedies of the Lessor and the liability of the
Guarantor pursuant to this lease shall not be affected by any
one or more of the following, all of which the guarantor
approves:
i. The granting of any credit, forbearance or concession by
the Lessor to the Lessee or the guarantor
ii. Any variation of this lease or any extended or renewed
lease
iii. Any extension or renewal of this lease or any holding
over after the term or other continued occupation of the
premises by the Lessee
iv. Any compromise, release, discharge, abandonment, waiver
or variation of any security held by the Lessor or right
of the Lessor against the Lessee.
v. Any assignment of the lease or sublease of the premises
or any part thereof
vi. Any determination of the lease (whether by affluxion of
time, reentry, forfeiture, surrender or otherwise)
vii. Where the Lessee is a person - Any death or disability,
bankruptcy deed of arrangement, assignment or
composition for the benefit of creditors affecting the
Lessee or the guarantor.
viii. Where the Lessee is a company - Any winding-up, scheme
of arrangement or the appointment of a receiver and
manager or official management affecting the Lessee or
any guarantor
ix. Where the guarantor is more than one - the fact that one
or more of the persons named herein as guarantor never
executes this lease as guarantor or that the execution
of this lease by one or more of such person (other than
the person sough to be made liable hereunder) is or may
become unenforceable, void or
<PAGE> 29
27
voidable.
x. Where the guarantor is more than one then each guarantor
is jointly and severally liable to monies hereby agreed
to be paid and the due performance and observance by the
Lessee of all the covenants, terms and provisions
contained or implied in this lease and on the part of
the Lessee to perform and observe
17.3. Agreement by Guarantor as to Statutory Avoidance
Any payment made to the Lessor and later avoided by any
statutory provision will be deemed not to have discharged the
guarantor's liability and in any such event the Lessor, the
Lessee and the guarantor will be restored to the rights which
each respectively would have had if the payment had not been
made.
17.4. Disclaimer
If there should be any disclaimer of this lease by a liquidator
of the Lessee, the guarantor's guarantee shall stand for the
residue of the term which would have remained if there had been
no disclaimer
17.5. Guarantor not to Claim in Liquidation
The guarantor shall not claim in any liquidation, composition,
arrangement or assignment affecting the Lessee until the Lessor
has received one hundred (100) cents in the dollar in respect of
the moneys due, owing and payable by the Lessee or the Lessor.
18. DISPUTES
18.1. Dispute
If a dispute arises out of or relates to this lease (including
any dispute as to the meaning, performance, validity, subject
matter, breach or termination of the lease or as to any claim in
tort, in equity or pursuant to any statute) (herein called
"Dispute"), any court or arbitration proceedings shall not be
commenced by or against the Lessor, Lessee, their successors or
assigns, any guarantor, mortgagee, or other party bound by this
lease, relating to the Dispute ("the parties") unless the
parties have complied with this clause, except where a party
seeks interlocutory relief.
18.2. Notice of Dispute
The party claiming that a dispute has arisen under or in
relation to this lease, must give written notice to the other
parties to the dispute specifying the nature of the dispute. On
receipt of the notice, the parties to the dispute must within
seven (7) days seek to resolve the dispute.
<PAGE> 30
28
18.3. Mediation
18.3.1. If the dispute is not resolved within seven (7) days or
within such further period as the parties agree, then
the dispute is to be referred to the Australian
Commercial Disputes Centre ("ACDC").
18.3.2. In the event that the dispute is referred to the ACDC,
the parties agree to mediate the dispute in accordance
with the mediation rules of the ACDC
18.3.3. The parties agree that the ACDC will select a mediator
and determine the mediator's remuneration.
18.3.4. The parties agree to share all costs in relation to the
mediation provided by ACDC.
18.3.5. The parties may, but are not required, to enter into an
agreement before mediating a dispute.
18.3.6. If any procedural aspects are not specified sufficiently
in this clause, the parties agree to conduct the
mediation regarding this aspects in accordance with the
determination of the mediator whose decision regarding
those aspects is final and binding on the parties.
18.3.7. If a party is an individual, that individual must attend
the mediation. If the party is a company, an authorised
company representative must attend the mediation. This
person must have authority to settle the matter. Each
party is entitled to bring its legal representative and
other people with information or knowledge relevant to
the resolution of the dispute.
18.3.8. From the time when the notice of dispute is served, the
Lessor shall not take action to terminate this lease, by
physical re-entry or otherwise, until after the
conclusion of the mediation.
19. GOODS AND SERVICES TAX
Notwithstanding any provision of this Lease, if a goods and services
tax, value added tax or similar tax ("GST":-
- is introduced in Australia by the Commonwealth Government or any
State or Territory Government; and
- comes into effect during the term of this Lease,
to the extent to which the Lessor is liable for an amount of GST in
connection with the supply of any goods, services or of anything other
than goods or services "THE AFFECTED SUPPLIES'), the Lessor may add such
amount of GST to the agreed price of all affected
<PAGE> 31
29
supplies (including to the rent) in respect of which the Lessor issues
an invoice which enables the Lessee to claim a credit or refund GST. The
Lessee in paying consideration for the affected supplies under this
Agreement will pay the agreed price plus such an amount of GST
The COMMON SEAL of
MOUREBEN NOMINEES PTY. LTD /s/ [signature is illegible]
(ACN 001 923 002) was hereunto --------------------------------
affixed by order of the Board of Directors Director/Secretary
in the presence of:
/s/ [signature is illegible]
--------------------------------
Director
The COMMON SEAL of /s/ [signature is illegible]
CHIP APPLICATION TECHNOLOGIES --------------------------------
LIMITED (ACN 057 883 333)
was hereunto affixed by order of Director/Secretary
the Board of Directors in the presence of:
/s/ DAVID MAC SMITH
--------------------------------
Director
<PAGE> 32
30
SCHEDULE ONE
<TABLE>
<S> <C> <C> <C>
ITEM 1 BUILDING: 68-72 Wentworth Avenue, Sydney
PREMISES: Whole of Level 4, 68-72 Wentworth Avenue,
Sydney
ITEM 2 COMMENCEMENT
& TERMINATION DATES
(Clause 3.1)
Commencement Date ("CD") 15 December 1999
Termination Date ("TD") 14 December 2003
ITEM 3 PERIOD OF LEASE 4 YEARS
ITEM 4 OPTIONS 4 YEARS
(Clause 16)
ITEM 5 RENT REVIEW: DATESMETHOD
(Clause 3.2 and 3.4) CD $123,700
1st anniversary $129,885
2nd anniversary $136,070
3rd anniversary $142,874
Commencement
date of Option $142,874
1st anniversary of Option Market review
2nd anniversary of Option Same as
previous year
3rd anniversary of Option Market review
ITEM 6 RENT PAYABLE During the first year of the Lease by monthly instalments of
$10,308.33 in advance beginning 3 months from the CD
and thereafter by monthly instalments equal to one twelfth
of the yearly rental as determined under Clause 3 of the
Lease on the first day of each month.
ITEM 7 USE OF PREMISES Commercial Office
(Clause 7)
ITEM 8 INCLUSIONS Nil
ITEM 9 GUARANTORS
(Clause 17) Nil
ITEM 10 BANK GUARANTEE Three (3) months gross rental from time to time
(Clause 14)
ITEM 11 OUTGOINGS 16.67% of increases in Outgoings from the Base year
(Clause 4) using July 1998 to June 1999 as the Base Year.
</TABLE>
<PAGE> 33
31
<TABLE>
<S> <C> <C> <C>
ITEM 12 SERVICE PROVIDERS Service Details
(Clause 15.9) Air conditioning maintenance
Lift maintenance
Fire Sprinkler maintenance
Plumber
Electrician
</TABLE>
<PAGE> 1
EXHIBIT 10.11
COMMERCIAL LEASE
THIS AGREEMENT entered into this 1st day of March, 2000 between ARTHUR
J. ROHDE & CO., 2711 East Jefferson Avenue, Detroit, Michigan, its successors
and assigns, (hereinafter called the "Lessor" or "Landlord") and CATUITY
INCORPORATED (hereinafter called the "Lessee" or "Tenant").
WITNESSETH, Lessor does this day lease to Tenant the office space and
appurtenances as described on Exhibit "A" attached hereto, together with the
right to reasonably utilize common elements as described, to be used and
occupied as commercial office property by said Lessee, subject to the term and
conditions of this lease.
1. DESCRIPTION OF PREMISES: The Landlord lets and the Tenant hires
certain office space, to be used as a commercial business office, described on
Exhibit "A". The Tenant shall have the nonexclusive right to use certain COMMON
ELEMENTS/AREAS including but not limited to hails, entrances, grounds, parking
lot and public rest rooms, so long as such use does not unreasonably interfere
with co-tenants' use thereof. The Lessor shall make said leasehold available
during normal business hours, 7 a.m. to 7 p.m., or otherwise as arranged.
2. TERM: As described on Exhibit "A" attached hereto.
3. RENT: For the sum described on Exhibit "A" attached hereto, payable
in advance by the 1st day of each month (hereinafter "Due Date"). (See Late Fee
at Paragraph 17.)
4. USE AND OCCUPANCY: It is understood and agreed that the premises let
herein shall be used and occupied as a commercial business office and for no
other purposes without the written consent of the Landlord. Tenant further
covenants that he shall not carry out any activity which will be of an
inherently dangerous nature, and further, that Tenant's use will not be in
violation of any law, municipal ordinance or regulation, and that upon any
breach of this provision, the Landlord may terminate this Lease forthwith and
assert any remedies created hereby or pursuant to law.
a. RULES AND REGULATIONS: The Landlord may from time to time impose
reasonable rules and regulations regarding the Tenant's use of
the premises and the Tenant shall abide by and observe said
rules and regulations so long as same are commercially
reasonable and reasonable under the circumstances.
b. ENTRANCE - ACCESS: The Tenant and the customers, guests
<PAGE> 2
and business invitees of the Tenant shall at all times use the
"front entrance" being the most southerly entrance door on or
about the leased premises.
5. SECURITY DEPOSIT: In addition to the rental amount stated on Exhibit
"A", the Lessee shall pay to the Lessor a security deposit in an amount stated
on Exhibit "A", and same shall be held by Landlord pursuant to law and cannot be
used as rent. Said security deposit will be returned to Tenant within ten (10)
days after vacating of the premises, but Lessor retains the right to charge
Lessee's account for any damage, unreasonable clean-up or other charges due
hereunder.
6. RENEWAL AND HOLDOVER TENANCY: The Lessee shall have first right of
refusal on successive years. If Lessee remains in possession of the leased
premises after the expiration of this initial Lease Term or any option term, he
may continue in possession and all the terms and conditions of this Lease shall
continue in full force and written notice will be required to terminate the
successive lease term. Rent during any such hold over period shall be at a
monthly rate equal to 110% of the rent for the last month of the then ending
lease term.
7. INSURANCE AND INDEMNITY: The Lessor agrees to maintain fire insurance
with extended coverage covering the building. The Lessee agrees to maintain
contents insurance aid to indemnify and hold harmless the Landlord from any
liability for damages to any person or property in, on or about said leased
premises from any cause whatsoever; and Tenant will procure and keep in effect
during the term hereof, public liability and property damage insurance for the
benefit of itself and the Landlord in the sum of One Million and 00/100
($1,000,000.00) dollars for damages resulting to one person and Five Hundred
Thousand and 00/100 ($500,000.00) dollars for damages resulting from one
casualty, and Twenty Five Thousand and 00/100 ($25,000.00) dollars property
damage insurance resulting from any one occurrence, Tenant shall deliver said
policies or certificate thereof to the Landlord: and upon Tenant's failure to do
so,
<PAGE> 3
the Landlord may at his option obtain such insurance and the cost thereof shall
be paid as additional rent due and payable upon the next ensuing rent due day.
8. REPAIRS AND ALTERATIONS: The Landlord, after receiving written notice
from the Tenant and having reasonable opportunity thereafter to obtain the
necessary workmen therefor, agrees to keep in good order and repair the roof and
the four outer walls of the premises, the doors, door frames, the window glass,
window casings and window frames.
Except as provided above, the Tenant further covenants and agrees that
he will, at his sole expense, during the continuation of this lease, keep said
premises and every part thereof in good repair, and at the expiration of the
term, yield and deliver up same in like condition as when taken, reasonable use,
wear and tear thereof and damages by the elements excepted. The Tenant shall not
make any alterations, additions or improvements to said premises without the
Landlord's written consent; and all alterations, additions or improvements made
by either of the parties hereto upon the premises, except movable office
furniture and trade fixtures put in at the expense of the Tenant, shall be the
property of the Landlord and shall remain upon and be surrendered with the
premises at the termination of this lease without molestation or injury.
9. MAINTENANCE: The Lessor agrees to maintain the building affixed to
said land in a condition substantially the same as it now exists. The Lessee
agrees to maintain interior of the individual let office in a condition
substantially the same as it now exists with respect to general maintenance. The
Lessee further agrees to keep common areas free of nuisances and debris of
Lessee. Lessor shall provide limited janitorial service, reasonable (once a
week) trash removal and shall maintain the grounds, including landscaping and
snow removal, in a condition required in maintaining an office building.
10. UTILITIES: The Landlord agrees that he will pay all reasonable
charges for gas or oil for heating, and for water consumed on the premises or
any part thereof during the said term as they shall become due. Landlord shall
<PAGE> 4
have the right to either pay the cost of electricity (which Lessor shall pay
initially), or to allocate the cost of electricity based upon square footage as
additional rent in the event that in Lessors sole discretion Tenant uses a
disproportionate amount of electricity, but landlord shall allocate and pay the
cost of electricity for common area square footage.
11. TAXES: Landlord shall pay all taxes, assessments and charges which
shall be assessed and levied upon the leased premises or any part thereof during
the said term as they shall become due.
12. LANDLORD'S ENTRY: Upon reasonable prior notice, the Lessor may enter
at all reasonable hours of the day and only in a commercially reasonable manner,
to inspect and/or make such repairs to the leased premises as the Lessor may
reasonably desire, without prosecution for such intrusion. The Lessor shall at
all times accord reasonable care to the Lessee's property.
13. OBSERVANCE OF LAWS: Tenant shall duly obey and comply with all
public laws, ordinances, rules or regulations relating to the use of the leased
premises; provided, however, that any installation of fire prevention apparatus,
electric rewiring, plumbing changes or structural changes in the building on the
lease premises, required by any such law, ordinance, rule or regulation, shall
be made by Landlord without expense to Tenant.
14. DEFAULT: "Default shall be defined as follows: failure by either of
the parties hereto to perform any covenant required to be performed by such
party under the terms and provisions of this lease, including Tenant's covenant
to pay rent by Due Date. Default shall automatically accelerate rent due, for
the full amount of rent due, during the term of this Lease, and allow Landlord
to demand and seize the security deposit made herewith. Tenant may not be liable
for entire accelerated amount because Landlord shall attempt to minimize damage,
by re-rental of the premises. Tenant hereby waives any notice of
<PAGE> 5
acceleration.
15. EVICTION: In the event that Tenant fails to pay rent by the Due
Date, Landlord may at its option, serve upon Tenant a Notice to Quit, and both
Tenant and Landlord agree that eviction may be by Summary Proceedings. In
addition, Landlord may at its option use self-help and re-enter and repossess
the premises and remove and put out each and every occupant. So long as
Landlord's actions are reasonable and in accordance herewith, Tenant shall not
be entitled to any damages from Landlord on account of his re-entry.
16. TERMINATION BY REASON OF DEFAULT: In the event that Tenant fails to
pay rent seven (7) days after service upon Tenant of Notice to Quit, Landlord
may at its option, immediately terminate this lease and pursue all legal
remedies. In the event that either party defaults for any reason, other than
Tenant's nonpayment of rent, and such default continues for fifteen days after
service of notice upon the defaulting party by the non-defaulting party, this
lease may be terminated, at the option of the non-defaulting party, fifteen days
after service of the notice. Such termination shall not relieve the defaulting
party from liability to the other party for such damages as may be suffered by
reason of such default.
17. EXPENSES, DAMAGES LATE CHARGES AND INTEREST: Tenant hereby agrees to
pay Landlord expenses and costs, including payroll costs and actual attorneys
fees, reasonably incurred by Landlord but not to exceed $900.00, because of
Tenant's default and those fees resulting from any action for Summary
Proceedings against Tenant. The Landlord shall be entitled to, and Tenant agrees
to pay, interest on account of all rents past due 30 days from Due Date, same to
be charged at the rate of one and one half (1 1/2%) percent per month. Landlord
shall be entitled to and Tenant agrees to pay, a late fee of Twenty Five and
00/100 ($25.00) dollars if rent is not received within Fifteen (15) days of the
Due Date. Said interest charge and late fee shall be included as service charges
and be deemed part of additional rent. Any rent
<PAGE> 6
check tendered to the Landlord returned by the bank shall obligate the Tenant to
pay the Landlord Twenty Five and 00/100 ($25.00) Dollars immediately upon
receipt of notice, plus reimbursement of Landlord's bank charges for the
returned check.
18. REMEDIES NOT EXCLUSIVE: It is agreed that each and every right,
remedy and benefit Provided by this lease shall be cumulative and shall not be
exclusive of any other right remedy and/or benefit allowed by law.
19. LANDLORD'S LIEN: Pursuant to Michigan Compiled Law 440.9101 and
440.9102 et. seq., the Landlord creates and retains hereby, as agreed to by the
Tenant herein, a lien for rents and charges due Landlord from Tenant on all of
the property, office furniture and equipment placed upon the premises let
hereby. In the event of Tenant's default in the payments and covenants
hereunder, the Landlord may assert his lien against said chattels and may
foreclose against same pursuant to law. Additionally, no property owned by
Tenant will be released or allowed to be removed from the premises while Tenant
is in default of any conditions herein.
20. RIGHT TO MORTGAGE, SELL AND SUBORDINATE: The Landlord reserves the
right to subject and subordinate this Lease at all times to any lien of any
mortgage or mortgages and, further, reserves the right to sell or otherwise
convey or hypothecate said premises, subject only to a thirty (30) day notice of
recession and notice that said Lease will not be renewed.
21. RISK OF LOSS: The Lessee shall completely and unequivocally, bear
the full risk of any loss or damage to any property stored pursuant to this
Lease on Lessor's property, and Tenant shall indemnify and hold Landlord
harmless from any loss, claim or suit, including the costs of defense and
attorney's fees to defend Landlord from any claim of any nature whatsoever.
<PAGE> 7
Additionally, the Lessee shall indemnify and hold Lessor harmless from
any injury, loss or damage, including legal fees, or from any suit of any kind
or nature whatsoever sustained as a result of injury, loss or damage sustained
by any person who is in the employ of the Lessee or who is injured as a result
of Tenant's negligence, or any injury which is associated with the items stored
by Tenant hereunder, including but not limited to, those agents, subcontractors
or other persons appointed or otherwise authorized by the Lessor to enter the
let premises on behalf of Lessor.
22. CONDEMNATION: In the event that the leased premises shall be taken
for public use by the city, state, federal government, public authority or other
corporation having the power of eminent domain, then this lease shall terminate
as of the date on which possession thereof shall be taken for such public use,
or, at the option of Tenant, as of the date on which the premises shall become
unsuitable for Tenant's regular business by reason of such taking, provided,
however, that if only a part of the leased premises shall be so taken, such
termination shall be at the option of Tenant only. If such a taking of only a
part of the leased premises occurs and Tenant elects not to terminate the lease,
there shall be an proportionate reduction of the rent to be paid under this
lease from and after the date such possession is taken for public use. Tenant
shall have the right to participate, directly or indirectly, in any award for
such public taking to the extent that he may have suffered compensable damage as
a Tenant on account of such public taking.
23. ASSIGNMENT: Tenant may assign this lease or sublet the premises or
any part thereof for any legitimate use, only upon the written consent of
Landlord. Tenant shall remain liable as surety under the terms hereof
notwithstanding such assignment or sublease.
24. FIRE OR CASUALTY: In the event the premises shall be destroyed or so
damaged or injured by water, fire or other casualty during the life of this
agreement whereby the same shall be rendered untenantable, then the Lessor
<PAGE> 8
shall have the right to render said premises tenantable by repairs within ninety
(90) days of said casualty without affecting Tenant's duties hereunder;
otherwise, the Tenant may cancel this lease, In the event of such cancellation,
the rent shall be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing.
25. LESSEE DATA: The Lessee shall contemporaneously with the execution
hereof and prior to delivery of any personalty to the let premises, submit to
the Landlord personal information data on Exhibit "B" which shall be held in the
strictest confidence, by completing the form attached hereto. This information
will enable the Landlord to have relevant names, addresses and phone numbers so
that Landlord can, without liability, make reasonable inquiry into authority and
authorization of any agents or individuals of Lessee.
26. WAIVER AND SEVERABILITY: No waiver of any rights hereunder shall be
deemed as a continuing waiver, nor shall it in any way prejudice any rights or
remedies provided hereby. The terms, conditions and covenants in this agreement
are severable, and the invalidity of one shall in no way affect the enforcement
of others.
27. NOTICES: It is understood and agreed between the parties hereto that
written notice mailed or delivered to the premises leased hereunder, shall
constitute sufficient notice to the Lessee; and written notice mailed or
delivered to the office of the Lessor, shall constitute sufficient notice to the
Lessor to comply with the terms of this contract.
28. ACCEPTANCE OF PREMISES: Lessee hereby accepts the premises in the
condition they are in at the beginning of this lease and subject to the
provisions of paragraph 5 hereof and agrees to maintain said premises in the
same condition, order and repair as they are in at the commencement of said
term, excepting only reasonable wear and tear arising from the use thereof under
<PAGE> 9
this agreement.
29. QUITE ENJOYMENT: As long as the Lessee pays the rent as provided
herein and otherwise performs all of the covenants and conditions to be
performed by the Lessee and abides by all the rules and regulations set forth
herein, Lessee shall have peaceful and quiet enjoyment of the demised premises
for the term of this lease.
30. LANDLORD'S RIGHT TO SHOW PREMISES: For a period of ninety (90) days
prior to the termination of this Lease, Landlord may enter upon the premises
during normal business hours to show the premises to prospective lessees and/or
purchasers, and for a period of sixty (60) days prior to the termination of this
lease, Landlord may display in and about the premises the usual "For Rent" or
"For Sale" signs.
31. LAW GOVERNING: This Agreement shall be interpreted and is written
pursuant to the laws of the State of Michigan, and the Michigan courts shall
retain jurisdiction of this matter.
32. MODIFICATION: No modification or waiver of any of the terms hereof
shall be valid unless in writing and signed by both parties. No waiver or any
breach thereof or default hereunder shall be deemed a waiver of any subsequent
breach or default of the same or similar nature.
IN WITNESS WHEREOF the parties have set their hands and seats to four
counter parts of this agreement, each of which shall constitute an original, as
of the date first written above.
WITNESS: LESSOR: ARTHUR J. ROHDE & CO.
- ------------------------- By: /s/ ARTHUR J. ROHDE, JR.
---------------------------------
Arthur J. Rohde, Jr.
Its: President
<PAGE> 10
- ------------------------- LESSEE: CATUITY INCORPORATED
By: /s/ MICHAEL HOWE
- ------------------------ ---------------------------------
Its:
<PAGE> 11
EXHIBIT "A"
To Lease between ARTHUR J. ROHDE & CO. and CATUITY INCORPORATED
Dated: March 1, 2000
Office Number: #205 and #207
Parking Spaces: Two (2) (General guest parking is available)
Monthly Rental: $800.00/month
Term: Twelve (12) Months
Commencing: March 1, 2000
Security Deposit: $2,400.00
Option to Renew: If the Tenant is not then in default said Tenant
shall have the option to renew this lease for an additional one year
term at the following monthly rental:
$800.00/month
Tenant shall give Landlord written notice of its intention to exercise
this renewal option, not less than 30 days prior to the expiration of
the initial 12 month lease term. In the event Tenant does not give 30
day renewal notice, tenant may extend the lease monthly for $880/month
for up to 12 additional months. Tenant may also extend the lease if the
2nd year is extended, for a 3rd or 4th year. In the event of a 3rd or
4th year extension, the rental rate shall be $800/month times the U.S.
Department of Commerce CPI-U Index for February, 2002 divided by
February, 2000 for the 3rd year; and $800/month times the said Index for
February, 2003 divided by February, 2000 for the 4th year, should the
Lease be so extended.
<PAGE> 12
EXHIBIT "B"
LESSEE DATA AND RELEASE
To Lease between ARTHUR J. ROHDE & CO. and CATUITY INCORPORATED
Dated: March 1, 2000
Name: CATUITY INCORPORATED
If Individual Social Security/EIN Number:_______________________
Banking Data: Account Number(s):_________________ (Checking)
Name of Bank:
Lessee hereby authorizes said bank or financial institution to release
credit information and account history of Lessee to ARTHUR J. ROHDE &
CO.
Date: March 1, 2000
Name/Signature:
---------------------
Title:
<PAGE> 1
EXHIBIT 10.12
Project No: .... GRA01530..........
R&D START GRANT DEED
INDUSTRY
RESEARCH AND
DEVELOPMENT
BOARD PARTICULAR CONDITIONS
---------------------
PARTIES
THE BOARD INDUSTRY RESEARCH AND DEVELOPMENT BOARD on
behalf of the Commonwealth of Australia
- - postal address Mr A B Baker
Regional Director NSW
AusIndustry
GPO Box 9839
Sydney NSW 2001
- - street address Mr A B Baker
Regional Director NSW
AusIndustry
Level 17, MSB Tower
207 Kent Street
Sydney NSW 2000
THE GRANTEE Chip Application Technologies Limited
- - ACN ACN 057 883 333
- - postal address Level 4, Ballarat House
68 Wentworth Avenue
Surry Hills
NSW 2010
- - street address Level 4, Ballarat House
68 Wentworth Avenue
Surry Hills
NSW 2010
Version 2
<PAGE> 2
2
OPERATIVE PROVISIONS
This Grant is made under the R&D Start Program to the Grantee respect of the
Project described in schedule 1. The Grant is made on the terms and conditions
contained in this deed, which incorporates the GENERAL CONDITIONS applying to
R&D Start Program grants as at 1 September 1998, as modified by the Special
Conditions in schedule 6.
The Grantee acknowledges receipt of a copy of the General Conditions.
If there is an inconsistency between these Particular Conditions and the General
Conditions these Particular Conditions prevail to the extent of the
inconsistency.
Version 2
<PAGE> 3
3
ACCEPTANCE OF TERMS
EXECUTED AS A DEED
Date of deed: 17th February 2000
BOARD
SIGNED, SEALED AND
DELIVERED on behalf of the
COMMONWEALTH OF
AUSTRALIA By A B Baker a delegate
of the INDUSTRY RESEARCH AND
DEVELOPMENT BOARD in the
presence of:
/s/ M. CHENG
- -----------------------------------------
Signature of witness /s/ [SIGNATURE ILLEGIBLE]
M Cheng -----------------------------------
- -----------------------------------------
Name Of Witness (block letters)
Level 17, 207 Kew Street, Sydney, ???
- -----------------------------------------
Address of witness
Customer Service Manager
- -----------------------------------------
Occupation of witness
Version 2
<PAGE> 4
4
GRANTEE
SIGNED, SEALED AND
DELIVERED by CHIP APPLICATION [COMMON SEAL LOGO]
TECHNOLOGIES LIMITED ACN 057 883
333 whose COMMON SEAL is
affixed in accordance with its Articles
of Association in the presence of
/s/ DAVID C. MAE SMITH /s/ JOHN WEIWENE
- ----------------------------------- -----------------------------------
Signature of director Signature of secretary
(director/secretary)
David C. Mae Smith John Weiwene
- ----------------------------------- -----------------------------------
Name of director (block letters) Name of secretary (block letters)
58 View Street 17 Bayswater Road
[Illegible] Lindfield, NSW
- ----------------------------------- -----------------------------------
Address of director Address of director/secretary
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SCHEDULES
SCHEDULE 1 PROJECT SUMMARY
SCHEDULE 2 REFERENCE SCHEDULE
SCHEDULE 3 PROJECT BUDGET
SCHEDULE 4 FUNDING OF PROJECT AND PAYMENT DATES
SCHEDULE 5 REPORTING REQUIREMENTS
SCHEDULE 6 SPECIAL CONDITIONS
SCHEDULE 7 COMMERCIALISATION STRATEGY
SCHEDULE 8 REPAYMENT OF REPAYABLE CONTRIBUTION
UNDER START PREMIUM
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SCHEDULE 1 - PROJECT SUMMARY
1.1 PROJECT TITLE Internet Capable Multi Application Smartcard System
1.2 PROJECT REFERENCE NUMBER GRA 01530
1.3 PROJECT DURATION 18 months
Agreed Start Date 23 July 1999
Agreed Completion Date 31 December 2000
1.4 PROJECT DESCRIPTION
This project researches and develops systems for a multi application smartcard
scheme that operates in the internet and real world domains. It enables
cardholders to use the same smartcard on the Internet as they use in day to day
store transactions. Functions such as electronic purse, loyalty tickets,
membership and access are available seamlessly to the customer wherever they
are. Merchants can maximise their brand awareness and link their customers
whether they are on-line or in-store. This expands the merchant's marketing
possibilities and increases benefits to their customers.
1.5 COMPANY TURNOVER
- - Grantee and Related Bodies Corporate have a combined turnover of less
than $50 million in each Relevant Year--Core Start
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1.6 MAJOR ACTIVITIES
<TABLE>
<CAPTION>
Activity
Finish Eligible
Major Activity Start Date Date Expenditure $
-------------- ---------- ------ -------------
<S> <C> <C> <C>
1 Proof of concept model research [*] [*] [*]
2 System architecture design; [*] [*] [*]
3 Phase 1 Product Development, Integration & [*] [*] [*]
Testing
4 Phase 2 Product Development, Integration & [*] [*] [*]
Testing
5 In house trials [*] [*] [*]
6 Beta site trials [*] [*] [*]
Total [*]
</TABLE>
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1.7 MAJOR MILESTONES
<TABLE>
<CAPTION>
Milestone
Eligible
Achievement Cumulative
Major Milestone Date Expenditure $
--------------- ----------- -------------
<S> <C> <C>
1 Demonstrable Proof of Concept model [*] [*]
2 System design documentation complete: [*] [*]
- functional specification
- high level design documentation
3 Phase 1 Products Development complete: [*] [*]
- Java Card applets and card creation,
- POS terminal integration,
- Web enquiries for members and
merchants,
- Web transactions for members.
4 Phase 2 Products Development complete: [*] [*]
- Merchant maintenance via web
- Online customer database product,
- Online member POS transactions,
- Online member internet enquiries and
transactions.
5 In house Trials complete: [*] [*]
- Phase 1 and phase 2 demonstrations plus
evaluation reports
6 Beta site Trials complete: [*] [*]
- Phase 1 and phase 2 installations
complete plus evaluation reports
</TABLE>
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1.8 MAJOR ACTIVITIES
1. PROOF OF CONCEPT MODEL
The major activities for this part of the project include;
- - Development of a Functional Requirement Specification detailing the
required functionality of the final system.
- - Research of the likely approaches to implement requirements,
- - Develop functional prototypes to demonstration standard for the Web
Enquiries, Web transactions and PDA (Personal Digital Assistants)
products.
- - Evaluate the effectiveness and update Functional Requirements as needed.
- - Demonstrate prototypes to key potential clients and enhance
specifications according to market feedback.
2. SYSTEM ARCHITECTURE DESIGN
The prime activities here are to;
- - Refine the Functional Requirements Specification so it can be used as the
source document for project plans and test plans.
- - Design the system architecture to ensure interoperability between products
and adequate security.
- - Generate high level designs of the software for each product.
PHASE 1 PRODUCT DEVELOPMENT, INTEGRATION & TEST
Phase 1 of the Product Development activities includes software and system
development, integration and testing of the following products;
- - Java Card applets and card creation process.
- - Point of Sale terminal integration.
- - Web enquiries for members and merchants.
- - Web transactions for members.
PHASE 2 PRODUCT DEVELOPMENT, INTEGRATION & TEST
Phase 2 of the Product Development activities includes software and system
development, integration and testing of the following products;
- - Merchant maintenance of their application programs via the web.
- - Online customer database.
- - Online member point of sale transactions.
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- - Online member internet enquiries and transactions.
IN HOUSE TRIALS
The activities for in house trials include;
- - Installation of phase 1 products in house at arms length from the
development team.
- - Testing the individual products by setting up a simulated environment and
exercising the product with life like operational activity.
BETA TRIALS
Beta trials of the various products include the following activities;
- - Installation of the products at a friendly Beta site.
- - Operation of the products by people not involved in the development of
the products.
- - Evaluation of the products to assess usability and functional
completeness.
1.9 INELIGIBLE ASSOCIATED WORK
The majority of ineligible work is associated with bringing the products to the
marketplace. This includes;
- - Marketing documentation, sales force training, trade show presentations
and sales campaigns.
- - Enhancements to the existing system patents and their registration in
other countries,
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Schedule 2 - Reference Schedule
2.1 TYPE OF GRANT
Core Start
2.2 GRANT
A maximum amount of $860,150
2.3 GRANT PERCENTAGE
50%
2.4 REPAYABLE CONTRIBUTION (IF ANY).
0 %
2.5 INTEREST RATE
7.7 % (FIXED RATE), but for any period that the bank variable small business
loan rate set out in Table F4 (Indicator Lending Rates) published in the Reserve
Bank Bulletin (FLOATING RATE) is less than the Fixed Rate, the Interest Rate
will be the Floating Rate from time to time during that period.
If the Floating Rate index referred to above is no longer published, the
Floating Rate will reflect another index determined by the Commonwealth.
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2.6 ADDRESSES FOR SERVICE OF NOTICES
COMMONWEALTH
Regional Director NSW
Ausindustry
GPO Box 9839
Sydney NSW 2001
Facsimile: (02) 9252 3652
GRANTEE
Project Manager: Mark Hallinan
Address: Level 4 Ballarat House
68 Wentworth Avenue
Surry Hills
NSW 2010
Facsimile: 02 9281 1242
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SCHEDULE 3 - PROJECT BUDGET
3. 1 SUMMARY OF PROJECT ELIGIBLE EXPENDITURE
<TABLE>
<CAPTION>
ESTIMATED EXPENDITURE
$
-------------------------- TOTAL
HEAD OF EXPENDITURE 99-00 00-01 $
------------------- --------- ------- ----------
<S> <C> <C> <C>
R&D Salary Expenditure [*] [*] [*]
Contract Expenditure [*] [*] [*]
Plant Expenditure [*] [*] [*]
Prototype Expenditure [*] [*] [*]
Other Expenditure [*] [*] [*]
PROJECT ELIGIBLE EXPENDITURE [*] [*] [*]
</TABLE>
3. 2 GLOBAL BUDGET
<TABLE>
<CAPTION>
ESTIMATED EXPENDITURE
$
-------------------------- TOTAL
99-00 00-01 $
--------- ------- ----------
<S> <C> <C> <C>
Project Eligible Expenditure [*] [*] [*]
Project Ineligible Expenditure [*] [*] [*]
TOTAL PROJECT COST [*] [*] [*]
</TABLE>
An * indicates that information has been redacted pursuant to a request for
confidential treatment filed separately with the Securities and Exchange
Commission.
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SCHEDULE 4 - FUNDING OF PROJECT AND PAYMENT DATES
4. 1 PROJECT FUNDING
<TABLE>
<CAPTION>
CONTRIBUTION
SOURCE 99-00 00-01 TOTAL
------------ --------- ------- ---------
<S> <C> <C> <C>
R&D Start Grant [*] [*] [*]
Grantee [*] [*] [*]
TOTAL PROJECT EXPENDITURE [*] [*] [*]
</TABLE>
Note: The amount to be paid by the Commonwealth to the Grantee under this
deed will not exceed the Grant Percentage of Eligible Expenditure
incurred on the Project. At any stage of the Project the Grantee must
contribute towards the Eligible Expenditure an amount which equals or
exceeds the Grant Percentage and must pay for 100% of the ineligible
expenditure of the Project.
4.2 INITIAL GRANT PAYMENT
4.2.1 The initial Grant payment will be the total of:
(a) the Grant Percentage of Eligible Expenditure incurred between the
date of the Application and the last day of the quarter
immediately before the quarter in which this deed is executed (if
any); and
(b) the Grant Percentage of Eligible Expenditure for the quarter in
which this deed is executed set out in the Budget approved under
clause 4.15.
4.2.2 The Commonwealth must make the initial Grant payment on the later of:
(a) 30 days of the date of this deed; and
(b) if the initial Grant payment includes a component under item 4.2
1(a), the provision of a Project Progress Report which is
accepted as satisfactory by the Commonwealth and, where necessary,
an Audited Acquittal Report.
4.2.3 The Commonwealth may pay the component of the initial Grant payment under
item 4.2. 1(a) before the time set out in item 4.2.2.
4.3 SUBSEQUENT PAYMENTS
FOR GRANTEES WITH A QUARTERLY REPORTING SCHEDULE
The amount of each subsequent payment will be calculated in accordance with the
following:
Quarterly payment = Total Eligible Expenditure (cumulative) to the end
of the quarter which has just been completed,
multiplied by the Grant Percentage
Minus Total amount of Grant paid to date
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Plus Quarterly Budget for the quarter in which the
payment is intended to be made, multiplied by the
Grant Percentage.
and reduced if necessary to allow for withholding of the Retention Amount given
in item 4.5 of schedule 4.
4.4 RETENTION PERCENTAGE
5% of the amount given in 2.2 of schedule 2.
4.5 RETENTION AMOUNT [*]
The total Retention Amount is withheld from the final payment(s) and the amount
will be paid to the Grantee upon satisfactory provision and acceptance of the
audited Final Financial Acquittal Report and the End of Project Report.
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SCHEDULE 5 - REPORTING REQUIREMENTS (CLAUSES 4.8 AND 4.9)
5.1 QUARTERLY REPORTING SCHEDULE
<TABLE>
<CAPTION>
DUE REPORTS FOR PERIOD
- --- ------- ----------
<S> <C> <C>
[*] Project Progress Report [*]
[*] Project Progress Report [*]
[*] Draft budget by quarter [*]
(Clause 4.14)
[*] Project Progress Report [*]
[*] Audited Acquittal Report [*]
[*] Project Progress Report [*]
Within 6 weeks of End-of Project Report N/A
Agreed Completion Audited Final Financial
Date or termination Acquittal Report
date
</TABLE>
Note: The reporting schedules above represent the preference of the Board.
The guiding principle is that larger projects will report more
frequently. This also means that they will be paid more frequently
(that is, quarterly). During agreement-making, Grantees will indicate
their preferred reporting schedule and delete the one which is not
applicable. The Commonwealth reserves the right to require a
quarterly or half-yearly reporting REGIME from a Grantee.
5.2 REPORTS
PROJECT PROGRESS REPORT
The Project Progress Report is made up of:
1. The Technical Progress Report;
2. The Financial Acquittal Report; and
3. A report on Commercialisation Progress.
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1. The Technical Progress Report must set out:
(a) progress of the Project (including milestones achieved, progress
on Project activities, the expected completion date, and expected
progress of the Project for the next reporting period); and
(b) any other matters required by the Commonwealth.
2. The financial Acquittal Report must set out:
(a) details:
(i) of Eligible Expenditure by the Grantee on the Project;
(ii) of other expenditure on the Project;
(iii) explaining any variation between Eligible Expenditure
incurred and budgeted Eligible Expenditure; and
(iv) of revised budgeted expenditure if the total Eligible
Expenditure is expected to change by 20% or more; and
(b) any other matters required by the Commonwealth.
3. The report on Commercialisation Progress must set out:
(a) progress achieved in the reporting period towards the
commercialisation of the Project with reference to the
commercialisation strategy in schedule 7 (if any);
(b) details of domestic and export sales relating directly to the
Project;
(c) any other matters required by the Commonwealth.
AUDITED ACQUITTAL REPORT
The Audited Acquittal Report means a Financial Acquittal Report which has been
audited in accordance with clause 4.10.
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SCHEDULE 6 - SPECIAL CONDITIONS
The is no condition specified by the Board at the time of approval
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SCHEDULE 7 - COMMERCIALISATION STRATEGY (CLAUSE 6)
COMMERCIALISATION
Income generated by the comnmercialisation of this project will arise in two
ways The first is by the direct sale of software licences to use the products
and systems. The second is by way of revenue derived from Chip Application
Technologies (C.A.T.) operating the system and providing clients with bureau
services. Software licences for the products the system only extend a right to
use. They do not confer any rights to the Intellectual Property or the software
source code.
IMPLEMENTATION
As each of the products in this project reaches a commercial standard, it is
transferred to the sales and marketing teams who will use the technical
documentation and their own marketing material to present the products to
prospective customers. Many of these customers have already been approached and
have indeed contributed to the definition of the products.
Demonstration sites will be established in Australia and the US. These will be
used by the sales teams to demonstrate the complete feature set of the products
in a fully functional environment. C.A.T. will market the products in Australia
and New Zealand while Catuity Inc. will market them in North America. Catuity
Inc. is the US registered parent company of C.A.T.
Catuity Inc. will make use of the reseller network already established in the US
by C.A.T. This includes resellers such as IBM and associates such as Visa and
FDC.
Clients may wish to run the system themselves, in which case they would purchase
an operating software licence. Alternatively they may wish to have C.A.T. run
the system, in such cases they would purchase bureau services. In both
situations income is derived by charging clients based on the number of
cardholders or members and the volume of transactions run by the system. In
addition, there is a setup charge to cover installation at the client's site or
configuration bureau services.
The majority of clients are expected to use the products for the direct benefit
of their own customers. However, a small number may set themselves up as service
providers and run the system for other people's customers. Either way, the
commercialisation process is progressed and income is generated.
COMPLETION
The income derived from the commercialisation process continues for as long as
the clients are using the products. The licences are renewed annually with
provisions to adjust the agreements for fees and service charges. Further
commercial opportunities present themselves by way of system maintenance fees
and consulting charges. In time, the installed systems will be upgraded,
providing further income streams from business analysis and software
enhancements.
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INTELLECTUAL PROPERTY
Chip Application Technologies is the owner of the Intellectual Property for
these products and the underlying technology. Australian and New Zealand sales
are conducted directly by C.A.T. while Catuity Inc conducts North American and
European sales. An agreement exists between C.A.T. and Catuity Inc. allowing
Catuity to licence the products to its clients. There is no transfer of IP or
source code. These remain the property of C.A.T.
COMMERCIALISATION TIMETABLE
The first products of this project will begin commercialisation early in 2000.
As subsequent products are released from development, they also proceed into the
commercialisation phase. It is expected that each product will start
commercialisation within a matter of weeks of being released from development.
<TABLE>
<CAPTION>
PRODUCT SCHEDULED RELEASE FROM DEVELOPMENT
------- ----------------------------------
<S> <C>
Java Card applets and card creation [*]
POS terminal integration, [*]
Web enquiries for members and merchants, [*]
Web transactions for members. [*]
Merchant maintenance via web [*]
Online customer database product [*]
Online member POS transactions [*]
Online member internet enquiries and [*]
transactions.
</TABLE>
The generation of income from software licence sales is expected once
prospective clients have finalised their requirements and committed to the
product. This process is likely to take upwards of 6 months.
RISKS
A serious marketing risk was the barrier of, not invented here' being imposed by
the US marketplace. Marketing to the US through-Catuity Inc. and the US based
resellers, has now largely mitigated this problem.
Another potential risk to rapid market take-up centres on possible
customisations required to the products. These may come about as a requirement
to integrate the products with existing customer systems and processes.
Although standard interfaces have been incorporated into the products and sample
clients have been quizzed on their needs, the potential for customisations still
exists. Such enhancements could slow the commercialisation process for a
particular client, but probably not prevent sales.
There is always a risk that a competing product may overtake us in the
marketplace. This risk is best mitigated by being first to market with a good
product. Towards that end, the marketing strategy is to release individual
products, as they become available over a 12 month period, rather than waiting
to collect an entire suite and launching as a single entity.
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FAILURE
This project can be deemed a commercialisation failure if the combined income
from sales does not exceed development costs plus the marketing costs plus a
commercial return on investment.
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SCHEDULE 8 - REPAYMENT OF REPAYABLE CONTRIBUTION UNDER START PREMIUM (CLAUSE 13)
[ NOT-APPLICABLE ]
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Industry
Research and R&D START GRANT
Development
Board
GENERAL CONDITIONS
<TABLE>
<S> <C>
PROGRAM OBJECTIVES
PROJECT AND GRANT 2
OPERATIVE PROVISIONS: 2
1 Interpretation 2
2 Warranties 8
3 Payment of Grant 8
4 Conduct of Project 9
Permitted expenditure 9
Project performance 9
Variations 9
Reporting 10
Budget of expenditure 10
Bank account 11
Records to be kept 11
Inspection and audit 11
Other participants 12
5 Evaluation 12
6 Commercialisation 12
7 Other Financial Assistance 13
8 Acquittal of Grant 13
9 Termination 13
Limits on Liability 14
Termination by mutual deed 14
10 Notices 14
11 Assignment and Protection of Intellectual Property 15
12 Grantee's and Others Funding Contribution to the Project 15
13 Start Premium: Repayable Contribution 15
14 Acknowledgment and Public Statements 16
15 Waiver and Variation 16
16 Dispute Resolution 16
17 Governing law and jurisdiction 17
18 Term of Deed 17
19 Exercise of Discretions 17
20 GST 17
</TABLE>
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PROGRAM OBJECTIVES
The Commonwealth has established the R&D Start Program which aims to:
(a) increase the number of research and development projects having a
high commercial potential that are undertaken by companies;
(b) foster greater commercialisation of outcomes of those projects;
(c) increase the level of research and development activity that is
commercialised in Australia; and
(d) provide national benefits.
PROJECT AND GRANT
The Grantee proposes to undertake the Project. The Industry Research and
Development Board has awarded the Grant under the R&D Start Program for
the Project on the terms and conditions contained in this deed.
The Grant is made to the Grantee pursuant to the Industry Research and
Development Act 1986 (the Act), and the relevant Ministerial Directions
issued under sections 19 and 20 of the Act.
OPERATIVE PROVISIONS:
1 INTERPRETATION
1.1 Unless the contrary intention appears:
AGREED COMPLETION DATE means the agreed completion date set out in
item 1.3 of schedule 1.
APPLICATION means the application submitted by the Grantee (and, if
applicable, other persons) in respect of which the Grant was
awarded.
AUDITED ACQUITTAL REPORT means a Financial Acquittal Report which
has been audited in accordance with clause 4. 1 0.
BUDGET means the budget approved by the Commonwealth from time to
time under clause 4.15 and the budget set out in schedule 3.
CONTROL means control of a corporation through the possession
directly or indirectly of the power, whether or not having
statutory, legal or equitable rights, directly or indirectly to
control more than 50% of the membership of the board of directors of
the corporation or more than 50% of the voting shares (as defined in
the Corporations Law) of the corporation whether by means of trusts,
deeds, arrangements, understandings, practices, the ownership of any
interest in shares or stock of that corporation or otherwise.
CORE START means the program of financial assistance for research
and development projects of non-tax exempt companies with turnovers
of less than $50 million in each relevant year.
<PAGE> 25
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DEAL WITH means:
(a) sell, transfer, declare a trust over or otherwise dispose or
procure or effect the disposal of, or in any way whatever deal
with, any legal or equitable interest in, or any right in respect
of, any subject matter; or
(b) effect a change in the beneficial interest or beneficial unit
holding under a trust the trustee of which has an estate or
interest in the subject matter.
ELIGIBLE EXPENDITURE has the meaning given in clause 4(l) of the R&D Start
Program Directions No. 1 of 1998 (DIRECTIONS), given under the Act, and
the relevant Industry Research and Development Board policies effective at
the date of this deed
ENCUMBRANCE means any Security Interest, notice under sections 218 or 255
of the Income Tax Assessment Act 1936 (or any corresponding section of the
Income Tax Assessment Act 1997) or under section 74 of the Sales Tax
Assessment Act 1992, profit a prendre, easements restrictive covenant,
equity, interest, garnishee order, writ of execution, right of set-off,
lease, licence to use or occupy, assignment of income or monetary claim,
and any deed to create any of them or allow them to exist.
END OF PROJECT REPORT means a report in the form and containing the
matters required by the Commonwealth.
EXIT SURVEY FORMS mean questionnaires sent to the Grantee at the end of
the Project to learn about its view of the quality of the services
rendered to it in respect of the Grant by officers of the Commonwealth
during the period of the Project.
FINANCIAL ACQUITTAL REPORT means a report in the form required by the
Commonwealth setting out:
(a) expenditure by the, Grantee on the Project;
(b) a tax invoice showing the GST payable on supplies to the
Commonwealth in connection with the project;
(c) details of input tax credits, if any, to which the Grantee is
entitled for creditable acquisitions made by the Grantee in
connection with supplies (or deemed supplies) to the Commonwealth in
connection with the Project;
(d) details of adjustment notes, if any, issued to the Grantee in
respect of creditable acquisitions made by the Grantee in connection
with supplies (or deemed supplies) to the Commonwealth in connection
with the Project;
(e) details of adjustment notes, if any, issued by the Grantee to the
Commonwealth in circumstances where the Grantee has previously been
issued with one or more adjustment notes in respect of creditable
acquisitions made by the Grantee in connection with supplies (or
deemed supplies) to the Commonwealth in connection with the Project;
and
<PAGE> 26
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(f) any other maters required by the Commonwealth.
FINAL FINANCIAL ACQUITTAL REPORT means a Financial Acquittal Report
required at the end of the Project.
GRANT means the amount set out in item 2.2 of schedule 2, plus the GST, if
any, payable by the Grantee in respect of the supplies (or deemed
supplies) made by the Grantee to the Commonwealth in the course of
undertaking the project.
GRANT PERCENTAGE means the percentage of Eligible Expenditure to be paid
as a Grant, and:
(a) in the case of a Grant under Core Start, is an amount not exceeding
50% of Eligible Expenditure;
(b) in the case of a Grant under Start Plus, is an amount not exceeding
20% of the Eligible Expenditure;
(c) in the case of a Grant under Core Start and Start Premium is an
amount not exceeding 56.25% of the Eligible Expenditure;
(d) in the case of a Grant under Start Plus and Start Premium is an
amount not exceeding 56.25% of the Eligible Expenditure.
The Grant Percentage is set out in item 2.3 of schedule 2.
GST means any goods and services tax or similar value added tax imposed
pursuant to the A New Tax System (Goods and Services) Tax Act 1999
(Commonwealth) (as amended or regulations made under that Act on a supply
(or deemed supply) of any goods, property, service or any other thing.
INSOLVENCY EVENT means the happening of any of these events:
(a) an application is made to a court for an order or an order is
made that a body corporate be wound up; or
(b) an application is made to a court for an order appointing a
liquidator or provisional liquidator in respect of a body
corporate, or one of them is appointed, whether or not under
an order; or
(c) a receiver or receiver and manager is appointed in respect of
any part of the property of a body corporate; or
(d) except to reconstruct or amalgamate while solvent on terms not
prejudicial to its obligations and duties under this deed, a
body corporate enters into, or resolves to enter into, a
scheme of arrangement, deed of company arrangement or
composition with, or assignment for the benefit of, all or any
class of its creditors, or it proposes a reorganisation,
moratorium or other administration involving any of them; or
<PAGE> 27
5
(e) there occurs any event which the Commonwealth considers, with
the giving of notice, lapse of time or otherwise, would be or is
likely to become, a breach of this deed; or
(f) a body corporate resolves to wind itself up, or otherwise
dissolve itself, or gives notice of intention to do so, except to
reconstruct or amalgamate while solvent on terms not prejudicial
to its obligations and duties under this deed, or is otherwise
wound up or dissolved, or
(g) a body corporate is or states that it is insolvent; or
(h) as a result of the operation of section 459F(l) of the
Corporations Law, a body corporate is taken to have failed to
comply with a statutory demand; or
(i) a body corporate is, or makes a statement from which it may be
reasonably deduced that the body corporate is, the subject of an
event described in section 459C(2)(b) or section 585 of the
Corporations Law; or
(j) a body corporate takes any step to obtain protection or is
granted protection from its creditors, under any applicable
legislation or an administrator is appointed to a body corporate;
or
(k) a body corporate sells, or enters into negotiations to sell,
sufficient of its assets or resources so that, in the reasonable
opinion of the Commonwealth, it is unable to fulfill its
obligations under this deed; or
(1) a body corporate has a writ issued on any part of its assets
which would have, in the reasonable opinion of the Commonwealth,
a material adverse effect on its undertaking the Project and the
body corporate either does not contest the writ in good faith or
pay the creditor all amounts owing within 7 days; or
(m) anything analogous or having a substantially similar effect to
any of the events specified above happens under the law of any
applicable jurisdiction.
INTELLECTUAL PROPERTY means statutory and other proprietary rights in
respect of trade marks, patents, circuit layouts, copyrights, designs,
confidential information, Know-how, plant varieties and all other rights
with respect to intellectual property as defined in Article 2 of the July
1967 Convention Establishing the World Intellectual Property Organisation.
INTEREST RATE means the rate set out in item 2.5(a) of schedule 2.
KEY PROJECT PERSONNEL means a person or persons engaged for the Project
whose technical or scientific skills are crucial to the success of the
Project.
KNOW-HOW means expertise, knowledge, skills, techniques, methods,
procedures, ideas and concepts.
<PAGE> 28
6
PARTICULAR CONDITIONS means those conditions which are specific to the
Grant and the Project, and which are set out in the Schedules to this
deed.
POST-PROJECT REPORT FORMS mean forms to be completed by the Grantee to
evaluate whether the objectives of the R&D Start program are being met
through the Post-Project performance of grantees.
PRODUCT means any goods or services the production or supply of which
involves the exercise of Project Intellectual Property.
PROJECT PROGRESS REPORT means a report to be given under clause 4.8, which
includes information on financial acquittal, significant changes in
budgeted Eligible Expenditure, technical progress of the Project, and
progress on commercialisation.
PROJECT means the project described in schedule 1.
PROJECT INTELLECTUAL PROPERTY means all Intellectual Property created in
the course of the Project including any improvements, inventions or
discoveries (whether serendipitous or otherwise) arising out of the
conduct of the Project.
R&D START PROGRAM means the program of business research and development
assistance administered under that name by the Commonwealth, through the
Industry Research and Development Board.
RELATED BODY CORPORATE has the same meaning as in the Corporations Law.
RELEVANT YEAR for a Grantee means:
(a) if when the Application is made, the Grantee has been
incorporated for each of the three years preceding the Year of
income in which the Application was made -- each of those years;
and
(b) if when the Application is made, the Grantee has been
incorporated for fewer than three Years of income preceding the
Year of income in which the application was made -- each of those
years in which the Applicant was incorporated.
REPAYABLE CONTRIBUTION means that part of the Grant which is made under
Start Premium, which is:
(a) that percentage by which the Grant exceeds 50% of the Eligible
Expenditure on the Project, where provided in conjunction with
Core Start; or
(b) that percentage by which the Grant exceeds 20% of the Eligible
Expenditure on the Project, where provided in conjunction with
Start Plus.
The Repayable Contribution is set out in item 2.4 of schedule 2.
<PAGE> 29
7
SECURITY INTEREST means any bill of sale (as defined in any
statute), mortgage, charge, lien, pledge, hypothecation, title
retention arrangement, trust or power, as or in effect as
security for the payment of a monetary obligation or the
observance of any other obligation.
START PLUS means the program of financial assistance for
research and development projects of non-tax exempt companies
with turnover of $50 million or more in one, or more than one,
Relevant Year.
START PREMIUM means the program of financial assistance:
(a) for high merit research and development projects
in non tax-exempt companies; and
(b) that is repayable to the Commonwealth.
START PREMIUM INTEREST RATE means the rate set out in item
2.5(b) of schedule 2.
SUPPLY has the meaning given by the A New, Tax System (Goods
and Services) Tax Act 1999 (Cth).
TECHNICAL PROGRESS REPORT means a report required as part of
the Project Progress Report.
YEAR OF INCOME of a Grantee means the period of 12 months to
which the income tax returns of the company relate.
1.2 INCLUDING, INCLUDES and IN PARTICULAR do not limit the words which
precede them or to which they refer.
1.3 Unless the contrary intention appears:
(a) A PERSON includes a firm, a body corporate, an unincorporated
association or an authority;
(b) a deed, representation or warranty in favour of two or more
persons is for the benefit of them jointly and severally;
(c) a deed, representation or warranty on the part of two or more
persons binds them jointly and severally;
(d) the singular includes the plural and vice versa;
(e) a reference to a statute, ordinance, code or other law
includes regulations and other instruments made under it and
consolidations, amendments, re-enactments or replacements of
any of them; and
(f) a reference to a financial year means the period beginning on
1 July and ending on 30 June in the following calendar year.
1.4 Headings are inserted for convenience of reference only and are not
to be used in the interpretation of this deed.
1.5 A reference to a schedule is a reference to a schedule to the
Particular Conditions
<PAGE> 30
8
2 WARRANTIES
2.1 The Grantee warrants that:
(a) the Grantee is:
(i) incorporated under a law of the Commonwealth
or a State or Territory; and
(ii) not exempt from income tax;
(b) the Project consists of research and development
activities;
(c) it does not have any interests or obligations that
conflict with its interests or obligations under
this deed;
(d) all information it provides to the Commonwealth
from time to time (including in the Particular
Conditions and the Application) is true and
correct;
(e) the Grantee, has and will have, at all times, all
the necessary rights in respect of the
Intellectual Property and all technical
information, including but not limited to, all
designs, specifications, data, drawings, plans,
reports, models, prototypes and other things that
will be required to conduct the Project and to
commercialise the Project's outcome;
(f) the turnover of the Grantee and related companies
for each Relevant Year is as stated in item 1.5 of
schedule 1,
(g) is not aware of any circumstances, which
adversely affect or might adversely affect the
Grantee's ability to fulfil its obligations under
the deed.
and the Grantee warrants that the statements set out
above are true and correct at the date of this deed, and
each day during the term of this deed.
2,2 If the Grantee becomes aware of a breach of warranty,
the Grantee must immediately notify the Commonwealth of
that breach.
3 PAYMENT OF GRANT
3.1 Subject to parliamentary appropriation, the Grant is
payable in quarterly or six monthly instalments in
accordance with schedule 4.
3.2 The Commonwealth is not obliged to make a payment under
\ clause 3.1 if:
(a) any milestone set out in schedule 1 to be
completed before the date for payment has
not been achieved; or
(b) the total of all Grant payments made to date, and
the next scheduled Grant payment, would exceed the
Grant Percentage of:
(i) the Eligible Expenditure incurred to date;
and
(ii) the budgeted Eligible Expenditure for the
next 3 months,
<PAGE> 31
9
as determined by the Commonwealth; or
(c) the Grantee is otherwise in default under this
deed (including the failure to submit any report);
or
(d) the Commonwealth has issued a notice under clause
4.11 pending the submission of a satisfactory
report; or
(e) the Grantee has not provided a Budget which has
been approved by the Commonwealth under clause
4.15.
3.3 The Commonwealth's determination of the Eligible
Expenditure under clause 3.2(b) is final.
4 CONDUCT OF PROJECT
4.1 The Grantee agrees to undertake the Project:
(a) diligently;
(b) in accordance with schedule 1; and
(c) in accordance with any representations made in
the Application.
PERMITTED EXPENDITURE
4.2 The Grantee must use the Grant solely for the Project
and in accordance with the Budget.
PROJECT PERFORMANCE
4.3 The Grantee must notify the Commonwealth if a milestone
is not achieved by the date for completion set out in
schedule 1. The notice must set out:
(a) the reason for the delay;
(b) the Grantee's proposed action to address the
delay;
(c) the expected date for achievement of the
milestone;
(d) the expected effect the delay will have on
subsequent milestones;
(e) the expected effect the delay will have on the
Project and the Budget; and
(f) Key Project Personnel changes not reported under
4.3(a) of this clause.
4.4 Nothing in this clause 4 affects the Commonwealth's
rights under clause 3.2 or clause 9.
VARIATIONS
4.5 The Grantee may change or improve its work methods or
procedures to achieve efficiency, economy or improved
quality. However, the Grantee must not materially change
the Project as described in schedule 1 without the
Commonwealth's consent.
<PAGE> 32
10
4.6 The Grantee may, by notice to the Commonwealth, propose
a variation to the Project, the Budget, the date for
achievement of a milestone or completion of the Project
or any other variation to the milestones. Any
such variation must be either approved or rejected by
the Commonwealth within 60 days of receipt from the
Grantee.
4.7 The Grantee may reallocate expenditure between heads of
expenditure listed in the Budget without obtaining the
Commonwealth's consent if the total re-allocation from a
particular head of expenditure does not exceed 20% of
the total allocated to that particular head of
expenditure in the Budget. Where the proposed
re-allocation will exceed 20% the Grantee must seek
approval in writing from the Commonwealth. Any such
request must be either approved or rejected by the
Commonwealth within 60 days of receipt from the Grantee.
REPORTING
4.8 The Grantee must give the Commonwealth reports in
accordance with schedule 5 in the form required by the
Commonwealth from time to time.
4.9 Within 6 weeks of the Agreed Completion Date, or the
date of termination of this deed, whichever is the
earlier, the Grantee must give the Commonwealth an End
of Project Report and an audited Final Financial
Acquittal Report.
4.10 A report that is required by this clause 4 to be
audited must be audited by a member of the Institute of
Chartered Accountants in Australia, or the Society of
Certified Practising Accountants, who is not an
employee of the Grantee.
4.11 If in the Commonwealth's opinion either the form or the
content of a report is not adequate for the
Commonwealth's purposes, the Commonwealth may require
the Grantee to submit a revised report satisfactory to
the Commonwealth within 30 days of notice to the
Grantee.
4.12 Pursuant to clause 5, post-Project reporting is also
required of the Grantee.
BUDGET OF EXPENDITURE
4.13 The grantee must give the Commonwealth a draft budget:
(a) for the first financial year of the Project,
within 30 days of the date of this deed; and
(b) for every subsequent financial year of the
Project, on July 31 of that year.
4.14 The draft budget must:
(a) be in a form approved by the Commonwealth;
(b) set out expenditure incurred and proposed to be
incurred on the Project for the financial year to
which the draft budget relates; and
(c) divide expenditure into four quarters (July -
September, October - December, January - March,
April - June).
<PAGE> 33
11
4.15 The Commonwealth must approve or reject the draft
budget within 60 days of receipt from the Grantee.
4.16 The Grantee must give the Commonwealth an amended budget
within 30 days of receipt of notification from the
Commonwealth that the draft budget has been rejected.
The amended budget is subject to clause 4.15 and this
clause 4.16.
BANK ACCOUNT
4.17 The Grantee must establish a bank account for the sole
purpose of handling the Grant and interest on the Grant,
and disclose to the Commonwealth within 7 days of
request the location and details of that account.
4.18 The Grantee must pay all instalments of the Grant into
the account and not use the account for any purpose
other than the deposit and withdrawal of the Grant and
any interest.
RECORDS TO BE KEPT
4.19 The Grantee must keep to the Commonwealth's satisfaction
the records (including original receipts and invoices)
necessary to provide a complete, detailed record and
explanation of;
(a) expenditure by the Grantee on the Project;
(b) Project activities;
(c) the technical progress of the Project,
(d) any amounts of GST paid by the Grantee in respect
of any supply made to the Commonwealth under this
deed,
and any other records required by the Commonwealth.
4.20 Those records must be retained by the Grantee for the
term of the deed and at least 3 years following the
last payment of the Grant.
INSPECTION AND AUDIT
4.21 The Commonwealth or its auditor may at reasonable times
and on reasonable notice enter the Grantee's premises
and inspect the records kept by the Grantee, and
progress with the Project, to review the Grantee's
compliance with this deed.
4.22 The Grantee must give the Commonwealth and its auditor
all necessary facilities and assistance to enable them
to conduct an audit.
4.23 In conducting a review under clause 4.2 1, the
Commonwealth or its auditor may take copies of any
records (books, documents, invoices, receipts and any
other papers) that the Commonwealth or the auditor
considers relevant to the Project.
4.24 The Commonwealth must ensure that it and anyone
authorised by it under 4.21 uses confidential
information to which they are given access, only for
the purposes of this deed and does not disclose or use
it for any other purpose unless required by law.
<PAGE> 34
12
OTHER PARTICIPANTS
4.25 The Grantee must require any other participants engaged
for tile Project to keep like records to those required
to be maintained by the Grantee under clause 4.19 and
to give the Commonwealth similar access to their
premises and records pertaining to the Project.
5 EVALUATION
5.1 The Grantee must cooperate with any evaluation of the
R&D Start Program by the Commonwealth. The Grantee
must, if requested by the Commonwealth, provide
information and completed survey forms relating to:
(a) the Project; and
(b) the R&D Start Program,
during the Project and for five years after the Agreed
Completion Date.
5.2 The Grantee must comply with a request under clause 5.1
within 28 days of receiving the request.
6 COMMERCIALISATION
6.1 The Grantee must use its best endeavours to
commercialise the Project within a reasonable time of
completion of the Project.
6.2 The Grantee will be taken to have complied with its
obligations under clause 6.1 if it has complied with
schedule 7 and the conditions (if any) set out in
schedule 6 regarding the commercialisation obligations
of the Grantee.
6.3 If:
(a) at any time the Grantee decides that it will not
commercialise the Project; or
(b) the Grantee has not commercialized the Project
in accordance with schedule 7,
the Grantee must notify the Commonwealth and give the
Commonwealth details of the reasons for making that
decision or for not commercialising the Project, as the
case may be.
6.4 For the purposes of this deed, "commercialise the
Project" means to:
(a) manufacture, sell, or hire a product; or
(b) provide a service; or
(c) exploit a process; or
(d) license a third party as specified in schedule 7
to do any of paragraph (a), (b) or (c); or
<PAGE> 35
13
(e) otherwise exploit the Project,
through a direct or an indirect application of the
Project Intellectual Property to obtain a commercial
return. Unless specified in schedule 7, to Deal With the
Project Intellectual Property under this deed shall not
be accepted as a means to "commercialise the Project".
6.5 If the Commonwealth receives a notice under clause 6.3,
or if the Grantee has not commercialised the Project to
the Commonwealth's satisfaction within the time referred
to in schedule 7, the Commonwealth may by notice to the
Grantee require the Grantee to repay some or all of the
Grant paid to the Grantee, together with interest at the
Interest Rate. Interest is calculated on daily rests
from the date of payment by the Commonwealth of an
amount under clause 3.1 to the date of repayment by the
Grantee,
6.6 If the Commonwealth does not give the Grantee a notice
under clause 6.5 within 3 months of receiving the notice
under clause 6.3, it will be taken to have accepted that
the Grantee has complied with clause 6.1.
7 OTHER FINANCIAL ASSISTANCE
7.1 The Grantee must give the Commonwealth details of any
financial assistance for the Project it receives from
another Commonwealth, State or Territory government
source or agency after the date of this deed. The
Commonwealth may reduce the size of the Grant after
taking into account the other government financial
assistance.
8 ACQUITTAL OF GRANT
8.1 If at any time the amount paid to the Grantee under this
deed exceeds the Grant (as initially determined or
varied), or the Grant Percentage of the Eligible
Expenditure incurred to date, the Commonwealth may by
notice to the Grantee require the Grantee to repay the
amount of the excess to the Commonwealth,
8.2 If the Grantee expends the Grant other than in
accordance with this deed the Commonwealth may by
notice require the Grantee to repay the Grant or so much
of the Grant as the Commonwealth determines.
8.3 If the Commonwealth gives the Grantee a notice under
clause 8.1 or 8.2, the Grantee must pay the
Commonwealth the excess within 28 days of receipt of the
notice,
9 TERMINATION
9.1 Subject to clause 9.3 the Commonwealth may terminate
this deed by notice to the Grantee if:
(a) the Grantee is in breach of this deed, that breach
is capable of being remedied and the Grantee fails
to remedy that breach within 21 days of receipt of
a notice from the Commonwealth requiring it to do
so (or within any longer period specified in the
notice); or
(b) the Grantee is otherwise in breach of this deed;
or
<PAGE> 36
14
(c) tile Grantee is in breach of a warranty set out in
this deed; or
(d) an Insolvency Event occurs in respect of the
Grantee.
9.2 On termination of this deed:
(a) the Commonwealth's obligation to pay any amount
of the Grant that is unpaid as at the date of
termination ceases;
(b) the Grantee must give the Commonwealth:
(i) a Financial Acquittal Report as at the date
of termination; and
(ii) a report on the Project and its progress,
in a form satisfactory to the Commonwealth,
(c) the Commonwealth may by notice to the Grantee
require the Grantee to repay some or all of the
Grant paid to the Grantee, together with interest
at the Interest Rate; and
(d) interest payable under clause 9.2(c) is
calculated on daily rests from the date of
payment by the Commonwealth of an amount under
clause 3.1 to the date of repayment by the
Grantee.
LIMITS ON LIABILITY
9.3 The Commonwealth may not take action under clause 9 for
a breach of this deed due to a cause or causes beyond
the Grantee's reasonable control which does not continue
for more than 12 weeks in the aggregate.
TERMINATION BY MUTUAL DEED
9.4 This deed may be terminated at any time by the mutual
written deed of the parties.
10 NOTICES
10.1 A notice, approval, consent or other communication in
connection with this deed must be:
(a) in writing; and
(b) left at the address of the addressee, or sent by
prepaid ordinary post (airmail if posted to or from
a place outside Australia) to the address of the
addressee or sent by facsimile to the facsimile
number of the addressee (or if the addressee
notifies another address or facsimile number then
to that address or facsimile number).
The address and facsimile number of each party is set
out in item 2.6 of schedule 2.
10.2 A notice, approval, consent or other communication takes
effect from the time it is received unless a later time
is specified in it.
10.3 A letter or facsimile is taken to be received:
<PAGE> 37
15
(a) in the case of a posted letter, on the third
(seventh, if posted to or from a place outside
Australia) day after posting, and
(b) in the case of facsimile, on production of a
transmission report by the machine from which the
facsimile was sent which indicates that the
facsimile was sent in its entirety to the
facsimile number of the recipient.
11 ASSIGNMENT AND PROTECTION OF INTELLECTUAL PROPERTY
11.1 The Grantee must not Deal With, assign, grant or create
any Encumbrance over:
(a) its rights under this deed; or
(b) its Interest in any Project Intellectual Property,
other than in accordance with any special conditions set
out in schedule 6, or the commercialisation strategy set
out in schedule 7, without the prior written consent of
the Commonwealth.
11.2 A change in Control of the Grantee is taken to be
Dealing With the Grantee's rights under this deed.
11.3 If a change in Control of the Grantee occurs and the
Commonwealth reasonably considers that the change in
Control adversely affects or may adversely affect the
objectives from time to time of the R&D Start Program,
the Board may require the Grantee to repay the Grant to
the Commonwealth together with interest at the Interest
Rate. Interest payable under this clause 11.3 is
calculated on daily rests from the date of payment by
the Commonwealth of an amount under clause 3.1 to the
date of repayment by the Grantee.
11.4 The Commonwealth may impose conditions in giving its
consent under clause 11.1. A breach of those conditions
is a breach of this deed.
11.5 Subject to this deed, the Grantee must take all
reasonable steps to protect the Project Intellectual
Property and must not do anything to diminish or destroy
its commercial value without the prior written consent
of the Commonwealth.
12 GRANTEE'S AND OTHERS' FUNDING CONTRIBUTION TO THE PROJECT
12.1 The Grantee and the Contributors must spend money on the
Project in accordance with item 4.1 of schedule 4.
12.2 The Grantee must notify the Commonwealth in the next
Progress Report if the Grantee or any of the
Contributors fails to comply with clause 12.1.
13 START PREMIUM: REPAYABLE CONTRIBUTION
13.1 The Grantee must repay the Repayable Contribution
together with interest at the Start Premium Interest
Rate to the Commonwealth in accordance with schedule 8.
<PAGE> 38
16
14 ACKNOWLEDGMENT AND PUBLIC STATEMENTS
14.1 The Grantee must acknowledge the financial assistance
received from the Commonwealth under the R&D Start
Program in any public statements about the Project or
any products, processes or inventions developed as a
result of it,
14.2 The Commonwealth may publicise the awarding of the
Grant.
14.3 The Commonwealth may include in press releases and
general announcements about the Grant and in its annual
report, the following information:
(a) the name of the Grantee,
(b) the amount of the Grant; and
(c) the title and a brief description of the Project.
14.4 The provisions of this clause continue for a period of 5
years after payment of the last instalment of the Grant.
15 WAIVER AND VARIATION
15.1 A provision of, or a right created under, this deed may
not be:
(a) waived except in writing signed by the party
granting the waiver; or
(b) varied except in writing signed by the parties.
16 DISPUTE RESOLUTION
16.1. A party who gives another party notice that a dispute
has arisen under this deed must include in that notice
the name of a representative with authority to negotiate
the dispute on the first party's behalf
16.2 A party who receives a notice under clause 16.1 must
promptly, and in any case within 14 days of receipt of
the notice, notify the first party of a representative
with authority to negotiate the dispute on the other
party's behalf.
16.3 The representatives must seek to resolve the dispute
as soon as possible.
16.4 If the dispute is not resolved within 30 days of the
notice referred to in clause 16.2 (or within such
further period as the parties agree), the
representatives must seek to agree on a process for
resolving the dispute through a means other than
litigation or arbitration (such as further
negotiations, mediation, conciliation, independent
expert resolution or mini-trial).
16.5 If the representatives are not able to agree on such a
process within a further 14 days (or within such
further period as the representatives agree), if the
process agreed upon fails to resolve the dispute, then
either party may take such action as it sees fit with
respect to the dispute without further reference to
this clause.
<PAGE> 39
17
16.6 This clause 16 does not prevent a party from taking
legal action if it considers not to do so would
prejudice its interests.
17 GOVERNING LAW AND JURISDICTION
17.1 This deed and the transactions contemplated by this deed
are governed by the law in force in the Australian
Capital Territory.
17.2 Each party irrevocably and unconditionally submits to
the non-exclusive jurisdiction of the courts of the
Australian Capital Territory and courts of appeal from
them for determining any dispute concerning this deed or
the transactions contemplated by this deed. Each party
waives any right it has to object to an action being
brought in those courts, including claiming that the
action has been brought in an inconvenient forum or that
those courts do not have jurisdiction.
18 TERM OF DEED
Obligations under this deed, unless otherwise stated,
terminate ten years after the day this deed is made.
19 EXERCISE OF DISCRETIONS
The Commonwealth must act fairly, reasonably and in good faith
in exercising its discretions, making decisions and generally
in all dealings with the Grantee under this Deed.
20 GOODS AND SERVICES TAX
20.1 Any amount referred to in this deed is exclusive of GST
unless it is expressly included.
20.2 Subject to subclause 20.3, if GST is imposed on a
supply (or deemed supply) of any goods, property,
service or any other thing made under or in connection
with this deed, then the consideration for that supply
(or deemed supply) is increased by an amount equal to
the amount which would otherwise have been payable
multiplied by the rate at which GST is imposed in
respect of that supply (or deemed supply), having
regard to input tax credits and adjustments, if any,
applicable to creditable acquisitions made by the
Grantee in relation to that supply (or deemed supply).
The increased amount will be payable in the same manner
and at the same times as the amount which would
otherwise have been payable.
20.3 Tile party making the supply (or deemed supply) must
provide to the recipient of that supply (or deemed
supply) from time to time over the course of the Project
GST tax invoices and, if applicable, adjustments notes
as required by the A New, Tax System (Goods and
Services) Tax Act 1999 (Cth).
20.4 If, due to the acquisition by the Grantee of an input
tax credit, or the issue to the Grantee of an
adjustment note, in respect of a creditable acquisition
made by the Grantee in relation to a supply (or deemed
supply) or for any other reason, the additional amount
of GST paid by the Commonwealth to the Grantee exceeds
the amount of GST payable in respect of the relevant
<PAGE> 40
18
supply (or deemed supply), the Grantee must repay the
excess amount to the Commonwealth and an off-setting
adjustment will be made at the time the next instalment
of the Grant is paid.
<PAGE> 41
Chip Application Technologies Ltd Costcheck Summary
<TABLE>
<CAPTION>
START GRANT - SUMMARY OF COST ESTIMATES
<S> <C> <C>
COMPANY: Chip Application Technologies Limited
PROJECT TITLE: Internet Capable Multi Application Smartcard System
PROJECT DURATION: 23.7, 1999 - 31.12.2000
- -------------------------------------------------------------------------------------------------------------
ASSESSED ESTIMATE OF EXPENDITURE
----------------------------------------------------------------
ITEM Claimed DISTRIBUTION BY FINANCIAL YEAR ENDING 30TH JUNE
Estimate of ----------------------------------------------------------------
Expenditure 1999-00 2000-01 NOTE TOTAL
---------- ---------- -------- ---- -----
Salary Expenditure [*] [*] [*] (1) [*]
Contract Expenditure [*] [*] [*] [*]
Net Plant Expenditure [*] [*] [*] (2) [*]
Net Prototype Expenditure [*] [*] [*] (3) [*]
Other Expenditure [*] [*] [*] (4) [*]
Total Project Expenditure [*] [*] [*] [*]
Grant authorised @ 50% [*] [*] [*] [*]
</TABLE>
Reasons for adjustments to claimed estimates of expenditure
Note (1)-(4) - Please see attached cost check details
Page 1
An * indicates that information has been redacted pursuant to a request for
confidential treatment filed separately with the Securities and Exchange
Commission.
<PAGE> 42
Chip Application Technologies Ltd Costcheck Detail
START GRANT - COST CHECK
Company: Chip Application Technologies Limited
Project: Internet Capable Multi Application Smartcard System
Project Duration: 23.7.1999 - 31.12.2000
Note (1) - R&D Salary Expenditure
<TABLE>
<CAPTION>
Time on proj. Time on proj.
rate 99-00 [%] 00-01 [%]
[$/hour] starts 7.99 ends 30.12.00 1999-00 2000-01 Total
-------- ----------- ------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Hallinan, Mark; Projects Manager [*] [*] [*] [*] [*] [*]
Gordon, James; Development Manager [*] [*] [*] [*] [*] [*]
Garton, Ben; Product Manager
(rate capped) [*] [*] [*] [*] [*] [*]
Annabattula, Roa; Test Analyst [*] [*] [*] [*] [*] [*]
Boniecke, Tad; Analyst Programmer [*] [*] [*] [*] [*] [*]
Bridle, Alistair; Test Analyst [*] [*] [*] [*] [*] [*]
Chang, Leonard, Tech Writer [*] [*] [*] [*] [*] [*]
Chapell, John; Senior Analyst [*] [*] [*] [*] [*] [*]
Cosic, Alex; Analyst Programmer [*] [*] [*] [*] [*] [*]
Dias, Jude; Test Manager [*] [*] [*] [*] [*] [*]
Gava, Paolo; Analyst Programmer [*] [*] [*] [*] [*] [*]
Kim, Young; Test Analyst [*] [*] [*] [*] [*] [*]
Leong. Eddy; Analysts Programmer [*] [*] [*] [*] [*] [*]
Lu, Robert; Test Analyst [*] [*] [*] [*] [*] [*]
Malova, Yulia; Analyst Programmer [*] [*] [*] [*] [*] [*]
Oteagui, John; Senior Analyst [*] [*] [*] [*] [*] [*]
Till, Troy; Analyst Programmer [*] [*] [*] [*] [*] [*]
Vlaciky, Peter; Analyst Programmer [*] [*] [*] [*] [*] [*]
White, Nadeeka; Analyst Programmer [*] [*] [*] [*] [*] [*]
Ho, William; Analyst Programmer [*] [*] [*] [*] [*] [*]
Banting, Robert; Analyst Programmer [*] [*] [*] [*] [*] [*]
TBA, Analyst Programmer #1 [*] [*] [*] [*] [*] [*]
[*] [*] [*] [*]
Salary on costs at [*] [*] [*] [*]
Admin Support Costs at [*] [*] [*] [*]
Total Salary Expenditure [*] [*] [*]
Rounded [*] [*] [*]
</TABLE>
(i) - Salary Expenditure is payable only on reconcilable salary
records. Individual employee time sheets, detailing task numbers,
milestone numbers, time spent and supervisor authorisations must be kept
by Chip Application Technologies. All source documents including pay
records, time sheets, master task lists, evidence of payments and group
certificates should be made available at the request of the Board's
Assessors on cost review visits.
Salary expenditure will be paid on actual time worked on the project
only, as all holiday, sick leaves are allowed through the on cost and
admin support costs
Increased in salary expenditure due to firming up of estimates
Page 1 of 3
An * indicates that information has been redacted pursuant to a request for
confidential treatment filed separately with the Securities and Exchange
Commission.
<PAGE> 43
Chip Applicaon Technologies Ltd Costcheck Detail
Note (2) - R&D Contract Expenditure
<TABLE>
<CAPTION>
1999-00 2000-01 Total
------ ------- ------
<S> <C> <C> <C>
[*] [*] [*] [*]
[*]
------ ----- ------
Total Contract Expenditure [*] [*] [*]
Rounded [*] [*] [*]
====== ===== ======
</TABLE>
Note (2) - R&D Plant Expenditure
<TABLE>
<CAPTION>
1999-00 2000-01 Total
------ ------- ------
<S> <C> <C> <C> <C> <C>
Date
Hardware purchased cost depn p.a.
[*] [*] [*] [*] [*] [*] [*]
[*] [*] [*] [*] [*] [*] [*]
[*] [*] [*] [*] [*] [*] [*]
[*]
[*] [*] [*] [*] [*] [*]
[*] [*] [*] [*] [*] [*]
[*]
[*] [*] [*] [*]
[*] [*] [*] [*]
Total Plant Expenditure [*] [*] [*]
------ ----- ------
Rounded [*] [*] [*]
====== ===== ======
</TABLE>
Reduction in expenditure due to firming up of estimates
Note (3) - Prototype Expenditure
<TABLE>
<CAPTION>
1999-00 2000-01 Total
------ ------- ------
<S> <C> <C> <C>
[*]
[*] [*] [*]
[*] [*] [*] [*] [*] [*] [*]
[*] [*] [*] [*] [*] [*] [*]
[*] [*] [*] [*]
Total Prototype Expenditure [*] [*] [*]
----- ----- -----
Rounded [*] [*] [*]
===== ===== =====
</TABLE>
Reduction in expenditure due to firming up of estimates
Note (4) - Other Expenditure
<TABLE>
<CAPTION>
1999-00 2000-01 Total
------- ------- ------
<S> <C> <C> <C>
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*] [*]
[*] [*] [*] [*]
------ ------ ------
Total other Expenditure (ii) [*] [*] [*]
Rounded [*] [*] [*]
====== ====== ======
</TABLE>
(ii) - Chip Application Technologies Ltd is required to keep all source
documents including air ticket vouchers, itineraries, diaries, invoices,
receipts and correspondence regarding the purpose of travel. These
documents should be made available and accessible to the Board's
Assessors.
Reduction in expenditure due to reduction in audit certificate fees, travel
expenses and beta site testing as well as patent searches being disallowed.
page 2 of 3
An * indicates that information has been redacted pursuant to a request for
confidential treatment filed separately with the Securities and Exchange
Commission.
<PAGE> 44
Chip Application Technologies Ltd Costcheck Detail
SUMMARY OF EXPENDITURES:
<TABLE>
<CAPTION>
1999-00 2000-01 Total
--------- ------- --------
<S> <C> <C> <C>
Salary Expenditure [*] [*] [*]
Contact Expenditure [*] [*] [*]
Plant Expenditure [*] [*] [*]
Prototype Expenditure [*] [*] [*]
Other Expenditure [*] [*] [*]
--------- ------- ---------
[*] [*] [*]
========= ======= =========
[*] [*] [*]
</TABLE>
Page 3 of 3
An * indicates that information has been redacted pursuant to a request for
confidential treatment filed separately with the Securities and Exchange
Commission.
<PAGE> 1
EXHIBIT 10.17
OPERATION RESELLER AGREEMENT
BETWEEN
CATUITY, INC. (C.A.T.)
AND
DATA PRO ACCOUNTING SOFTWARE, INC. (OPERATION RESELLER)
INTRODUCTION.
C.A.T. and the Operation Reseller have agreed to establish a non-exclusive
operation reseller relationship that allows the Operation Reseller to install
the C.A.T. System for their own use and to provide services to merchants and
other third parties using the C.A.T. System. In addition, the Operation Reseller
may provide services to C.A.T. and Other Resellers (nominated by C.A.T.) from
time to time.
GRANT OF LICENSE.
C.A.T. grants to the Operation Reseller a non-exclusive license to use (but not
sell, resell or transfer) the C.A.T. System intellectual property (including
rights to use the C.A.T. System software, confidential information concerning
methods of using and operating the C.A.T. System and its software and all
copyrights, patents and patents pending and trademarks and enhancements and
additions thereof) (C.A.T. Intellectual Property).
CORE SERVICES.
Each party will be responsible for the provision of the Core Services described
below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
C.A.T. OPERATIONS RESELLER
- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Supply or C.A.T. System software and all 1.1 Supply and installation of hardware and
documentation (including installation operating software required for operation of
instructions) under license. the C.A.T. System software.
- ------------------------------------------------------------------------------------------------------
1.2 Support for Operation Reseller during 1.2 Installation of C.A.T. System software.
installation of C.A.T. System software as
required and agreed.
- ------------------------------------------------------------------------------------------------------
2. Supply (with installation instructions) of 2. Continuous operation and management of
standard upgrades for C.A.T. software. the C.A.T. System software and all
associated systems and software.
- ------------------------------------------------------------------------------------------------------
3 Maintenance 3rd level support only (see 3. Maintenance of 1st & 2nd level support (see
ATTACHMENT "B") and support for C.A.T. ATTACHMENT "B") and support for C.A.T.
System software to Operations Reseller. System software.
- ------------------------------------------------------------------------------------------------------
4. Supply (with installation instructions) of 4. Provision of full C.A.T. System program
above mentioned upgrades for C.A.T. and program support services to merchants,
System software as agreed. C.A.T. and Other Resellers including:
a) Transaction processing services
b) Transaction reporting
c) Call center services
d) Supply of equipment (e.g. Cards,
terminals, readers, devices, etc...)
e) Installation and maintenance of
equipment.
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1)
<PAGE> 2
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
<S> <C>
f) Supply of sample sales and marketing
materials
g) Provision of demonstration systems
h) Training of Operation Reseller personnel
and training support for merchants
i) General C.A.T. System program
marketing and sales support for
merchants
- ------------------------------------------------------------------------------------------------------
5. Integration with third party applications 5. Marketing and direct selling of C.A.T.
as agreed. System programs to merchants including
preparation and presentation of materials and
proposals, attendance at trade shows and
general promotion of C.A.T. System services.
- ------------------------------------------------------------------------------------------------------
6. Provision of marketing and sales support 5. Support for the marketing and sales efforts
for the Operations Reseller services of C.A.T. and Other Resellers.
including:
a) Assistance in preparation of marketing
and sales materials
b) Assistance in preparation and
presentation of proposals
c) Assistance in conference and trade show
presentations
d) Active promotion of C.A.T. System
program services offered by the
Operation Reseller
e) Provision of marketing support services
to merchant users of C.A.T. System
- ------------------------------------------------------------------------------------------------------
7. Support for marketing and sales of C.A.T. 7. Marketing and sales of C.A.T. system
system program to consumers by merchants program services to merchants including
including a) Preparation of marketing and sales
a) Advise and assistance in design and materials
choice of program for merchants b) Preparation and presentation of
b) Preparation of marketing and sales proposals
materials for merchant programs c) Conference and trade show
c) Preparation and presentation of presentations
proposals for merchant programs d) Active promotion of C.A.T. System
d) Active promotion of merchant programs program services
to consumers e) Provision of marketing support services
e) Provision of consumer marketing and to merchant users of C.A.T. system
sales support to merchant f) Provision of marketing and sales support
for Other Resellers of C.A.T. systems as
requested by C.A.T.
- ------------------------------------------------------------------------------------------------------
8. C.A.T. System training programs as
agreed.
- ------------------------------------------------------------------------------------------------------
</TABLE>
Other Reseller means any third party organisation appointed by C.A.T. as a
reseller of the C.A.T. System and or C.A.T. programs.
RIGHT TO SUB-CONTRACT.
Either party may sub-contract the provision of all or any part of its' Core
Services to any Other Reseller or supplier. In the case of a supplier, the
assigning party will retain prime responsibility for the provision of the Core
Services assigned.
(2)
<PAGE> 3
CORE SERVICES PRICING.
The pricing, terms and other related matters are itemized in ATTACHMENT "A".
ACKNOWLEDGEMENT AND IDENTIFICATION.
All equipment and all programs that use the C.A.T. Intellectual Property will
carry a C.A.T. approved identification mark. All documentation used by the
Operation Reseller that uses or references this identification mark or C.A.T.
will include appropriate legal wording approved by C.A.T. Any documentation
created by C.A.T. that references any mark belonging to the Operation Reseller
would include appropriate legal wording approved by the Operation Reseller.
PRODUCT DEVELOPMENT AND ENHANCEMENT.
Any development or enhancement requested by the Operation Reseller to meet a
merchant customer's requirements would be considered by C.A.T. on a
case-by-case basis, without obligation. However, C.A.T. will ensure that the
Core Services if (or its sub-contractors) provides include the most recent
instance of the C.A.T. System capability. The scope of services and fees for
development or enhancement opportunities will be contractually determined
independent of this agreement.
PERIOD OF AGREEMENT AND TERMINATION.
The agreement and license will remain in force for a minimum period of three
years, with subsequent automatic one-year renewals. Either party can initiate
cancellation and termination by providing a written notification to the other
party with 180 days notice. Upon cancellation or termination all materials
(including the C.A.T. System software and documentation) provided by one party
to the other will be returned promptly and all use of the other party's
materials and intellectual property will cease upon expiry of the notice period.
INDEMNITY.
C.A.T. agrees that it shall indemnify and hold Operation Reseller harmless
against any claims for property damage or personal injury that arises out of
the negligence of C.A.T. To the extent that such property damage or personal
injury shall arise solely from the actions of the Operations Reseller. C.A.T.
bears no responsibility of indemnity.
CONFIDENTIALITY AND PRIVACY.
All dealings of the parties will be covered by a confidentiality agreement. Any
Third Party Information will be protected, analyzed, and disseminated based on
a mutually agreed policy. The parties agree to comply with the Privacy Policy
of C.A.T.
INTELLECTUAL PROPERTY.
All intellectual property owned or developed by a party will remain the
property of that party. All intellectual property in respect of the C.A.T.
System software and its operations will be C.A.T. Intellectual Property owned
exclusively by C.A.T. Unless otherwise agreed, any intellectual property
developed jointly for Operation Reseller during the period covered by the
agreement, other than C.A.T. System Intellectual Property, will be owned
jointly by the parties and each party will have a non-exclusive royalty free
license to use such intellectual property. All confidential information, during
the period covered by the agreement, created by the provision of service to
merchants will be owned jointly by the parties and each party will have a
non-exclusive royalty free license to use such confidential information.
(3)
<PAGE> 4
WARRANTIES.
C.A.T. provides no guarantees or warranties as to the performance or
suitability for purpose of the C.A.T. System to any merchant or other customers
requirements other than as specified in a third party customer contract that
has received C.A.T.'s prior written approval.
LAWS.
It is agreed between the parties:
a) That any dispute between the parties arising from this Agreement or
related Agreements shall be subject to mandatory binding arbitration.
The arbitration panel shall consist of three arbitrators unless the
parties agree otherwise. Any arbitrators shall be chosen by mutual
agreement. The costs of such arbitration, as well as any attorney's
fees for arbitration and confirmation by an appropriate court, shall
be borne by the non-prevailing party. The Rules of the American
Arbitration Association shall govern any arbitration under this
Agreement.
b) This Agreement and all matters concerning its interpretation,
performance, or the enforcement hereof shall be governed in accordance
with the laws of the State of California.
MODIFICATION OF AGREEMENT.
No waiver or modification of this Agreement or of any covenant, condition, or
provision herein obtained shall be valid unless in writing and duly executed by
the party to be charged therewith.
SEVERABILITY.
In the event any of the provisions of this Agreement shall be held to be
invalid by any court of competent jurisdiction, the same shall be deemed
severable, and as never having been contained herein, and this Agreement shall
then be construed and enforced in accordance with the remaining provisions
hereof.
ASSIGNMENT.
No assignment by either party of this Agreement, or of any rights or
obligations hereunder, shall be valid without the prior written consent of the
other party hereto.
NOTICES.
Whenever either party desires or is required to give notice hereunder to the
other party hereto, the same shall be in writing and shall be deemed
sufficiently "GIVEN" if deposited in the United States mail, postage prepaid,
by registered or certified mail, return receipt requested, addressed as follows:
IF TO DATA PRO ACCOUNTING SOFTWARE:
5439 Beaumont Center Blvd.
Suite 1050
Tampa, FL 33634
(813) 885-9495 Voice
(813) 261-0650 Fax
(4)
<PAGE> 5
IF TO CATUITY, INC.:
Catuity, Inc. (C.A.T.)
235 Montgomery Street
Suite 300
San Francisco, California 94104 USA
(415) 421-4280 Voice
(415) 421-4277 Fax
BINDING EFFECT. This Agreement shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, legatees,
administrators, executors, legal representatives, successors and permitted
assigns.
DRAFTING. Neither party shall be deemed to have drafted this Agreement and no
presumption of favorable construction shall be accorded either party.
CONSTRUCTION. This instrument contains the entire agreement between the
parties. All prior and collateral representations, promises, and conditions in
connection with the subject matter hereof are merged herein. Any
representation, promise, or condition not incorporated herein shall not be
binding upon either party. This agreement supersedes and is in lieu of all
existing agreements or arrangements between the parties relating to this matter.
HEADINGS. The headings used herein are for organizational purposes only, and
are not deemed to be of legal effect.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATE
ENTERED BELOW.
CATUITY, INC. DATA PRO ACCOUNTING SOFTWARE, INC.
Name [Illegible] Name Joel A. Brock
Title SVP Sales & Marketing Title President
Date 5/1/00 Date 11/29/1999
Signature [Signature Illegible] Signature JOEL A. BROCK
(5)
<PAGE> 6
OPERATION RESELLER AGREEMENT
ATTACHMENT "A" - CORE SERVICES PRICING
(EFFECTIVE NOVEMBER 1, 1999)
The Operation Reseller will be responsible for all pricing for all services
offered by it to end-users.
The Operation Reseller will pay C.A.T. the following fees for C.A.T. Core
Services:
1) For the C.A.T. System license (including one copy of documentation and
standard upgrades) the greater of
a) Five cents (USD) per transaction for all transactions conducted by
the Operation Reseller using the C.A.T. System software (all or any
part therefore) or
b) $3000 (USD) per merchant per month.
All payments are payable monthly (rounded to the end of each month), in
arrears, from the date of the first transaction conducted with the
merchant.
2) For C.A.T. System maintenance (3RD LEVEL ONLY) and support 5% of the
amount payable under item 1 above.
3) For the above mentioned upgrades and integration with third party
application, as agreed from time to time.
4) For provision of general marketing and sales support for the Operation
Reseller, no fee will be payable but where specific projects require the
attendance of C.A.T. personnel and/or incur direct costs; C.A.T. will be
paid normal commercial time, materials, Lodging and travel expenses,
C.A.T. agrees to notify Operation Reseller, in advance, at all times when
its services are to be considered billable.
5) For provision of consumer marketing and sales support for the merchant
each project will be quoted separately and where the attendance of C.A.T.
personnel and direct costs are incurred, C.A.T. will charge normal
commercial time and materials. C.A.T. agrees to notify Operation
Reseller, in advance, at all times when its services are to be considered
billable.
6) For training normal commercial time and materials.
A "TRANSACTION" is any event recorded by a program engine device (or
alternatively any event requiring use of the data bubble), irrespective of
location. It includes ticket validation and other non-value transactions but
where two transactions occur as part of one transaction (such as the issue
of a ticket with an incentive), these two transactions will be treated as
one transaction instance. (FOR EXAMPLE: the issuance and redemption of a
ticket will result in two transaction instances).
Neither party will be bound by any quotation or proposal made by the other
party to a third party, other than under the terms of this arrangement,
unless a firm written quotation has been provided in respect of the
particular merchant. All pricing will be in US dollars.
(6)
<PAGE> 7
OPERATION RESELLER AGREEMENT
ATTACHMENT "B" - MAINTENANCE PROGRAMS
(Effective November 1, 1999)
MAINTENANCE SUPPORT is the Service provided when a customer identifies an
Error. There are three Maintenance Support Service Levels:
LEVEL 1 is the Service provided in response to the customer's initial contact
identifying an Error, and includes the following steps:
1. Identify the end-user,
2. Log the problem, time stamp it and briefly describe it with the end-user
contact.
3. Scan a database for previous reports of this problem.
4. Inform the account representative for the end-user of the incident.
5. Report the planned action to the end-user.
LEVEL 2 is the Service provided to reproduce and attempt to isolate the Error,
or to find that the Service Provider cannot reproduce the Error. Usual steps
include:
1. A detailed problem analysis.
2. Contact software owner's product support for telephone consultation.
3. Inform end-user of correct procedure.
4. Determine if a temporary by-pass is appropriate.
5. Report action taken to software owner.
6. Keep account representative informed.
LEVEL 3 is the Service provided remotely to isolate the error at the component
level of the products. The Service Provider distributes the Error correction or
circumvention, or gives notice if no correction or circumvention is found.
Service Levels (response time/effort) are normally based on the severity level
of the problem.
SEVERITY 1 - System multiple terminal outages. The business is severely
impacted.
RESPONSE: Work to resolve as soon as possible on a response time
within one business day of the notification and to be conducted
continuously until resolution achieved.
SEVERITY 2 - Experiencing difficulty in execution tasks and it is taking a
protracted time to do the job.
RESPONSE: Work to begin within 2-3 business days of notification
and to be conducted continuously until resolution achieved.
SEVERITY 3 - A problem exists, but a temporary solution is available. A fix is
required.
RESPONSE: Work to be included in development cycle (within 6
months).
SEVERITY 4 - An irritant.
RESPONSE: Work to be included in development cycle (within 6
months).
(7)
<PAGE> 1
EXHIBIT 10.18
SUN MICROSYSTEMS COMPUTER COMPANY
JOINT MARKETING AGREEMENT
THIS JOINT MARKETING AGREEMENT ("Agreement") is entered into as of this 1st day
of August, 1998 (the "Effective Date") by and between Sun Microsystems Computer
Company, a division of Sun Microsystems, Inc., a Delaware corporation, with a
principal place of business at 901 San Antonio Road, Palo Alto, California
94303 ("Sun") and Chip Application Technologies, Ltd., an Australian
corporation, with a principal place of business at Level 5 Cabcharge House,
152-162 Riley Street, East Sydney, NSW, Australia ("Company").
RECITALS
Sun is engaged in the development, manufacture, sale and distribution of
certain computer hardware and related software (collectively, the "Sun
Platform").
Company is the owner and developer of the 'The C.A.T. System' software program
and documentation, and has ported the Products for use with the Sun Platform
(the "Products"). Sun and Company desire to market and promote the Products for
use with the Sun Planform on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Company Trademarks" shall mean all names, marks, logos, designs, trade
dress and other brand designations used by Company in connection with the
Products.
1.2 "Customer" shall mean the end-user of the Products with the Sun Platform.
1.3 "Intellectual Property Rights" shall mean all patents, patent applications,
and copyrights; rights relating to the protection of trade secrets and
confidential information; and other proprietary rights including, without
limitation, license rights relating to intangible property; and divisions,
continuations, renewals, reissues and extensions of the foregoing now existing,
or hereafter filed, issued or acquired.
1.4 "Sun Trademarks" shall mean all names, marks, logos, designs, trade dress
and other brand designations used by Sun in connection with the Sun Platform.
2 PRODUCT MARKETING AND SUPPORT
2.1 Product Marketing
(a) Availability of Products. Company will make the Products available on its
standard terms and conditions for Customer's use with the Sun Platform.
(b) Sun's Product Marketing Rights. Company grants to Sun the right to market
the Products to Customers for use with the Sun Platform. Sun's marketing and
promotion of the Products may be carried out on a worldwide basis, and may
include the matters more particularly detailed in a marketing plan to be agreed
upon between the parties.
(c) Marketing Review. Sun and Company shall meet quarterly at such location as
the parties may mutually agree in order to review the promotion of the
Products. The purpose of the review ("marketing review") shall be to assess and
develop joint marketing strategies. At each marketing review meeting the
parties shall: (i) assess marketing plans, Customer prospects, existing
Customers and progress on any joint sales proposals; and (ii) provide and
discuss product marketing information that may be available.
Any items mutually agreed upon by the parties following the most recent
marketing review are set forth in Attachment A. Attachment A may be amended
from time to time with the consent of both parties.
<PAGE> 2
(d) Publicity. The terms and conditions of this Agreement are confidential.
Any disclosures by either party about the existence of this Agreement, its
terms and conditions, and the activities contemplated herein are subject to the
disclosing party obtaining the prior written approval of the other party.
2.2 Product Support
(a) Company Product Support. Company will be responsible for providing customer
support, including telephone support and warranty service to Customers with
respect to the Products, through Company's authorized sales channels, and may
charge Customers for such support in accordance with Company's standard
practices.
(b) Sun Engineering Support. Sun shall provide Company with limited engineering
support from time to time to assist Company in optimizing performance of the
Products with the Sun Platform. Sun engineering support shall consist of
trouble-shooting assistance and telephone and email support to Company, and
shall be subject to the availability of the appropriate Sun personnel. The
amount and scope of such support shall be determined in Sun's sole discretion.
(c) Enhancements or Modifications. From time to time Sun will inform Company of
any perceived enhancements or modifications that are likely to be generally
required for the Products. The parties shall co-operate with one another to
clarify details of any modifications or enhancements that may be so recommended.
(d) New Releases. The parties will provide pre-release versions of their
products to one another from time to time and will advise each other as soon as
practicable of plans for future releases of their respective products. Any
pre-release disclosures by Sun to Company shall be subject to the terms and
conditions of Sun's standard pre-release license agreement, which Company shall
execute before any such disclosure.
(e) Product Training. Each party will provide the other party free of charge
with initial training courses on the respective products at dates and locations
and for such reasonable number of the other party's personnel as may be
mutually agreed.
3. COMPANY OBLIGATIONS
3.1 Sun Catalyst Program. Company shall apply to become a member of the Sun
Catalyst Program. As a Catalyst member, Company will be able to purchase a
designated number of Sun development systems at a significant discount, in
accordance with the program's terms and conditions.
3.2 Reference Account. Company agrees to be a reference account for Sun and
permits Sun to use its name, customers and products in press releases,
advertising, and other marketing and promotional materials in formats and with
content that Sun deems appropriate.
3.3 Sun Connect and Sun Card Support. Company agrees to publicly support the
Sun Connect and Sun Card architectures in its marketing activities and work
with Sun to enhance its Products to be compatible with these architectures.
4. SUPPORT OF TENDERS
4.1 Company Support. Upon request from Sun, Company shall support Sun in the
promotion of the Products to mutually agreed prospective Customers. The extent
of such support shall be agreed at the marketing reviews, or as may otherwise
mutually agreed from time to time. Support is expected to consist of technical
support to Sun's personnel in responding to tenders and/or defining
configuration details on the basis of prospective Customer requirements. In the
context of any on-site presentations or demonstrations, if mutually agreed to,
each party shall be responsible for the provision of such demonstration
equipment and facilities as the parties may agree.
<PAGE> 3
4.2 Conflicts of Interest. In the event that either party has conflicting
commercial interests in relation to a prospective Customer (where Company may
also be working in conjunction with a supplier of competitive hardware or Sun
may also be working in conjunction with a supplier of competitive software),
the party with the conflict shall notify the other party immediately regarding
such conflict.
4.3 Bidding Support. Company shall bid exclusively with Sun to any Customers
or prospects to whom Company has been introduced by Sun, except (i) with Sun's
prior written consent, (ii) where Company or prospect has conflicting
contractual obligations, or (iii) the Customer or prospect specifies a
different computer hardware platform.
5. SALES TARGETS
5.1 Targets for Fiscal Years 1999-2000. Sun and Company have mutually
developed sales targets for Sun's Fiscal Years 1999 - 2000 (July 1, 1998 - June
30, 2000). These targets are described in Attachment B to this agreement.
6. MARKETING CONTACTS
6.1 Sun Marketing Contacts. Attachment C lists the current individuals (which
are subject to change) at Sun who are responsible for driving business with
Company in each identified geographic region. An updated list of contact names
will be available to Company at the financial services partner website at
http://www.sun.com/finance.
6.2 Company Marketing Contacts. Attachment C lists the current individuals
(which is subject to change) at Company who will be responsible for driving
business with Sun in each identified geographic region. Company will make
available an updated list of contact names to Sun on a regular basis.
7. INTELLECTUAL PROPERTY RIGHTS
7.1 Ownership. Each party acknowledges that it shall not acquire any
Intellectual Property Rights under this Agreement in the products or associated
materials of the other, and all rights therein are strictly reserved. Any
goodwill arising in the course of this Agreement in respect of the products of
either party shall accrue solely for the benefit of that party.
7.2 Use of Sun Trademarks. Company is granted no right, title or license to,
or interest in, any Sun Trademarks. Company acknowledges Sun's rights in Sun
Trademarks and agrees that any use of Sun Trademarks by Company shall inure to
the sole benefit of Sun. Company agrees not to (a) challenge Sun's ownership or
use of, (b) register, or (c) infringe any Sun Trademarks, nor shall Company
incorporate any Sun Trademarks into Company's trademarks, service marks,
company names, Internet addresses, domain names, or any other similar
designations. If Company acquires any rights in any Sun trademarks by operation
of law or otherwise, it will immediately at no expense to Sun assign such
rights to Sun along with any associated goodwill, applications, and/or
registrations.
7.3 Sun Trademark and Logo Policies. Company may refer to Sun products by
their associated Sun Trademarks, provided that such reference is truthful and
not misleading and complies with the then current version of the Third Party
Use of Sun Trademarks policy under Sun Trademark and Logo Policies. Company
shall not remove, alter, or add to any Sun Trademarks, nor shall it co-logo Sun
products. Specifically, Company shall not use the names "Sun," "Salaris,"
"Jave," or any other Sun Trademark in the name of the Products, e.g. the
Products may not be named "SunXYZ" or JavaXYZ" or "XYZ for Solaris."
8. WARRANTIES AND INDEMNIFICATION
8.1 Non-Infringement Warranty. Company represents and warrants that Company
is the owner of the Products and that the Products do not infringe any
Intellectual Property Rights of any third party.
<PAGE> 4
8.2 Warranty Disclaimer, UNLESS SPECIFIED IN THIS AGREEMENT, ALL EXPRESS OR
IMPLIED CONDITIONS, REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT, ARE DISCLAIMED, EXCEPT TO THE EXTENT THAT SUCH DISCLAIMERS
ARE HELD TO BE LEGALLY INVALID.
8.3 Indemnification. Company will defend Sun from all claims by third parties
relating to its Product, and shall indemnify and hold Sun harmless from all
associated damage, loss, costs and expenses, including attorney's fees,
provided that Sun: (a) provides notice of the claim promptly to Company; (b)
gives Company sole control of the defense and settlement of the claim; (c)
provides Company, at Company's expense, all available information, assistance
and authority to defend; and (d) has not compromised or settled such proceeding
without Company's prior written consent.
9. LIMITATION OF LIABILITY
Except for obligations under Article 8 and to the extent not prohibited by
applicable law;
(a) Each party's aggregate liability to the other for claims relating to this
Agreement, whether for breach or in tort shall be limited to Ten Thousand
Dollars ($10,000).
(b) NEITHER PARTY WILL BE ELIGIBLE FOR ANY INDIRECT, PUNITIVE, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGE IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT (INCLUDING LOSS OF BUSINESS, REVENUE, PROFITS, USE, DATA OR OTHER
ECONOMIC ADVANTAGE), HOWEVER IT ARISES, WHETHER FOR BREACH OR IN TORT, EVEN IF
THAT PARTY HAS BEEN PREVIOUSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
(c) Liability for damages shall be limited and excluded, even if any exclusive
remedy provided for in this Agreement fails of its essential purpose.
10. CONFIDENTIAL INFORMATION
If one party desires that information provided to the other under this Agreement
be held in confidence, the disclosing party will identify the information as
confidential or proprietary. The receiving party may not disclose the other
party's confidential or proprietary information and may use it only for
purposes specifically contemplated in this Agreement. The receiving party
will treat tangible business and financial information of the disclosing party
that has been previously identified as confidential, with the same degree of
care as it does its own similar information. The foregoing obligations do not
apply to information which: (a) was in the possession of, or was known by, the
receiving party prior to its receipt from the disclosing party; (b) is or
becomes generally known to the public without violation of this Agreement; (c)
is obtained by the receiving party from a third party, without an obligation to
keep such information confidential; or (d) is independently developed by the
receiving party without use of the confidential or proprietary information.
This section will not affect any other confidential disclosure agreement between
the parties.
11. TERM AND TERMINATION
11.1 Term and Termination.
(a) This Agreement will come into force on the Effective Date and will remain
in effect for two (2) years unless earlier terminated in accordance with
Section 9.1(b).
(b) Either party may terminate this Agreement: (i) without cause and for any
reason, on sixty (60) days' Notice to the other party; or (ii) immediately upon
giving Notice of any material breach by the other party if the nature of the
breach is such that it cannot be remedied; or (iii) thirty (30) days following
Notice to the other party of a material remedial breach, if the other party has
not remedied such breach within that thirty-day period.
<PAGE> 5
11.2 No Liability for Termination. The right of termination provided herein is
absolute and the party terminating shall not be liable to the other for damages
of any kind, including incidental or consequential damages, damages for loss of
prospective business or loss of continuing business, or otherwise which arise
due to a termination in accordance with the provisions of this Section. This
does not relieve either party from responsibility for damages caused by its
actions or breaches of the Agreement, but only for damages related to or
resulting from the termination of the business relationship.
11.3 Continuing Obligations. The parties agree to continue and complete any
marketing activities hereunder involving commitments by either party to any
Customer or other third party incurred prior to the date of expiration or
termination and in process on such date.
11.4 Return of Materials. Upon expiration or termination of this Agreement,
each party shall return all marketing and other materials received from the
other party, except for non-confidential sales literature or demonstration
software specifically designed for public distribution.
12. NOTICES
All Notices required by this Agreement must be in writing, delivered in person
or by means evidenced by a delivery receipt and will be effective upon receipt
by the persons specified below:
Sun Company
Sun Microsystems Computer Company Chip Application Technologies
a division of Sun Microsystems, Inc. Level 5, 152-162 Riley Street
901 San Antonio Road, M/S UMPK10-201 East Sydney, NSW 2010
Palo Alto, CA 94303 Australia
Attn.: General Counsel Attn.: Company Secretary
13. GENERAL
13.1 Relationship of the Parties. This Agreement is not intended to create a
relationship such as a partnership, franchise, joint venture, agency, or
employment relationship. Neither party may act in a manner which expresses or
implies a relationship other than that of independent contractor, nor bind the
other party.
13.2 Assignment. Neither party may assign or otherwise transfer any of its
rights or obligations under this Agreement, without the prior written consent
of the other party, except that Sun may assign this Agreement to an affiliated
company.
13.3 Survival. Rights and obligations under this Agreement which by their
nature should survive will remain in effect after termination or expiration
hereof.
13.4 Force Majeure. A party is not liable under this Agreement for
non-performance caused by event or conditions beyond that party's control if
the party makes reasonable efforts to perform.
13.5 Waiver. Any express waiver or failure to exercise promptly any right under
this Agreement will not create a continuing waiver or any expectation of
non-enforcement.
13.6 Partial Invalidity. If any term or provision of this Agreement is found to
be invalid under any applicable statute or rule of law then, that provision
notwithstanding, this Agreement shall remain in full force and effect and such
provision shall be deleted.
13.7 Governing Law. Any action related to this Agreement will be governed by
California law and controlling U.S. federal law. No choice of law rules of any
jurisdiction will apply.
<PAGE> 6
13.8 Entire Agreement. This Agreement is the parties' entire agreement relating
to its subject matter. It supersedes all prior or contemporaneous oral or
written communications, proposals, conditions, representations and warranties
and prevails over any conflicting or additional terms of any quote, order,
acknowledgment, or other communication between the parties relating to its
subject matter during the term of this Agreement. No modification to this
Agreement will be binding unless in writing and signed by an authorized
representative of each party. IN WITNESS WHEREOF, the parties hereto have
caused this Agreement to be executed by their respective authorized
representatives as of the Effective Date.
SUN MICROSYSTEMS COMPUTER COMPANY COMPANY
a division of Sun Microsystems, Inc.
/s/ ROBERT HALL /s/ JUSTIN C.A. WESCOMBE
By: ____________________________________ By: _______________________________
Robert Hall Justin C.A. Wescombe
Name: __________________________________ Name: _____________________________
Vice President SVP, Sales and Marketing
Title: _________________________________ Title: ____________________________
10/23/98 6 October 1998
Date: __________________________________ Date: _____________________________
<PAGE> 1
EXHIBIT 10.19
[CHIP APPLICATION TECHNOLOGIES LETTERHEAD]
CO-OPERATIVE AGREEMENT BETWEEN
CHIP APPLICATION TECHNOLOGIES (C.A.T.)
AND
GLOBAL TRANSACTION COMPANY (GTC)
TO CREATE AND OPERATE A BUREAU SERVICE
This co-operative agreement between Chip Application Technologies (C.A.T.) and
Global Transaction Company (GTC) creates a non-exclusive bureau service to
process transactions, and service customers, within the framework of the C.A.T.
system alongside any relevant GTC systems. For the immediate term of the
co-operative agreement, customers will be limited to the existing GTC partners
and beta partners for the C.A.T. Internet module.
1. PERIOD OF AGREEMENT AND TERMINATION.
The co-operative agreement will remain in force until cancelled by both parties
or superseded by another agreement. Either party can initiate cancellation by
making a written notification of cancellation to the other party. Cancellation
comes into effect 180 days after the other party receives the notification.
2. LOCATION OF BUREAU SERVICE.
The bureau service operated under this co-operative agreement will be located
at the GTC offices in Columbus, Ohio.
3. RESPONSIBILITIES OF CHIP APPLICATION TECHNOLOGIES
C.A.T. will provide all relevant C.A.T. system software to the bureau service
created under this co-operative agreement free of charge. C.A.T. will not make
any charges to the bureau service for the first year of operation. After this
time, a charge structure will be determined by mutual agreement.
C.A.T. will provide the services of up to 2 people for a period of not less than
9 months in any 12-month period. While these services may include one full time
executive, it may include the part time services of 3-4 executives over the
period.
4. RESPONSIBILITIES OF GLOBAL TRANSACTION COMPANY.
GTC will provide office space and all general fully serviced office facilities
for up to 2 C.A.T. personnel at no cost in the first year. Thereafter normal
commercial rates for such services will apply and the structure of these rates
will be determined by mutual agreement.
GTC will provide and install all of the equipment and third party software
required to operate the C.A.T. system at GTC cost. This cost will be depreciated
and amortised over an agreed period (3-5 years). In the first year no charges
for such equipment and software will be charged to the bureau service. After the
first year of operation, an amount equivalent to such depreciation and
amortisation will be paid to GTC in each year by the bureau service under terms
to be mutually agreed.
<PAGE> 2
12. FAILURE TO AGREE.
If GTC and C.A.T. fail to reach an agreement, after negotiating in good faith,
on the creation and on-going management of the service bureau anticipated by
this agreement by the end of the beta period (31 March 2000). GTC has the right
to purchase the latest license version of 'The C.A.T. System' (supporting their
existing card and terminals models) on the following terms:
o GTC will pay C.A.T. a license fee for the right to use the C.A.T. System
according to the following pricing schedule:
<TABLE>
<S> <C>
___________________________________________________________________________
Terms of License Price
___________________________________________________________________________
1.0 Annual license fee for up to 10,000 active cards $10,000
___________________________________________________________________________
1.1 No card fee
___________________________________________________________________________
2.0 Unrestricted license for up to 100,000 active cards $100,000
___________________________________________________________________________
2.1 Active Card Fee per year $0.33 per card
(No fee for first twenty four months of agreement)
___________________________________________________________________________
3.0 Unrestricted license
___________________________________________________________________________
3.1 Active Card Fee per year
(No fee for first forty eight months of agreement)
Up to 200,000 cards $0.25 per card
200,000 - 500,000 cards $0.10 per card
Above 500,000 cards $0.05 per card
___________________________________________________________________________
</TABLE>
The License shall be for an initial period of ten years with automatic
one-year renewal after this period. License may be terminated for
non-payment of fees, insolvency or other standard termination terms.
An Active card is a card that has been activated with a transaction
completed in the period.
o C.A.T., or their business partner, will provided support,
maintenance and services to GTC for the entire period that GTC
operates the C.A.T. System. The rates for support, maintenance and
services will be at the then prevailing rates but will be no greater
than any other C.A.T. customer in North America.
This agreed licensing fee, transaction fee and support, service
and maintenance model will remain in effect for the term of this
Cooperative Agreement plus 60 days. The terms of section 12 may be
amended at any time up to the 31 March 2000 with the consent of both
parties.
Agreed by Agreed by
CHIP APPLICATION TECHNOLOGIES GLOBAL TRANSACTION COMPANY
Name: Justin C.A. Wescombe Name: [Illegible]
Title: SVP, Sales and Marketing Title: VP, Chief Technology Officer
Date: 28 July 1999 Date: 2 August 1999
<PAGE> 3
5. OWN COSTS.
Each party will be responsible for their personnel costs in the first year.
Thereafter these costs will be paid by the bureau service based on a model to
be agreed at a later date.
6. BUDGET.
A budget will be prepared and agreed for the first year by both parties. At the
time of agreement of the budget, both parties will approve the basis on which
any expenses will be paid and how costs will be shared between the parties. All
costs that are not included in the budget and exceed $2500 will require the
prior approval of the other party prior to being incurred.
7. MARKETING OF BUREAU SERVICE.
GTC and C.A.T. will work together to market the bureau services. On-going
marketing support for clients relevant to C.A.T. programs will be provided
by C.A.T. on a case by case basis.
8. CONFIDENTIALITY.
All dealings of the parties will be covered by a confidentiality agreement. Any
Third Party information will be protected, analyzed, and disseminated based on
a mutually agreed policy.
9. INTELLECTUAL PROPERTY.
All Intellectual Property owned or developed by a party will remain the
property of that party. Unless otherwise agreed, any Intellectual Property
developed during the period covered by the co-operative agreement will be owned
jointly by the parties and each party will have a non-exclusive royalty free
license to use such Intellectual Property. All confidential information created
by the bureau service will be owned jointly by the parties and each party will
have a non-exclusive royalty free license to use such confidential information.
10. PRODUCT DEVELOPMENT AND ENHANCEMENT.
All development required for the operation of the bureau service under the
terms of the co-operative agreement will be agreed by both parties and the
terms for each development agreed on a case by case basis.
C.A.T. will maintain the instance of its software product at the bureau service
by installing upgrades and maintenance patches as they are released.
11. WARRANTIES.
C.A.T. provides no guarantees or warranties as to the performance or
suitability for purpose of the C.A.T. system to any customers requirements
other than as specified in a third party customer contract that has received
C.A.T.'s prior written approval.
<PAGE> 1
EXHIBIT 10.20
TECHNOLOGY PARTNERSHIP AGREEMENT
THIS CONTRACT (HEREAFTER REFERRED TO AS "CONTRACT") IS ENTERED INTO BY AND
BETWEEN:
Chip Application Technologies Limited (A.C.N. 057 8833 333)
a company having its main place of business at
Level 5, Cabcharge House
152-162 Riley Street
East Sydney NSW 2010
Australia
represented by:
Greg Harding, Company Secretary
(hereafter referred to as the "Technology Partner"), as the first party,
AND
Gemplus Technologies Asia Pte Ltd, a company incorporated under the laws of the
Republic of Singapore, having its main place of business at 89 Science Park
Drive, #04-01/05 The Rutherford, Singapore Science Park. Singapore 118261, the
Republic of Singapore, represented by:
Chou Fang Soong, Executive Vice-President
(hereafter referred to as "GTA"), as the second party,
Jointly referred to hereafter as the "Parties" and referred to severally as the
"Party".
PREAMBLE
The TECHNOLOGY PARTNER is developing, manufacturing and selling:
C.A.T. System, a Multi-application Smartcard Management System
GTA is a leading provider of plastic and smart card-based solutions. GTA sells
(inter alia) smart cards, smart contactless cards, electronic tags and smart
objects to deliver the industry's most comprehensive and flexible card-based
solutions to its customers.
The Parties intend to collaborate for their mutual benefit and in the interest
of the market to promote and sell compatible and innovative products and
solutions to their customers.
NOW THE PARTIES HERETO AGREE AS FOLLOWS:
ARTICLE 1 - SCOPE OF CONTRACT
The scope of this non exclusive, strategic Contract is to establish the general
technical and business rules of the relationship between the Parties in respect
of the countries ("Territory") listed in Appendix 1 which is attached hereto and
forms an integral part of this Contract.
The Solution for this technology cooperation is described in Appendix 1.
ARTICLE 2 - TERM
This Contract will come into force on the latest of the dates of signature by
either Party and will expire on:
31st December 1999
("Term"). It will be renewed only by written agreement signed by duly authorized
representatives of both Parties.
ARTICLE 3 - LEGAL POSITION OF THE TECHNOLOGY PARTNER
The Technology Partner will, at its sole discretion, integrate and promote the
Gemplus Products which are listed in Appendix 1.
After acceptance of the present Contract by both Parties, the Technology Partner
is authorized to publicly define its activity with the following statements:
"GEMPLUS Technology Partner" and "Member of the Gemplus Expert Network".
The relationship of GTA and the Technology Partner shall be that of independent
parties. The Parties to this Contract shall not be considered as agents or legal
representatives of each other nor accept legal or contractual commitments (for
or on behalf of the other party) with regards to third parties.
Neither execution nor performance of this Contract shall be construed as the
establishment of any joint venture or partnership. Nothing in this Contract
shall be construed as creating any obligation on the part of either Party to
enter into any business relationship with the other Party.
ARTICLE 4 - OBLIGATIONS OF GTA
GTA will, at its sole discretion, support the Technology Partner on technical,
technology and marketing issues to promote the Solution as and when GTA deems
appropriate through its salesforce.
Pg 1 of 9
<PAGE> 2
4.1 MARKETING SUPPORT
Upon signature of this Contract:
* GTA shall appoint a marketing contact ("GTA's Marketing Contact"), who is
named in Appendix 2 (which is attached hereto and forms an integral part of this
Contract), to support this Technology Partnership as provided in Appendix 2.
* The Technology Partner shall receive a "Welcome Package" which shall include:
* A "Gemplus Expert Network" membership certificate.
* Sales documentation about the Gemplus Products.
These materials will be made available in English. If any translation is
required or if the Technology Partner needs additional quantities, it shall be
subject to prior agreement by GTA and the costs shall be borne by the Technology
Partner.
* GTA shall, in its absolute discretion, provide the Technology Partner with
such samples of cards and documentation, in such reasonable quantities as GTA
sees fit, for demonstration purpose. If any translation is required or if the
Technology Partner needs additional quantities, it shall be subject to prior
agreement by GTA and the costs shall be borne by the Technology Partner.
* GTA agrees to keep the Technology Partner informed of such modifications and
upgrades of the Gemplus Products which, in GTA's opinion is/are relevant to the
Solution.
* GTA, in its absolute discretion, may from time to time acquire such
demonstration kits and supporting marketing materials form the Technology
Partner as may be necessary to promote the Technology Partner's solution. Such
acquisition shall be subject to prior agreement by the Technology Partner and
all costs shall be borne by GTA.
* GTA may, in its absolute discretion, invite the Technology Partner to specific
GEMPLUS Experts events.
4.2 TECHNICAL SUPPORT
Upon signature of this contract:
* GTA shall appoint a technical contact ("GTA's Technical Contact") who is named
in the Appendix 2 to support the Technology Partnership as provided in Appendix
2.
* GTA shall, in its absolute discretion, provide such technical assistance as
GTA deems fit to the Technical Partner to support the integration of the Gemplus
Products into the Technical Partners own products, packages, systems and
solutions and the migration to the next generations of products.
* GTA may, in its absolute discretion, provide the Technology Partner with such
training sessions and development kits (which shall be purchased by the
Technology Partner) as GTA sees fit. If any translation is required or if the
Technology Partner needs additional quantities, it shall be subject to prior
agreement by GTA and the costs shall be borne by the Technology Partner.
* A hot line service is offered on all Gemplus Products as listed in Appendix 1.
The operational hours of the hot line service shall be at the absolute
discretion of GTA.
ARTICLE 5 - OBLIGATIONS OF THE TECHNOLOGY PARTNER
The Technology Partner shall, at its sole discretion, integrate and promote
Gemplus Products and technology in the Solution.
5.1 MARKETING AND TECHNICAL SUPPORT
* The Technology Partner shall appoint a marketing contact ("Technology
Partner's Marketing Contact") and a technical contact ("Technology Partner's
Technical Contact") to support the Technology Partnership as provided in
Appendix 2.
* The Technology Partner shall effectively promote and market Gemplus Products
and the Solution.
* The Technology Partner shall provide technical support for the Solution.
* The Technology Partner agrees to keep GTA informed of such modifications and
upgrades of the Technology Partner's Solution which, in the Technology Partner's
opinion, is/are relevant.
* The Technology Partner shall train its sales force and distribution channels
on the Solution and on the Gemplus Products using the training materials
supplied by GTA.
* The Technology Partner shall train the GTA's Technical Contact on the Solution
on a regular basis.
* The Technology Partner shall provide the maintenance for the Solution.
* The Technology Partner shall purchase the development kits for the integration
of the Gemplus Products in to the Solution.
* Any and all material provided to GTA by the Technology Partner will be done so
in English. If any translation is required or if GTA need additional quantities,
it shall be subject to prior agreement by the Technology Partner and the costs
shall be borne by GTA.
5.2 PROMOTION
The Technology Partner will, in its absolute discretion, promote Gemplus
Products and technology as and when the Technology Partner deems necessary
through its sales force and toward:
* the trade associations
* dedicated trade shows and exhibitions
* the Technology Partner's Web site
* the Technology Partner's show rooms
* press releases
Pg 2 of 9
<PAGE> 3
ARTICLE 13 - SIGNATURE
This Contract will be effective and come into force from the latest of the dates
of signature by the Parties.
CHIP APPLICATION TECHNOLOGIES: GEMPLUS TECHNOLOGIES ASIA PTE LTD:
NAME: Michael Spooher NAME: Chou Fang Soong
DATE: 17 JULY 98 DATE:
SIGNATURE: SIGNATURE:
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
------------------------------- ----------------------------------
WITNESS: /s/ Erlinda P. Myatt
-------------------------
17 JULY 1998
Pg 4 of 9
<PAGE> 4
APPENDICES OF THE AGREEMENT
APPENDIX 1
1) List of the countries making up the "Territory"
Asia Pacific including Australia, New Zealand, Indonesia, Singapore, Malaysia,
Indo-China, Philippines, Taiwan, The People's Republic of China including Hong
Kong and Korea.
2) Description of the Solution
C.A.T's System may generally be referred to as a multiapplication smart card
software solution which is better described by reference to Chip Application
Technologies Limited Product Description as may be amended from time to time.
3) Gemplus Products
MPCOS range of microprocessor cards
GemClub
GPM range of memory cards
Contact and contactless readers
Pg 5 of 9
<PAGE> 5
APPENDIX 2
MARKETING COOPERATION
1) The Technology Partners contacts
* Marketing Contact
Michael Spooner
Tel: 852-2521-2130
Fax: 852-2522-4542
email: [email protected]
* Technical Contact
Ben Garton
Tel: 461-2-9332-4955
2) Gemplus contacts
* Marketing Contact
Tan Siok San
Tel: 65-7719176
Fax: 65-7730648
* Technical Contact (hot-line support)
Tan Ming Chiam
Tel: 65-7715742
Fax: 65-7736516
<PAGE> 6
APPENDIX 3: GENERAL CONDITIONS OF SALE
GENERAL CONDITIONS OF SALE
ARTICLE 1 - GENERAL POINTS
1.1 The terms and conditions contained herein shall apply unless otherwise
stated in a written agreement, to all sales of cards and readers manufactured
and/or marketed by GEMPLUS INTERNATIONAL or any legal entity belonging to the
GEMPLUS Group, hereinafter known as "Products".
1.2 All orders placed by the Buyer with GEMPLUS INTERNATIONAL or any other
legal entity belonging to the GEMPLUS Group, hereinafter called "GEMPLUS", shall
be governed by these General conditions of Sale.
1.3 Notwithstanding anything to the contrary stated in the Buyer's Conditions
of Purchase, the sending of the order by the Buyer is considered as acceptance
of the following terms and conditions.
ARTICLE 2 QUOTATIONS
All quotations made by GEMPLUS to the Buyer shall be valid for a period of 30
days from the date they are made. The delivery time stated in a quotation is
only an indication and starts on whichever of the following comes last
- -the date on which all the elements required in process the orders are received,
- -the acknowledgement of receipt of the order.
ARTICLE 3 - ORDERS
3.1 The acceptance of an order shall be indicated by sending to the Buyer an
acknowledgement of receipt for the order in question specifying the registration
reference and the scheduled date of delivery. The order form, the appropriate
acknowledgement of receipt, and the General Conditions of Sale shall form the
contract between GEMPLUS and the Buyer. No order shall be deemed to have been
accepted until an acknowledgment of receipt has been issued.
Due to its production costs:
- -for products without logo and without customer code, the minimum invoice
amount accepted by GEMPLUS shall be 1000 French francs.
- -for products with logo, the minimum invoice amount accepted by GEMPLUS shall
be 20 000 French francs excluding invoice costs for the logo.
- -for products with logo and customer code, GEMPLUS shall decide the minimum
invoice amount accepted on a case by case basis.
3.2 Cancellation of order
3.2.1 By the Buyer:
All orders placed by the Buyer shall be deemed to be firm and binding. If the
Buyer cancels an order before the scheduled date of delivery, it shall pay to
GEMPLUS as damages, 100% of the value of the order, if the order is canceled
less than 4 weeks before the scheduled delivery date. The damages shall amount
at least to 50% of the value of the order, if the order is canceled more than 4
weeks before the scheduled delivery date.
3.2.2 By GEMPLUS:
GEMPLUS reserves the right to cancel all or part of an order if the Buyer does
not comply with any of its obligations, in particular where payment or supply
of technical information are concerned.
The order shall be canceled on the sixteenth day following receipt by the Buyer
of a registered letter to this effect if no reply is forthcoming.
ARTICLE 4 - PAYMENT
The price shall be ex works Gemenos (Incoterms 1990), net of all taxes and all
other duties required by the relevant authorities. The cost of GEMPLUS standard
packaging is included in the price. All specific packaging shall be charged
separately to the Buyer. The price shall be set taking into account economic
and financial conditions on the day the quotation is made: and may be modified
at any time to reflect economic and monetary conditions.
ARTICLE 5 - TERMS OF PAYMENT
GEMPLUS reserves the right to change the terms of payment given below at any
time as a result of a change in the credit rating of the Buyer. If the Buyer
refuses to accept such new terms, GEMPLUS reserves the right to cancel the
order.
TERMS OF PAYMENT:
30 days net to GEMPLUS after the date of issuance of the invoice.
ARTICLE 6 - RETENTION OF TITLE
GEMPLUS shall retain title to the Products even when they have been delivered
to the Buyer, until the order has been fully paid for. Should the Buyer fail to
pay, GEMPLUS may claim back the Products supplied without prejudice to any
other right or damages.
ARTICLE 7 - TRANSFER OF RISK
The Buyer shall bear all risks from the time the Products leave GEMPLUS
premises. Consequently the Buyer shall take out all necessary insurance to
indemnify GEMPLUS as owner of the Products.
ARTICLE 8 - WARRANTY
GEMPLUS warrants that its Products shall comply with the functional
specifications for a period of one year from the date of delivery to the Buyer.
The warranty shall only apply to Products which are in GEMPLUS sales
documentation and which have been manufactured according to the standard
GEMPLUS process.
GEMPLUS' warranty is strictly limited to the replacement of Products considered
as defective by GEMPLUS. Defective Products must be sent back to GEMPLUS in
their complete original packaging, following GEMPLUS return procedures. No
Product shall be returned if the acceptance number relating to the return
procedure is missing.
Pg 7 of 9
<PAGE> 7
Microchip cards are under warranty only if they have been used in a reader
under normal use conditions and more particularly in accordance with
international ISO standard 7816-3 and GEMPLUS document "recommendation for the
use of readers".
This warranty does not cover:
- -Engineering samples.
- -Products which have been damaged by the Buyer or which have been stored under
conditions which do not comply with GEMPLUS specifications or normal usage.
- -Products submitted to abnormal conditions (mechanical, electrical, thermal).
- -Products which are incorrectly adjusted or defective when this results from
use in excessive operating conditions (sundry temperatures, voltage and supply
limits) as defined by GEMPLUS, or from an incorrect choice of application by the
Buyer.
If the Products are graphically or photographically personalized on equipment
qualified by GEMPLUS, GEMPLUS liability shall be limited to the feasibility of
the personalization process, under conditions of use specified for the
equipment, and within the limited of a standard yield for personalization;
provided the Buyer expressly having requested the possibility to process itself
with graphic or photographic personalization, when the order was placed. The
yield for personalization shall not be in any case associated with the cards
reliability in the filed tests
If such personalization equipment is not qualified by GEMPLUS, no warranty
shall be given to the Buyer.
If GEMPLUS' Products are incorporated by the Buyer or a third party into life
saving or life support devices or systems, or any related products, GEMPLUS
expressly excludes any liability for such use.
GEMPLUS warrants that its Products shall comply with the Functional
Specifications.
GEMPLUS' warranty is strictly limited to the replacement or repair of the
Products considered as defective by GEMPLUS.
GEMPLUS' warranty is a 6 month parts and labor warranty valid from the date of
signature of the acceptance certificate for Products requiring installation or
from the date on which the Products are supplied to the Buyer for those Products
which do not require installation, excluding travel and accommodation expenses
in the case of on-site attendance; a parts and labor warranty, the Buyer bearing
the cost of transportation of the defective Products in the case of a workshop
return. In this latter case, the defective Products shall be returned to GEMPLUS
in their full original packing and in good condition.
The warranty of the components and items constituting the Products shall not be
more favorable than the warranty granted by the manufacturers for such
components and items.
GEMPLUS DISCLAIMS ANY EXPRESS WARRANTY NOT PROVIDED HEREIN AND ANY IMPLIED
WARRANTY, GUARANTY OR REPRESENTATION AS TO PERFORMANCE, QUALITY AND ABSENCE OF
HIDDEN DEFECTS, AND ANY REMEDY FOR BREACH OF CONTRACT, WHICH BUT FOR THIS
PROVISION, MIGHT ARISE BY IMPLICATION, OPERATION OF LAW, CUSTOM OF TRADE OR
COURSE OF DEALING, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE.
Under no circumstances shall GEMPLUS be held liable for direct or indirect
damages including but not limited to loss of profit. No compensation shall be
paid by GEMPLUS in respect of deprivation of enjoyment.
GEMPLUS' entire liability, if incurred, whether in contract, tort or otherwise,
shall be limited to the amount of the relevant order.
ARTICLE 9 - DELIVERY ACCEPTANCE
9.1
9.1.1 If no special technical specification is given by the Buyer and
accepted by GEMPLUS, GEMPLUS' Technical Specifications for the Products shall be
held to be valid.
9.1.2 Any claim concerning the conformity of the Products to the
specifications of the Buyer shall be made in accordance with GEMPLUS
instruction in order to benefit from the provisions of Articles 9.1.3 and 9.1.4
below. If there are no such instructions, the claim must be made within 15 days
from the date of delivery.
9.1.3 If after having tested the Products supplied, one batch does not
comply in all or in part with the Technical Specifications, as mentioned in
paragraph 9.1.1, the Buyer shall inform GEMPLUS by registered letter with
acknowledgment of receipt to be sent no later than 15 days after the Buyer has
received the Products. Once this 15 day period has expired, all Products shall
be deemed to have been accepted; after GEMPLUS issues a return authorization
number, the buyer shall return the whole refused batch. The return of the
delivery form shall include the return authorization number.
It is expressly stated that any claim concerning a batch of defective Products
shall only be accepted by GEMPLUS if each of the following four conditions is
met:
- -for each batch of Products considered as defective, the exact reason for their
rejection must be given together with the results of the relevant tests.
Samples of alleged defective Products may be required by GEMPLUS for analysis
purposes.
- -the batch of defective Products must be returned in complete original
packaging, in good condition, at the Buyer's expense.
- -the Products should not have been damaged in any way (in particular during
storage, inspection).
- -the Buyer shall not have made any alteration to modification to the Products.
9.1.4 The provision or Article 9.1.3 shall not apply to Products which have
been submitted to an acceptance test at GEMPLUS premises and which consequently
are deemed to comply with the specifications, no return shall be accepted for
these Products.
9.2 GEMPLUS reserves the right to consider an order settled if the
positive or negative variation is within the following percentage limit
according to the quantity of Cards with the same logo ordered:
-50 to 2000 10%
-2001 to 5000 8%
-5001 to 10000 6%
<PAGE> 8
-10001 to 20000 4%
->20001 2%
GEMPLUS shall invoice the Buyer for the actual quantities supplied.
ARTICLE 10 -- PRINTING
The quality of the work depends to a large extent on the schedule agreed between
GEMPLUS and the Buyer when the order is placed. For all schedule changes which
are due to the Buyer (for example because of delays in supplying the necessary
materials to GEMPLUS or in returning final proofs, which disrupt the work
schedules and may cause errors and increase the cost price) GEMPLUS reserves the
right to request an appropriate additional payment.
Materials and documents belonging to the Buyer which are submitted to GEMPLUS,
especially backing materials, photos and films, are not warranted against any
risk or damage, unless GEMPLUS is seriously at fault.
When GEMPLUS carries out work, in whatever form, requiring creative work as
defined in the legislation covering intellectual and industrial property
(especially any type of drawings, engravings, films or negatives/plates), the
rights in respect of this creative work and especially the reproduction rights
shall remain the property of GEMPLUS and shall not be transferred to the Buyer
unless GEMPLUS has given its express consent to this effect.
Unless a special exclusivity is granted to the Buyer, GEMPLUS shall be free to
use the creative work it has produced for other products or other customers.
When an order involving the reproduction of a material which is protected under
the intellectual and industrial property laws is placed, the Buyer must confirm
that he holds a free reproduction right. Consequently, the Buyer must indemnify
GEMPLUS against all claims concerning this reproduction right. All the Products
must bear the INNOVATRON logo. All microprocessor cards shall in addition bear
the BULL logo. Moreover GEMPLUS reserves the right to engrave "GEMPLUS" on the
all the modules embedded in the Cards.
ARTICLE 11 -- FINAL PROOFS
11.1 Each of the card proofs once signed by the Buyer and without any further
formalities, shall formally release GEMPLUS from any liabilities for the work
carried out prior to the said signature. In case the card proof does not comply
with the artwork and instructions of the Buyer, GEMPLUS shall proceed to the
required corrections. If, at the request of the Buyer, there is no final proof,
GEMPLUS shall be released from any liability.
11.2 Whatever process is used, according to the degree of complexity of the work
carried out by GEMPLUS, and the charges relating to each of the tasks, there may
be several control stages in order to ensure that the wishes of the customer
have been correctly interpreted and to prevent a commitment to costly operations
before the preliminary work has been approved.
11.3 The following are considered as authors corrections:
- all changes in copy requested after data capture
- all errors resulting from the interpretation of the copy
- all changes in the typographic presentation with regards to the
initial instruction given by the Buyer.
An additional charge shall be made for these author's corrections based on the
time spent and the material sued. This shall always be invoiced separately and
the Buyer shall return all copies and all card proofs to the printing works,
whether corrections have been made or not. If the relevant documents are not
returned, the document supplied by GEMPLUS shall be held to be valid. GEMPLUS
undertakes to carefully read card proofs which have been finally approved by the
Buyer, but does not accept any liability for errors which the Buyer shall not
have noticed.
ARTICLE 12 -- SOFTWARE
The software belonging to GEMPLUS or for which GEMPLUS has obtained marketing
rights and which have been adapted to the specific needs of the Buyer shall
under no circumstances become the property of the Buyer, who is only granted a
right of use limited to the relevant project.
ARTICLE 13 -- PATENT RIGHTS
Due of the complex nature of the manufacturing techniques for electronic
components and the related patent rights. GEMPLUS is not able to confirm that
its Products are free from patent rights of third parties.
ARTICLE 14 -- CONFIDENTIALITY
The Buyer undertakes not to disclose or transfer to any third party in any way
whatsoever in all or in part of the documents data or information of whatever
nature transmitted to the Buyer by GEMPLUS, related but not limited to the
Products covered by these terms and conditions.
ARTICLE 15 -- FORCE MAJEURE
GEMPLUS shall not be considered as liable for late delivery or failure in the
performance of its obligations, for reasons beyond its control such as but not
limited to fire, flood, earthquake, war, strikes and lock outs, inability to
obtain raw materials, any unpredictable manufacturing problem and any other
unforseeable and/or unavoidable event. GEMPLUS shall send to the Buyer written
notice stating the delay and cause thereof, within at least 15 days as from the
dates of the occurrence of the force majeure event.
ARTICLE 16 -- DISPUTE
Any dispute which cannot be settled amicably shall be submitted to the Courts
of Marseilles. French law shall apply.
Pg. 9 of 9
<PAGE> 1
EXHIBIT 10.21
MEMORANDUM OF UNDERSTANDING (M.0.U)
An Agreement made this Tuesday, 19th of May, 1998
by and between
DE LA RUE CARTES ET SYSTEMES, a company incorporated under the laws of the
French Republic and having its registered office at 30, rue Boussingault 75013
Paris, France,
hereinafter referred to as DLRCS;
and
Chip Application Technologies Limited, a company incorporated under the laws of
Australia, having its registered office at 152-162 Riley Street, East Sydney,
NSW 2010 Australia, represented by Justin C.A. Wescombe as General Manager,
Sales and Marketing.
hereinafter referred to as C.A.T.
Whereas, DLRCS develops Operating Systems, manufactures Smart card and sells it
around the world.
Whereas, C.A.T. creates and develops software known as the C.A.T. System, a
multi-application smart card management system that includes applications and
programs for loyalty and incentives, tickets; access controls, memberships and
a closed electronic purse with other customized applications as required.
Now therefore, in consideration of the mutual covenants and agreements herein
contained, the parties hereto agree to offer complete smart card solutions to
customers, through DLRCS, C.A.T., or the Value Added Partners (VAP) of both
Companies that include the C.A.T. System with DLRCS products and associated
services (the Solution) based on the following:
1) DLRCS and C.A.T. will cooperate in joint marketing and promotion of
the Solution in all markets in which DLRCLS, C.A.T., or the VAP have
representation.
2) DLRCS is developing a new Loyalty Card. C.A.T. and DLRCS will work
together to allow the new card to be integrated into the C.A.T. System
software. DLRCS will provide C.A.T. sample cards with a development kit
to allow C.A.T. to evaluate and complete the integration and
certification of these cards for the C.A.T. System.
C.A.T. will add DLRCS Loyalty cards to the list of cards compatible
with the C.A.T. System software when these cards are certified.
Page 1/4
<PAGE> 2
3) DLRCS will promote and present the C.A.T. System to the VAP and customers.
Interested VAP can then enter into a Distribution Agreement with C.A.T.
The parties will provide sufficient training to enable the VAP to
integrate the Solution.
The parties will provide marketing (including price indications),
promotional and presentation materials (including the C.A.T. System
Demonstration Kits) at the cost price of the materials and products
involved.
4) The parties will actively promote each other's products towards third
parties, prospects but also during public events such as exhibitions,
conferences and forums and the different media tools such as web sites,
brochures, presentations, press etc.
5) The parties will provide free of charge, each other with general marketing
and promotional materials in the broadest sense, which will serve as
support for the selling process.
6) The parties agree to make available to each other successive versions,
revisions and any improvements of the Solution for the purpose of this
agreement.
7) No exclusivity of any type is granted to either party by the other under
this agreement.
8) Whenever a party is invited by or on behalf of a VAP or a prospect to
enter into negotiations on any subject affecting the Solution, then the
party shall notify and invite the other to attend the said negotiations.
Each party hereto shall bear separately and solely all costs and expenses
incurred in connection with the preparation, submission and negotiation of
the quotation up to the date of award of a contract or contracts.
The parties will support each other in the response, preparation and
negotiations for request for quotations from the identified common
prospect mentioned under this agreement. The parties will however, have
the right to refuse to provide the reply if this concerns a potential
client other than the prospect mentioned hereunder.
Each party shall not enter into any contract or commitment in the name of
or on behalf of the other party or bind the other party in any respect,
without prior agreement of the other party.
9) This M.O.U. shall take effect upon signature and shall remain in force
subject to earlier termination in the following circumstances:
a) No agreement with any one of the prospects is entered with a party
concerning the Solution within a period of 2 years
b) Material change in control or shareholding of either party which is
unacceptable to the other party
c) Mutual agreement of both parties
d) Breach of one obligation, in particular, with regard to
confidentiality and non-disclosure.
Page 2/4
<PAGE> 3
e) Upon 6 months written notice by either party
Upon termination of this M.O.U., neither party shall have any liability to the
other party in respect of the matters contemplated herein, except with respect
to breach of confidentiality.
10) The parties agree that this M.O.U. shall not form any kind of partnership
and neither party shall have the right to bind the other or make
commitments on the other party's behalf.
Nothing contained in this agreement shall be construed or interpreted to
the effect that the parties hereto have formed or intend to form any kind
of corporate association.
11) Each party shall be responsible for its own costs and the preparation of
this M.O.U. and any further agreement including, but not limited to legal
fees, business plan costs and travel and associated expenses.
12) Except for execution of this Agreement, no party shall issue or allow
others to issue any publicity material relating to this agreement or the
execution thereof without prior written approval of the other party.
All information acquired by the parties from each other in connection with
this agreement shall be treated as confidential by the recipient and not
be used otherwise than for the purpose of the collaboration under this
agreement without the prior written consent of the party providing such
information, unless such information:
i) is or later comes into the public domain other than by breach of the
foregoing paragraph,
ii) is in the possession of the recipient, with the full right to
disclose, prior to receiving it from the supplying party,
iii) is independently received by the recipient from a third party with
the full right to disclose,
iv) is required to be disclosed by law or regulation.
13) The parties hereto agree that they shall use their best efforts, even
after expiration of the contractual relations, to settle amicably or
through arbitration any disputes, differences or controversies arising
between them out of or in connection with this M.O.U.
An attempt to arrive at a settlement shall be deemed to have failed as
soon as one of the parties so notifies the other in writing.
In this case, any such disputes, differences or controversies shall be
finally settled in Paris, France under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by one or more
arbitrators appointed in accordance with the said Rules.
Moreover, any party to this M.O.U. shall have the right to have recourse
to and shall be found by the Pre-arbitrage Referee Procedure of the
International Chamber of Commerce in accordance with its Rules.
Page 3/4
<PAGE> 4
14) One party shall inform the other party promptly as soon as it becomes aware
of any possible or existing infringements of C.A.T. or DLRCS patents,
copyrights or trademarks.
15) This M.O.U. shall be governed, constructed and enforced in accordance with
the French laws.
For For CHIP APPLICATION TECHNOLOGIES
--------------------------------- ----------------------------------
Name M. Rice-Jones Name David C. Mac Smith
-------------------------------- ---------------------------------
Date 27th May 1998 Date 28th May 1998
-------------------------------- ---------------------------------
Signature /s/ M. RICE-JONES Signature /s/ DAVID C. MAC SMITH
-------------------------- ----------------------------
PAGE 4/4
<PAGE> 1
EXHIBIT 10.22
LOAN REPAYMENT AND OPTION AGREEMENT
PARTIES
CHIP APPLICATION TECHNOLOGIES LIMITED (ACN 057 883 333) of Level 5, 152-162
Riley Street, East Sydney, New South Wales 2010 ("CAT").
HEATH GROUP AUSTRALIA PTY LIMITED (formerly known as "Heath Fielding Australia
Pty Limited") (ACN 000 951 146) of Level 2, 65 Berry Street, North Sydney, New
South Wales 2060 ("HGA").
INDUSTRIAL SUPERANNUATION ADMINISTRATION SERVICES LIMITED (ACN 050 109 718)
(Heath Fielding Account) of Level 2, 65 Berry Street, North Sydney, New South
Wales 2060 ("ISAS").
In consideration of the mutual promises contained in this Agreement, the Parties
agree:
1. CONFIRMATIONS
1.1 Except to the extent of the amendments contained in this Agreement:
(a) the Loan Agreement between CAT and HGA dated 6 August 1996 (as
amended) (the "LOAN AGREEMENT"); and
(b) the Deed of Charge between CAT and HGA dated 6 August 1996
(Registered No: 558073) (as amended) (the "CHARGE"),
remain in full force and effect and CAT and HGA agree to remain bound by
the Loan Agreement and the Charge respectively as amended by this
Agreement.
1.2 HGA confirms that, as at the date of this Agreement, CAT owes HGA
$2,601,287.87 in principal and accrued interest (the "LOAN") under the
Loan Agreement.
1.3 CAT confirms that, as at the date of this Agreement, there are 9,510,877
issued options to acquire fully paid ordinary CAT shares exercisable at
$0.75 per option and exercisable by no later than 30 June 1999 ("JUNE
OPTIONS").
1.4 HGA confirms that, as at the date of this Agreement, HGA holds 2,507,334
unencumbered June Options (the "HGA OPTIONS"). ISAS confirms that, as at
the date of this Agreement, ISAS holds 125,000 unencumbered June Options
(the "ISAS OPTIONS").
<PAGE> 2
2
1.5 HGA confirms that, as at the date of this Agreement, HGA holds 5,183,520
unencumbered fully paid ordinary CAT shares comprising:
(a) 2,092,020 CAT shares which are not subject to any escrow
restrictions (the "HGA SALE SHARES"); and
(b) 1,629,083 CAT shares which are subject to escrow restrictions
until 15 July 1999 and 1,462,417 CAT shares which are subject to
escrow restrictions until 15 July 2000 (these escrowed shares
being collectively referred to as the "HGA OPTION SHARES").
1.6 ISAS confirms that, as at the date of this Agreement, ISAS holds 351,563
unencumbered fully paid ordinary CAT shares comprising:
(a) 117,188 CAT shares which are not subject to any escrow
restrictions (the "ISAS SALE SHARES"); and
(b) 117,187 CAT shares which are subject to escrow restrictions
until 15 July 1999 and 117,188 CAT shares which are subject to
escrow restrictions until 15 July 2000 (these escrowed shares
being collectively referred to as the "ISAS OPTION SHARES").
(The HGA Sale Shares and the ISAS Sale Shares are referred to
collectively as the "SALE SHARES". The HGA Option Shares and the ISAS
Option Shares are referred to collectively as the "OPTION SHARES").
2. EXERCISE OF OPTIONS AND REPAYMENT OF THE LOAN
2.1 HGA undertakes to CAT to exercise the HGA Options by no later than 30
June 1999. ISAS undertakes to CAT to exercise the ISAS Options by no
later than 30 June 1999.
2.2 Subject to CAT receiving the full exercise price of all June Options
from optionholders or pursuant to the Underwriting Agreement between CAT
and BNP Equities (Australia) Limited dated on or around 26 March 1999,
and to the granting of the Option envisaged in Clause 3.2 becoming
unconditional in accordance with Clause 3.7, CAT will, no later than
5.00 pm (London time) on 19 July 1999, pay $1,301,287.87 to HGA in part
repayment of the Loan. This part payment of the Loan will leave a
balance of $1,300,000 remaining due under the Loan.
2.3 Subject to CAT not being in default of its obligations under this
Agreement, (and the Loan Agreement and the Charge, as
<PAGE> 3
3
amended specifically by this Clause 2.3) and for so long as this
Agreement remains in full force and effect, HGA agrees that until the
earlier to occur of the receipt of all funds referred to in Clause 2.4
and the Lapse Date,
(a) HGA will make no demand for repayment of the Loan under Clauses
6.1.1, 6.1.2, 6.1.11 and 6.1.13 of the Loan Agreement;
(b) CAT will be under no obligation to pay any monies under the Loan
Agreement; and
(c) HGA will not take any steps to enforce the Charge on or prior to
the Lapse Date defined in Clause 3.2.
2.4 HGA agrees that upon its receipt in immediately available funds of:
(a) the payment of $1,301,287.87 referred to in Clause 2.2; and
(b) the aggregate of the outstanding balance of the Loan from time
to time referred to in Clause 2.2 and all premium, interest,
fees, charges and other expenses that are due and payable or are
otherwise payable under the provisions of the Loan Agreement and
the Charge (the individual amounts referred to in this Clause
2.4(b) being referred to collectively as the "LOAN BALANCE"),
CAT will be released and discharged from all of its obligations under
the Loan Agreement and the Charge. HGA agrees that it will, within 5
business days of HGA's receipt of all monies referred to in paragraphs
(a) and (b) of this Clause 2.4 in immediately available funds, take all
steps reasonably required to notify the Australian Securities &
Investments Commission ("ASIC") in the required form of the discharge
the Charge.
3. CAT OPTION
3.1 HGA undertakes to CAT to sell the HGA Sale Shares by no later than 30
June 1999. ISAS undertakes to CAT to sell the ISAS Sale Shares by no
later than 30 June 1999. Subject to the granting of the Option envisaged
in Clause 3.2 becoming unconditional in accordance with Clause 3.7, HGA
undertakes to CAT to sell the CAT shares issued on exercise of the HGA
Options by no later than 30 June 1999. Subject to the granting of the
Option envisaged in Clause 3.2 becoming unconditional in accordance with
Clause 3.7, ISAS undertakes to CAT to sell the CAT shares issued on
exercise of the ISAS Options by no later than 30 June 1999.
<PAGE> 4
4
3.2 Subject to Clause 3.7, HGA and ISAS each grant CAT an Option (the
"OPTION") to buy-back the HGA Option Shares and the ISAS Option Shares
respectively at a price per Option Share of $0.85. If all the Option
Shares have not been bought back by CAT before 5.00 pm (London time) on
18 July 2000 (the "LAPSE DATE"), the Option, insofar as it relates to
any Option Shares in respect of which a Notice has not been given under
Clause 3.3, will lapse.
3.3 Subject to Clause 3.8, CAT may exercise the Option in whole or in part
before the Lapse Date. To exercise the Option, CAT must, subject to
Clauses 3.4 and 3.8:
(a) deliver to HGA and/or ISAS (as the case may be) an Option
exercise and buy back notice (a "NOTICE") in the form set out in
Schedule 1; and
(b) on the same date as delivering a Notice, make a payment in
immediately available funds (an "OPTION PAYMENT") to HGA and/or
ISAS (as the case may be) in respect of the Option Shares to be
bought back as provided for in the applicable Notice.
3.4 CAT may exercise the Option in part in up to 3 tranches, provided that:
(a) a Notice given to HGA and a Notice given to ISAS on the same
date shall be deemed to comprise 1 tranche;
(b) on the same date as delivering a Notice, CAT must pay to HGA in
immediately available funds part of the Loan Balance calculated
as follows:
LP$ = OE% x the Loan Balance
Where:
LP$ = the amount of the Loan Balance which is to be paid
(rounded down to the nearest cent); and
OE% = the percentage which the aggregate number of Option
Shares exercised in the relevant tranche in Notices
given on the same date to HGA and to ISAS comprises of
the total HGA Option Shares and ISAS Option Shares; and
(c) the amount of the Loan Balance paid to HGA as contemplated in
Clause 3.4(b) in connection with each
<PAGE> 5
5
tranche of the exercise of the Option is not less than $250,000.
3.5 Within 5 business days of receipt by HGA of a Notice, a corresponding
Option Payment and a partial payment of the Loan Balance, as envisaged
in Clauses 3.3 and 3.4, HGA and/or ISAS (as the case may be) must
deliver to CAT certificates or other evidence of title, together with
duly executed but un-stamped transfers in blank, in respect of the
respective numbers of Option Shares referred to in their respective
Notices.
3.6 In the event that HGA or ISAS fails for any reason to comply with Clause
3.5, within the time period prescribed in Clause 3.5, after CAT has
delivered a Notice, a corresponding Option Payment and a partial payment
of the Loan Balance to HGA and/or ISAS, each of HGA and ISAS authorise
and appoint each of the directors of CAT severally to do all things
necessary on their behalf, as their respective attorneys, to comply with
Clause 3.5 (including, without limitation, to execute transfers of those
Option Shares referred to in that clause).
3.7 The granting of the Option is conditional on CAT obtaining any necessary
approvals from Australian Stock Exchange Limited (the "ASX") to
authorise such grant. CAT undertakes to HGA and ISAS that it will use
its best endeavours to obtain all necessary ASX approvals and HGA and
ISAS severally agree to use their best endeavours to assist CAT to
obtain such approvals.
3.8 The exercise of the Option is conditional on CAT obtaining any necessary
approvals from the ASX, ASIC and CAT shareholders as are required
pursuant to the Corporations Law to exercise such Option, to buy back
and cancel relevant Option Shares and otherwise to give effect to the
transactions contemplated in this Agreement.
3.9 The Parties will use their best endeavours to fulfil each of the
conditions provided in Clauses 3.7 and 3.8.
4. MISCELLANEOUS
4.1 Each Party must do all things and execute all documents as may be
necessary or desirable to give effect to the provisions of this
Agreement and the transactions contemplated by it.
4.2 Each Party must bear its own costs in relation to the preparation,
execution and enforcement of this Agreement. CAT will be liable to pay
all stamp duty (including any fines or penalties) arising in
<PAGE> 6
6
relation to this Agreement and any document or transaction contemplated
by or arising in connection with this Agreement.
4.3 This Agreement is governed by the laws of the state of New South Wales.
The Parties submit to the non-exclusive jurisdiction of the Courts of
New South Wales.
4.4 This Agreement constitutes the sole and entire agreement between the
Parties with respect to its subject matter and may not be altered,
modified, terminated, waived or discharged except in writing signed by
the Party against whom that alteration, modification, termination,
waiver or discharge is sought.
4.5 This Agreement may be executed in several counterparts, each of which
will be deemed an original, but all of which together will constitute a
single agreement.
4.7 The captions used in this Agreement are inserted for reference purposes
only and will not affect its interpretation or meaning.
4.8 Any notice, request or other communication to any Party under this
Agreement must be given in writing and will be regarded as having been
given by the sender and received by the addressee:
(a) if by delivery in person, when delivered to the addressee;
(b) if by pre-paid registered mail, on the date received and
evidenced on the return receipt; or
(c) if by facsimile transmission, whether or not legibly received,
when transmitted to the addressee by the sender,
but if the delivery or receipt is on a day which is not a Business Day
or is after 4.00 pm (addressee's time) it will be regarded as having
been received at 9.00 am (addressee's time) on the following Business
Day. (For these purposes, a "BUSINESS DAY" refers to a day on which
trading banks are open in Sydney).
4.9 All currency references are to Australian dollars.
DATED:
4th May, 1999
- ------------------------------------
<PAGE> 7
7
For and on behalf of
CHIP APPLICATION TECHNOLOGIES LIMITED
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
DIRECTOR SECRETARY
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
DIRECTOR SECRETARY
- ------------------------------------
For and on behalf of
HEATH GROUP AUSTRALASIA PTY LIMITED
/s/ [SIGNATURE ILLEGIBLE] /s/ [SIGNATURE ILLEGIBLE]
DIRECTOR SECRETARY
- ------------------------------------
For and on behalf of
INDUSTRIAL SUPERANNUATION ADMINISTRATION SERVICES LIMITED
<PAGE> 8
8
SCHEDULE 1
NOTICE OF EXERCISE OF OPTION
FROM: CHIP APPLICATION TECHNOLOGIES LIMITED (ACN 057 883 333) of Level 5,
152-162 Riley Street, East Sydney, New South Wales 2010 ("CAT").
TO: HEATH GROUP AUSTRALASIA PTY LIMITED (ACN 000 951 146) of Level 2, 65
Berry Street, North Sydney, New South Wales 2060 (the "SHAREHOLDER").
OR:
INDUSTRIAL SUPERANNUATION ADMINISTRATION SERVICES LIMITED (ACN 050 109
718) (Heath Fielding Account) of Level 2, 65 Berry Street, North Sydney,
New South Wales 2060 (the "SHAREHOLDER").
With reference to the Loan Repayment and Option Agreement dated [ ] April 1999
(the "AGREEMENT"):
1. CAT gives notice of exercise of its Option in respect of [ ]
Option-Shares in CAT held by the Shareholder as at the date of this
Agreement.
2. CAT encloses a bank cheque payable to the Shareholder for $[ ] in
respect of the corresponding Option Payment.
3. CAT encloses a bank cheque payable to [the Shareholder/Heath Group
Australasia Pty Limited] in [part/final] payment of the Loan Balance.
Words defined in the Agreement have the same meaning when used in this Notice.
DATED:
- ------------------------------------
For and on behalf of
CHIP APPLICATION TECHNOLOGIES LIMITED
<PAGE> 1
EXHIBIT 10.23
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of the _______
day of ____________ 19___, by and between Catuity Inc., a Delaware corporation
(the "Company"), and ______________________, a director and/or officer of the
Company (the "Indemnitee").
RECITALS
A. The Indemnitee is presently serving as a director and/or officer of the
Company and the Company desires the Indemnitee to continue in such
capacity. The Indemnitee is willing, subject to certain conditions
including, without limitation, the execution and performance of this
Agreement by the Company, to continue in that capacity.
B. In addition to the indemnification to which the Indemnitee is entitled
under the certificate of incorporation (the "certificate") of the
Company, the Company has obtained (or intends to obtain) at its sole
expense insurance protecting its directors and officers including the
Indemnitee against certain losses arising out of actual or threatened
actions, suits or proceedings to which such persons may be made or
threatened to be made parties. However, as a result of circumstances
having no relation to, and beyond the control of, the Company and the
Indemnitee, there can be no assurance of the continuation or renewal of
that insurance.
Accordingly, and in order to induce the Indemnitee to continue to serve
in his present capacity, the Company and Indemnitee agree as follows:
1. Continued Service.
The Indemnitee will continue to serve as a director and/or officer of
the Company so long as he is duly elected and qualified in accordance
with the bylaws of the Company (the "bylaws") or until he resigns in
writing in accordance with applicable law.
2. Initial Indemnity.
(a) Except with respect to an action, suit or proceeding by or in the
name of the Company as provided in Section 2(b) below, the Company shall
indemnify the Indemnitee when he was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, administrative, investigative or criminal, by
reason of the fact that he is or was or had agreed to become a director
or officer of the Company, or is or was serving or had agreed to serve
at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, against costs, charges and expenses (including attorneys'
and others' fees and expenses and reasonable time-based fees of the
Indemnitee as determined by a court of competent jurisdiction or, to the
extent permitted by law, a majority of disinterested directors
(collectively "Expenses")), damages, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection
therewith and any appeal therefrom if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or
<PAGE> 2
proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendre or its equivalent shall not, of itself, create a
presumption that the Indemnitee did not satisfy the foregoing standard
of conduct to the extent applicable thereto.
(b) With respect to an action, suit or proceeding by or in the name of
the Company, the Company shall indemnify the Indemnitee when he was or
is a party or is threatened to be made a party to any such threatened,
pending or completed action, suit or proceeding by reason of the fact
that he is or was or had agreed to become a director or officer of the
Company, or is or was serving or had agreed to serve at the request of
the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against costs, charges and Expenses actually and reasonably incurred by
him in connection therewith and any appeal therefrom if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company. However, no indemnification shall be
made in respect of any claim, issue or matter as to which the Indemnitee
shall have been adjudged to be liable to the Company unless (and only to
the extent that) the Delaware Court of Chancery or the court in which
such action, suit or proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such costs, charges and Expenses
which the Delaware Court of Chancery or such other court shall deem
proper.
(c) To the extent that the Indemnitee has been successful on the merits
or otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any action, suit or proceeding referred
to in Sections 2(a) or 2(b) hereof or in defense of any claim, issue or
matter therein, he shall be indemnified against costs, charges and
Expenses actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under Sections 2(a) or 2(b) (unless ordered by a
court) shall be made by the Company only as authorized in the specific
case upon a determination in accordance with Section 4 hereof or any
applicable provision of the certificate, bylaws, other agreement,
resolution or otherwise. Such determination shall be made (i) by the
Board of Directors of the Company (the "Board"), by a majority vote of a
quorum consisting of directors who were not parties to such action, suit
or proceeding or (ii) if such a quorum of disinterested directors is not
available or such quorum of disinterested directors so directs, by
independent legal counsel (designated in the manner provided below in
this subsection (d)) in a written opinion or (iii) by the stockholders
of the Company (the "Stockholders"). Independent legal counsel shall be
designated by vote of a majority of the disinterested directors;
provided, however, that if the Board is unable or fails to so designate,
such designation shall be made by the Indemnitee. Independent legal
counsel shall not be any person or firm who, under the applicable
standards of professional conduct then prevailing, would have a conflict
of interest in representing either the Company or the Indemnitee in an
action to determine the Indemnitee's rights under this Agreement. The
Company agrees to pay the reasonable fees and expenses of such
independent legal counsel and to indemnify fully such counsel against
costs, charges and expenses actually and reasonably incurred by such
counsel in connection with this Agreement or the opinion of such counsel
pursuant hereto.
(e) All costs, charges and Expenses for which indemnification is
available under Sections 2(a) and 2(b) shall be paid by the Company in
advance of the final disposition of the action, suit or proceeding
giving rise to the indemnification. Such payment shall be made
immediately in the manner described by Section 4(b) hereof.
<PAGE> 3
(f) The Company shall not adopt any amendment to the certificate or
bylaws the effect of which would be to deny, diminish or encumber the
Indemnitee's rights to indemnity pursuant to the certificate, bylaws,
the General Corporation Law of the State of Delaware (the "DGCL"), or
any other applicable law as applied to any act or failure to act
occurring in whole or in part prior to the date (the "Effective Date")
upon which the amendment was approved by the Board or the Stockholders,
as the case may be. In the event that the Company shall adopt any
amendment to the certificate or bylaws the effect of which is to so
deny, diminish or encumber the Indemnitee's rights to indemnity, such
amendment shall apply only to acts or failures to act occurring entirely
after the Effective Date thereof unless the Indemnitee shall have
expressly agreed otherwise in writing or voted in favor of such adoption
as a director or holder of record of the Company's voting stock.
3. Additional Indemnification.
(a) Pursuant to Section 145(f) of the DGCL, without limiting any right
which the Indemnitee may have pursuant to Section 2 hereof, the
certificate, the bylaws, the DGCL, any policy of insurance or otherwise,
but subject to the limitations on the maximum permissible indemnity
which may exist under applicable law at the time of any request for
indemnity hereunder determined as contemplated by Section 3(a) hereof,
the Company shall indemnify the Indemnitee against any amount which he
is or becomes legally obligated to pay relating to or arising out of any
claim made against him because of any act, failure to act or neglect or
breach of duty, including any actual or alleged error, misstatement or
misleading statement, which he commits, suffers, permits or acquiesces
in while acting in his capacity as a director or officer of the Company,
or, at the request of the Company, as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The payments which the Company is obligated to make pursuant
to this Section 3 shall include damages, judgments, fines, settlements
and charges, costs and Expenses, provided, however, that the Company
shall not be obligated under this Section 3(a) to make any payment in
connection with any claim against the Indemnitee:
(i) to the extent of any fine or similar governmental imposition
which the Company is prohibited by applicable law from paying
which results in a final, non-appealable order; or
(ii) to the extent based upon or attributable to the Indemnitee
gaining a personal profit to which he was not legally entitled,
including without limitation profits made from the purchase and
sale by the Indemnitee of equity securities of the Company which
are recoverable by the Company pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended, and profits arising
from transactions in publicly traded securities of the Company
which were effected by the Indemnitee in violation of Section
10(b) of the Securities Exchange Act of 1934, as amended,
including Rule 10b-5 promulgated thereunder.
The determination of whether the Indemnitee shall be entitled to
indemnification under this Section 3(a) may be, but shall not be
required to, be made in accordance with Section 4(a) hereof. If that
determination is so made, it shall be binding upon the Company and the
Indemnitee for all purposes.
<PAGE> 4
(b) To the extent that the Indemnitee has been successful on the merits
or otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any action, suit or proceeding referred
to in Section 3(a) or in defense of any claim, issue or matter therein,
he shall be indemnified against costs, charges and Expenses actually and
reasonably incurred by him in connection therewith.
(c) All costs, charges and Expenses for which indemnification is
available under Section 3(a) shall be paid by the Company in advance of
the final disposition of the action, suit or proceeding giving rise to
the indemnification. Such payment shall be made immediately in the
manner described by Section 4(b).
4. Certain Procedures Relating to Indemnification and Advancement of
Expenses.
(a) Except as otherwise permitted or required by the DGCL, for purposes
of pursuing his rights to indemnification under Sections 2(a), 2(b) or
3(a) hereof, as the case may be, the Indemnitee may, but shall not be
required to, (i) submit to the Board a sworn statement of request for
indemnification substantially in the form of Exhibit 1 attached hereto
and made a part hereof (the "Indemnification Statement") averring that
he is entitled to indemnification hereunder and (ii) present to the
Company reasonable evidence of all expenses for which payment is
requested. Submission of an Indemnification Statement to the Board shall
create a presumption that the Indemnitee is innocent of any wrongdoing
and is entitled to indemnification under Sections 2(a), 2(b) or 3(a)
hereof, as the case may be, and the Board shall be deemed to have
determined that the Indemnitee is entitled to such indemnification
unless, within 30 calendar days after submission of the Indemnification
Statement, the Board shall consult with the underwriter of its
directors' and officers' liability insurance and determine by vote of a
majority of the directors at a meeting at which a quorum is present,
based upon clear and convincing evidence (sufficient to rebut the
foregoing presumption) and the Indemnitee shall have received notice
within such period in writing of such determination that the Indemnitee
is not so entitled to indemnification, which notice shall disclose with
particularity the evidence in support of the Board's determination. The
foregoing notice shall be sworn to by all persons who participated in
the determination and voted to deny indemnification. The provisions of
this Section 4(a) are intended to be procedural only and shall not
affect the right of the Indemnitee to indemnification under this
Agreement and any determination by the Board that the Indemnitee is not
entitled to indemnification and any failure to make the payments
requested in the Indemnification Statement shall be subject to judicial
review as provided in Section 7 hereof.
(b) For purposes of determining whether to authorize advancement of
expenses pursuant to Section 2(e) hereof, the Indemnitee shall submit to
the Board a sworn statement of request for advancement of expenses
substantially in the form of Exhibit 2 attached hereto and made a part
hereof (the "Undertaking"), averring that (i) he has reasonably incurred
or will reasonably incur actual expenses in defending an actual or
threatened civil or criminal action, suit, proceeding or claim and (ii)
he undertakes to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Company under this
Agreement or otherwise. For purposes of requesting advancement of
expenses pursuant to Section 3(b) hereof, the Indemnitee may submit an
Undertaking or such other form of request as he determines to be
appropriate (an "Expense Request"). Upon receipt of an Undertaking or
Expense Request, as the case may be, the Board shall within 10 calendar
days authorize immediate payment of the expenses stated in the
Undertaking or Expense Request, as the case may be, whereupon such
payments shall immediately be made by the Company. No security
<PAGE> 5
shall be required in connection with any Undertaking or Expense Request
and any Undertaking or Expense Request shall be accepted without
reference to the Indemnitee's ability to make repayment.
5. Subrogation; Duplication of Payments.
(a) In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of
recovery (including under any directors' and officers' liability
insurance) of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights. This provision
shall in no way entitle the Company to substitute its counsel for any
independent legal counsel appointed by the Indemnitee pursuant to
Section 2(d) or otherwise manage litigation to which the Indemnitee is a
party. If the Company indemnifies the Indemnitee in connection with any
action, suit or proceeding in which the Company and the Indemnitee do
not have adverse interests, then the Company and its counsel shall
cooperate with the Indemnitee and his counsel. In all instances where
the Company and the Indemnitee have adverse interests, the Indemnitee
may nonetheless inspect the books and records of the Company to the
extent permitted by law.
(b) The Company shall not be liable under this Agreement to make any
payment in connection with any claim made against the Indemnitee to the
extent that the Indemnitee has actually received payment (under any
insurance policy, the certificate, the bylaws or otherwise) of the
amounts otherwise payable hereunder.
6. Enforcement.
(a) If a claim for indemnification made to the Company pursuant to
Section 4 hereof is not paid in full by the Company within 30 calendar
days after a written claim has been received by the Company, the
Indemnitee may at any time thereafter bring suit against the Company to
recover the unpaid amount of the claim.
(b) In any action brought under Section 5(a) hereof, it shall be a
defense to a claim for indemnification pursuant to Sections 2(a) or 2(b)
hereof (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition
where the Undertaking, if any is required, has been tendered to the
Company) that the Indemnitee has not met the standards of conduct which
make it permissible under the DGCL for the Company to indemnify the
Indemnitee for the amount claimed, but the burden of proving such
defense shall be on the Company. Neither the failure of the Company
(including the Board, independent legal counsel or the Stockholders) to
have made a determination prior to commencement of such action that
indemnification of the Indemnitee is proper in the circumstances because
he has met the applicable standard of conduct set forth in the DGCL, nor
an actual determination by the Company (including the Board, independent
legal counsel or the Stockholders) that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable
standard of conduct.
(c) It is the intent of the Company that the Indemnitee not be required
to incur the expenses associated with the enforcement of his rights
under this Agreement by litigation or other legal action because the
cost and expense thereof would substantially detract from the
<PAGE> 6
benefits intended to be extended to the Indemnitee hereunder.
Accordingly, if it should appear to the Indemnitee that the Company has
failed to comply with any of its obligations under this Agreement or in
the event that the Company or any other person takes any action to
declare this Agreement void or unenforceable, or institutes any action,
suit or proceeding designed (or having the effect of being designed) to
deny, or to recover from, the Indemnitee the benefits intended to be
provided to the Indemnitee hereunder, the Company irrevocably authorizes
the Indemnitee from time to time to retain counsel of his choice, at the
expense of the Company as hereafter provided, to represent the
Indemnitee in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Company or
any director, officer, stockholder or other person affiliated with the
Company, in any jurisdiction. Regardless of the outcome thereof, the
Company shall pay and be solely responsible for any and all costs,
charges and expenses, including without limitation attorneys' and
others' fees and expenses, reasonably incurred by the Indemnitee (i) as
a result of the Company's failure to perform this Agreement or any
provision thereof or (ii) as a result of the Company or any person
contesting the validity or enforceability of this Agreement or any
provision thereof as aforesaid.
7. Merger or Consolidation.
In the event that the Company shall be a constituent corporation in a
consolidation, merger or other reorganization, the Company, if it shall
not be the surviving, resulting or other corporation therein, shall
require as a condition thereto the surviving, resulting or acquiring
corporation to agree to indemnify the Indemnitee to the full extent
provided in this Agreement. Whether or not the Company is the resulting,
surviving or acquiring corporation in any such transaction, the
Indemnitee shall also stand in the same position under this Agreement
with respect to the resulting, surviving or acquiring corporation as he
would have with respect to the Company if its separate existence had
continued.
8. Non-exclusivity and Severability
(a) The right to indemnification provided by this Agreement shall not be
exclusive of any other rights to which the Indemnitee may be entitled
under the certificate, bylaws, the DGCL, any other statute, insurance
policy, agreement, vote of Stockholders or of directors or otherwise,
both as to actions in his official capacity and as to actions in another
capacity while holding such office, and shall continue after the
Indemnitee has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his heirs, executors and administrators.
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to other persons or circumstances
shall not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal shall be reformed to the extent (and
only to the extent) necessary to make it enforceable, valid and legal.
9. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware, without giving effect to the principles
of conflict of laws thereof.
<PAGE> 7
10. Modification; Survival.
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof. This Agreement may be modified only by an
instrument in writing signed by both parties hereto. The provisions of
this Agreement shall survive the death, disability, or Incapacity of the
Indemnitee or the termination of the Indemnitee's service as a director
or officer of the Company and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
CATUITY INC.
By:
------------------------------------
Name:
Title:
INDEMNITEE
------------------------------------
Name:
<PAGE> 8
EXHIBIT 1
INDEMNIFICATION STATEMENT
STATE OF _______________________ )
) SS
COUNTY OF ______________________ )
I, _______________________________, being first duly sworn, do depose
and say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated as of ______________________, 19______,
between Catuity Inc. (the "Company"), a Delaware corporation, and the
undersigned.
2. I am requesting indemnification against charges, costs, expenses
(including attorneys' and others' fees and expenses), judgments, fines
and amounts paid in settlement, all of which (collectively,
"Liabilities") have been or will be incurred by me in connection with an
actual or threatened action, suit, proceeding or claim to which I am a
party or am threatened to be made a party.
3. With respect to all matters related to any such action, suit,
proceeding or claim, I am entitled to be indemnified as herein
contemplated pursuant to the aforesaid Indemnification Agreement.
4. Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise
out of _________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this _________ day of ____________________, 19_____.
[seal]
My commission expires the ___ day of_________________, 19_____.
<PAGE> 9
EXHIBIT 2
UNDERTAKING
STATE OF ________________________ )
) SS
COUNTY OF _______________________ )
I, _______________________________, being first duly sworn do depose and
say as follows:
1. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated as of _____________________, 19___, between Catuity
Inc. (the "Company"), a Delaware corporation, and the undersigned.
2. I am requesting advancement of certain costs, charges and expenses
which I have incurred or will incur in defending an actual or pending
civil or criminal action, suit, proceeding or claim.
3. I hereby undertake to repay (i) the entire advancement if it shall
ultimately be determined that I am not entitled to be indemnified by the
Company under the Indemnification Agreement or the Company's certificate
of incorporation or bylaws or (ii) any part of the advancement to the
extent that it exceeds the amount that I am entitled to be indemnified
by the Company under the Indemnification Agreement or the Company's
certificate of incorporation or bylaws.
4. The costs, charges and Expenses (as defined in the Indemnification
Agreement) for which advancement is requested are, in general, related
to _____________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this _________ day of ____________________, 19_____.
[seal]
My commission expires the ___ day of_________________, 19_____.
<PAGE> 1
CATUITY INC.
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EXHIBIT 10.24
STOCK OPTION PLAN
(Attachment to Explanatory Memorandum for Resolutions
included in Notice of Special Meeting)
1. Adoption and Purpose of the Plan. This stock option plan, to be known as the
"Catuity Inc. Stock Option Plan" (but referred to herein as the "Plan") has been
adopted by the board of directors (the "Board") of Catuity Inc., a Delaware
corporation (the "Company"), and is subject to the approval of its stockholders
pursuant to section 7 below. The purpose of this Plan is to advance the
interests of the Company and its stockholders by enabling the Company to attract
and retain qualified directors, officers, employees, independent contractors,
consultants and advisers by providing them with an opportunity for investment in
the Company. The options that may be granted hereunder ("Options") represent the
right by the grantee thereof (each, including any permitted transferee, an
"Optionee") to acquire shares of the Company's common stock ("Shares" which if
acquired pursuant to the exercise of an Option will be referred to as "Option
Shares") subject to the terms and conditions of this Plan and a written
agreement between the Company and the Optionee to evidence each such Option (an
"Option Agreement").
2. Certain Definitions. The defined terms set forth in Exhibit A attached hereto
and incorporated herein (together with other capitalized terms defined elsewhere
in this Plan) will govern the interpretation of this Plan.
3. Eligibility. The Company may grant Options under this Plan only to (i)
persons who, at the time of such grant, are directors, officers, and employees
of the Company and/or any of its Subsidiaries, and (ii) persons who, and
entities which, at the time of such grant, are independent contractors,
consultants or advisers of the Company and/or any of its Subsidiaries
(collectively, "Eligible Participants"). No person will be an Eligible
Participant following his or her Termination of Eligibility Status and no Option
may be granted to any person other than an Eligible Participant. There is no
limitation on the number of Options that may be granted to an Eligible
Participant.
4. Option Pool; Shares Reserved for Options. In no event will the Company issue,
in the aggregate, more than Seven Hundred and Fifty Thousand (750,000) Shares
(the "Option Pool") pursuant to the exercise of all Options granted under this
Plan, exclusive of those Option Shares that may be reacquired by the Company by
re-purchase or otherwise; provided that in order to comply with the requirements
of Section 260.140.45 of Title 10 of the California Code of Regulations (the
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CATUITY INC.
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total number of Shares provided for under any stock bonus or similar plan of the
Company in the aggregate exceed 30% of the total number of then issued and
outstanding Shares of the Company (or such higher percentage as has been
approved by the holders of at least two-thirds of the outstanding Shares of the
Company (including all securities convertible into Shares) entitled to vote), as
calculated in accordance with the conditions and exclusions of the 30% Rule. At
all times while Options granted under this Plan are outstanding, the Company
will reserve for issuance for the purposes hereof, a sufficient number of
authorized and unissued Shares to fully satisfy the Company's obligations under
all such outstanding Options. 5. Administration. This Plan will be administered
and interpreted by the Board, or by a committee consisting of two or more
members of the Board, appointed by the Board for such purpose (the Board, or
such committee, referred to herein as the "Administrator"). Subject to the
express terms and conditions hereof, the Administrator is authorized to
prescribe, amend and rescind rules and regulations relating to this Plan, and to
make all other determinations necessary or advisable for its administration and
interpretation. Specifically, the Administrator will have full and final
authority in its discretion, subject to the specific limitations on that
discretion as are set forth herein and in the Certificate of Incorporation and
By-laws of the Company, at any time:
(a) to select and approve the Eligible Participants to whom Options
will be granted from time to time hereunder;
(b) to determine the Fair Market Value of the Shares as of the Grant
Date for any Option that is granted hereunder;
(c) with respect to each Option it decides to grant, to determine the
terms and conditions of that Option, to be set forth in the Option
Agreement evidencing that Option (the form of which also being subject to
approval by the Administrator), which may vary from the "default" terms and
conditions set forth in section 6 below, except to the extent otherwise
provided in this Plan, including, without limitation, as follows:
(i) the total number of Option Shares that may be acquired by the
Optionee pursuant to the Option;
(ii) if the Option satisfies the conditions under Section 422(b)
of the Code, whether the Option will be treated as an ISO;
(iii) the per share purchase price to be paid to the Company by
the Optionee to acquire the Option Shares issuable upon exercise of
the Option (the "Option Price"), provided that the Option Price will
not be less than 85% of the Fair Market Value of the Shares as of the
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<PAGE> 3
CATUITY INC.
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Grant Date, unless the Optionee is a 10% stockholder, in which case
the Option Price will not be less than 110% of such Fair Market Value;
(iv) the maximum period or term during which the Option will be
exercisable (the "Option Term"), provided that in no event may the
Option Term be longer than 10 years from the Grant Date;
(v) the maximum period following any Termination of Eligibility
Status, whether resulting from an Optionee's death, disability or any
other reason, during which period (the "Grace Period") the Option will
be exercisable, subject to Vesting and to the expiration of the Option
Term, provided that in no event may the Administrator designate a
Grace Period that is shorter than six months after such Termination of
Eligibility Status by reason of the Optionee's death or disability, or
30 days after such Termination of Eligibility for any other reason,
except in the event of a Termination for Cause, in which case no Grace
Period will be required (i.e., the Option will terminate immediately);
(vi) whether to accept a promissory note or other form of legal
consideration in addition to cash as payment for all or a portion of
the Option Price and/or Tax Withholding Liability to be paid by the
Optionee upon the exercise of an Option granted hereunder;
(vii) the conditions (e.g., the passage of time or the occurrence
of events), if any, that must be satisfied prior to the vesting of the
right to exercise all or specified portions of an Option (such
portions being described as the number of Option Shares, or the
percentage of the total number of Option Shares that may be acquired
by the Optionee pursuant to the Option; the vested portion being
referred to as a "Vested Option" and the unvested portion being
referred to as an "Unvested Option"), provided that no such conditions
(except an Optionee's Termination of Eligibility Status, after which
no Unvested Option will become a Vested Option) may be imposed which
prevents an Optionee who is an employee, but who is neither an officer
or director, of the Company or any of its Subsidiaries, from
purchasing at least 20% of the Option Shares initially subject to the
Option as of the first anniversary of the Grant Date, and as of each
anniversary thereafter, such that by the fifth anniversary of the
Grant Date (assuming no such Termination of Eligibility Status) the
entire Option would be deemed a Vested Option; and
(viii) in addition, or as an alternative, to imposing conditions
on the right to exercise an Option as provided in section 5(c)(vii)
above, whether any portion of the Option Shares acquired by an
Optionee
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<PAGE> 4
CATUITY INC.
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upon exercise of an Option will be subject to repurchase by the
Company or its assigns at the Option Price paid for such Shares or at
some other price that may be less than the Fair Market Value of such
Shares (such Shares, if subject to repurchase at less than Fair Market
Value, being referred to as "Unvested Shares") following a Termination
of Eligibility Status or other designated event, and the conditions
(e.g., the passage of time or the occurrence of events), if any, that
must be satisfied for such Shares to be no longer subject to such
right of repurchase at less than Fair Market Value (such Shares being
referred to as "Vested Shares"); provided that no such conditions
(except an Optionee's Termination of Eligibility Status, after which
no Unvested Shares will become Vested Shares) may be imposed which
prevent Unvested Shares held by an employee, who is neither an officer
or director, of the Company and/or any of its Subsidiaries, from
becoming Vested Shares at the rate of at least twenty percent (20%)
per year following the Grant Date, such that by the fifth anniversary
of the Grant Date (assuming no earlier Termination of Eligibility
Status) all of the Shares would be deemed Vested Shares; and
(d) to delegate all or a portion of the Administrator's authority
under sections 5(a), (b) and (c) above to one or more members of the Board
who also are executive officers of the Company, and subject to such
restrictions and limitations as the Administrator may decide to impose on
such delegation.
6. Default Terms and Conditions of Option Agreements. Unless otherwise expressly
provided in an Option Agreement based on the Administrator's determination
pursuant to section 5(c) above, the following terms and conditions will be
deemed to apply to each Option as if expressly set forth in the Option
Agreement:
6.1 ISO. No Option will be treated as an ISO unless treatment as an ISO is
expressly provided for in an Option Agreement and such Option satisfies the
conditions of Section 422(b) of the Code.
6.2 Option Term. The Option Term will be for a period of 10 years beginning
on the Grant Date, except that in the case of an ISO granted to a 10%
stockholder, the Option Term will be for a period of 5 years beginning on the
Grant Date.
6.3 Grace Periods. Following a Termination of Eligibility Status:
(a) the Grace Period will be thirty (30) days, unless the Termination
of Eligibility Status is a result of a Termination for Cause or the death
or disability of the Optionee;
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CATUITY INC.
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(b) the Grace Period will be six months if the Termination of
Eligibility Status is a result of the death or disability of the Optionee;
and
(c) the Option will terminate, and there will be no Grace Period,
effective immediately as of the date and time of a Termination for Cause of
the Optionee, regardless of whether the Option is Vested or Unvested.
6.4 Vesting. The Option initially will be deemed an entirely Unvested
Option, but portions of the Option will become a Vested Option on the
following schedule:
(a) twenty percent (20%) will become a Vested Option as of the first
anniversary of the "Vesting Start Date" specified in the Option Agreement
(which may be earlier but may not be later than the Grant Date specified
therein); and
(b) ten percent (10%) of the Option will become a Vested Option on the
last day of each six-month period thereafter, such that the Option will
become a fully Vested Option as of the fifth anniversary of the Vesting
Start Date;
provided that the Optionee does not suffer a Termination of Eligibility Status
prior to each such vesting date and provided further that additional vesting
will be suspended during any period while the Optionee is on a leave of absence
from the Company or its Subsidiaries, as determined by the Administrator.
6.5 Exercise of the Option; Issuance of Share Certificate.
(a) The portion of the Option that is a Vested Option may be exercised
by giving written notice thereof to the Company, on such form as may be
specified by the Administrator, but in any event stating: the Optionee's
intention to exercise the Option; the date of exercise; the number of full
Option Shares to be purchased (which number will be no less than 100
Shares, without regard to adjustments to the number of Shares subject to
the Option pursuant to section 8 below, or, if less, all of the remaining
Shares subject to the Option); the amount and form of payment of the Option
Price; and such assurances of the Optionee's investment intent as the
Company may require to ensure that the transaction complies in all respects
with the requirements of the 1933 Act and other applicable securities laws.
The notice of exercise will be signed by the person or persons exercising
the Option. In the event that the Option is being exercised by the
representative of the Optionee, the notice will be accompanied by proof
satisfactory to the Company of the representative's right to exercise the
Option. The notice of exercise will be accompanied by full payment of the
Option Price for the number of Option Shares to be purchased, in United
States dollars, in cash, by check made payable to the
Page 5
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CATUITY INC.
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Company, or by delivery of such other form of payment (if any) as approved
by the Administrator in the particular case. Payment also may be made by
delivering a copy of irrevocable instructions to a broker to deliver
promptly to the Company the amount of sale or loan proceeds sufficient to
pay the Option Price and, if required, the amount of any Tax Withholding
Liability.
(b) To the extent required by applicable federal, state, local or
foreign law, and as a condition to the Company's obligation to issue any
Shares upon the exercise of the Option in full or in part, the Optionee
will make arrangements satisfactory to the Company for the payment of any
applicable Tax Withholding Liability that may arise by reason of or in
connection with such exercise. Such arrangements may include, in the
Company's sole discretion, that the Optionee tender to the Company the
amount of such Tax Withholding Liability, in cash, by check made payable to
the Company, or in the form of such other payment as may be approved by the
Administrator, in its discretion pursuant to section 5(c)(vi) above.
(c) After receiving a proper notice of exercise and payment of the
applicable Option Price and Tax Withholding Liability, the Company will
cause to be issued a certificate or certificates for the Option Shares as
to which the Option has been exercised, registered in the name of the
person rightfully exercising the Option and the Company will cause such
certificate or certificates to be delivered to such person.
6.6 Compliance with Law. Notwithstanding any other provision of this Plan,
Options may be granted pursuant to this Plan, and Option Shares may be issued
pursuant to the exercise thereof by an Optionee, only after and on the
condition that there has been compliance with all applicable federal and state
securities laws. The Company will not be required to list, register or qualify
any Option Shares upon any securities exchange, under any applicable state,
federal or foreign law or regulation, or with the Securities and Exchange
Commission or any state agency, or secure the consent or approval of any
governmental regulatory authority, except that if at any time the Board
determines, in its discretion, that such listing, registration or
qualification of the Option Shares, or any such consent or approval, is
necessary or desirable as a condition of or in connection with the exercise of
an Option and the purchase of Option Shares thereunder, that Option may not be
exercised, in whole or in part, unless and until such listing, registration,
qualification, consent or approval is effected or obtained free of any
conditions that are not acceptable to the Board, in its discretion. However,
the Company will seek to register or qualify with, or as may be provided by
applicable local law, file for and secure an exemption from such registration
or qualification requirements from, the applicable securities administrator
and other officials of each jurisdiction in which an Eligible Participant
would be granted an Option hereunder prior to such grant.
6.7 Restrictions on Transfer.
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(a) Options Nontransferable. No Option will be transferable by an
Optionee otherwise than by will or the laws of descent and distribution.
During the lifetime of a natural person who is granted an Option under this
Plan, the Option will be exercisable only by him or her. Notwithstanding
anything else in this Plan to the contrary, no Option Agreement will
contain any provision which is contrary to, or which modifies, the
provisions of this section 6.7(a).
(b) Prohibited Transfers. Prior to the Initial Registration, no Holder
of any Option Shares may Transfer such Shares, or any interest therein,
other than in full compliance with all applicable securities laws and any
applicable restrictions on Transfer provided in the Company's Certificate
of Incorporation and/or Bylaws, which will be deemed incorporated by
reference into this Plan. All Transfers of Option Shares not complying with
the specific limitations and conditions set forth in this section 6.7 are
expressly prohibited. Any prohibited Transfer is void and of no effect, and
no purported transferee in connection therewith will be recognized as a
Holder of Option Shares for any purpose whatsoever. Should such a Transfer
purport to occur, the Company may refuse to carry out the Transfer on its
books, attempt to set aside the Transfer, enforce any undertakings or
rights under this Plan, or exercise any other legal or equitable remedy.
(c) Conditions to Transfer. It will be a condition to any Transfer of
any Option Shares that:
(i) the transferee of the Shares will execute such documents as
the Company may reasonably require to ensure that the Company's rights
under this Plan, and any applicable Option Agreement, are adequately
protected with respect to such Shares, including, without limitation,
the transferee's agreement to be bound by all of the terms and
conditions of this Plan and such Agreement, as if he or she were the
original Holder of such Shares; and
(ii) the Company is satisfied that such Transfer complies in all
respects with the requirements imposed by applicable state and federal
securities laws and regulations.
(d) Market Standoff. If in connection with any public offering of
securities of the Company (or any Successor Entity), the underwriter or
underwriters managing such offering so requests, then each Optionee and
each Holder of Option Shares will agree to not sell or otherwise Transfer
any such Shares (other than Shares included in such underwriting) without
the prior written consent of such underwriter, for such period of time as
may be requested by the underwriter commencing on the effective date of the
registration statement filed with the Securities and Exchange Commission
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CATUITY INC.
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in connection with such offering but in no event longer than the period of
time that the officers and directors of the Company are generally
prohibited from Transferring their Shares in connection with such public
offering.
6.8 Change of Control Transactions. In the event of a Change of Control
Transaction, the Company shall endeavor to cause the Successor Entity (or its
parent or its Subsidiary) in such transaction either to assume all of the
Options which have been granted hereunder and which are outstanding as of the
consummation of such transaction ("Change of Control Closing"), or to issue
(or cause to be issued) in substitution thereof comparable options of such
Successor Entity (or of its parent or its Subsidiary). If the Successor Entity
(or its parent or its Subsidiary) is unwilling to either assume such Options
or grant comparable options in substitution for such Options, on terms that
are acceptable to the Company as determined by the Board in the exercise of
its discretion, then the Board may cancel all outstanding Vested Options, and
terminate this Plan, effective as of the Change of Control Closing, provided
that (i) it will notify all Optionees of the proposed Change of Control
Transaction a reasonable amount of time prior to the Change of Control Closing
so that each Optionee will be given the opportunity to exercise all Vested
Options prior to the Change of Control Closing and (ii) any and all Unvested
Options will survive the termination of the Plan without impairment. For
purposes of this section 6.8, the term "Change of Control Transaction" means a
Business Combination in which less than (50%) of the outstanding voting
securities of the Successor Entity immediately following the Closing of the
Business Combination are beneficially held by those persons and entities in
the same proportion as such persons and entities beneficially held the voting
securities of the Company immediately prior to such transaction; the term
"Business Combination" means a transaction or series of transactions
consummated within any period of 90 days resulting in (A) the sale of all or
substantially all of the assets of the Company, (B) a merger or consolidation
or other reorganization of which the Company or a Subsidiary is a merging
party, or (C) the sale or other change of beneficial ownership of at least
Thirty Three and One Third Percent of the outstanding voting securities of the
Company.
6.9 Additional Restrictions on Transfer: Investment Intent. By accepting an
Option and/or Option Shares under this Plan, the Optionee will be deemed to
represent, warrant and agree that, unless a registration statement is in
effect with respect to the offer and sale of Option Shares: (i) neither the
Option nor any such Shares will be freely tradeable and must be held
indefinitely unless such Option and such Shares are either registered under
the 1933 Act or an exemption from such registration is available; (ii) the
Company is under no obligation to register the Option or any such Shares;
(iii) upon exercise of the Option, the Optionee will purchase the Option
Shares for his or her own account and not with a view to distribution within
the meaning of the 1933 Act, other than as may be effected in compliance with
the 1933 Act and the rules and regulations promulgated thereunder; (iv) no one
else will have any beneficial interest in the
Page 8
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CATUITY INC.
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Option Shares; (v) the Optionee has no present intention of disposing of the
Option Shares at any particular time; and (vi) neither the Option nor the
Shares have been qualified under the securities laws of any state and may only
be offered and sold pursuant to an exception from qualification under
applicable state securities laws.
6.9 Stock Certificates: Legends. Certificates representing Option Shares
will bear all legends required by law and necessary or appropriate in the
Administrator's discretion to effectuate the provisions of this Plan and of
the applicable Option Agreement. The Company may place a "stop transfer" order
against Option Shares until full compliance with all restrictions and
conditions set forth in this Plan, in any applicable Option Agreement and in
the legends referred to in this section 6.10.
6.10 Notices. Any notice to be given to the Company under the terms of an
Option Agreement will be addressed to the Company at its principal executive
office, Attention: Secretary, or at such other address as the Company may
designate in writing. Any notice to be given to an Optionee will be addressed
to him or her at the address provided to the Company by the Optionee. Any such
notice will be deemed to have been duly given if and when enclosed in a
properly sealed envelope, addressed as aforesaid, deposited, postage prepaid,
in a post office or branch post office regularly maintained by the local
postal authority.
6.11 Other Provisions. Each Option Agreement may contain such other terms,
provisions and conditions, including restrictions on the Transfer of Option
Shares, and rights of the Company to repurchase such Shares, not inconsistent
with this Plan and applicable law, as may be determined by the Administrator
in its sole discretion.
6.12 Specific Performance. Under those circumstances in which the Company
chooses to timely exercise its rights to repurchase Option Shares as provided
herein or in any Option Agreement, the Company will be entitled to receive
such Shares in specie in order to have the same available for future issuance
without dilution of the holdings of other stockholders of the Company. By
accepting Option Shares, the Holder thereof therefore acknowledges and agrees
that money damages will be inadequate to compensate the Company and its
stockholders if such a repurchase is not completed as contemplated hereunder
and that the Company will, in such case, be entitled to a decree of specific
performance of the terms hereof or to an injunction restraining such holder
(or such Holder's personal representative) from violating this Plan or Option
Agreement, in addition to any other remedies that may be available to the
Company at law or in equity.
7. Term of the Plan. This Plan will become effective on the date of its adoption
by the Board, provided that this Plan is approved by the stockholders of the
Company (excluding Option Shares issued by the Company pursuant to the
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CATUITY INC.
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exercise of Options granted under this Plan) within 12 months before or after
that date. If this Plan is not so approved by the stockholders of the Company
within that 12-month period of time, any Options granted under this Plan will be
rescinded and will be void. This Plan will expire on the tenth (10th)
anniversary of the date of its adoption by the Board or its approval by the
stockholders of the Company, whichever is earlier, unless it is terminated
earlier pursuant to section 11 of this Plan, after which no more Options may be
granted under this Plan, although all outstanding Options granted prior to such
expiration or termination will remain subject to the provisions of this Plan,
and no such expiration or termination of this Plan will result in the expiration
or termination of any such Option prior to the expiration or early termination
of the applicable Option Term.
8. Adjustments Upon Changes in Stock. In the event of any change in the
outstanding Shares of the Company as a result of a stock split, reverse stock
split, stock bonus or distribution, recapitalization, combination or
reclassification, appropriate proportionate adjustments as permitted by any
listing rules applying to the Company, will be made in: (i) the aggregate number
of Shares that are reserved for issuance in the Option Pool pursuant to section
4 above, under outstanding Options or future Options granted hereunder; (ii) the
Option Price and the number of Option Shares that may be acquired under each
outstanding Option granted hereunder; and (iii) other rights and matters
determined on a per share basis under this Plan or any Option Agreement
evidencing an outstanding Option granted hereunder. Any such adjustments will be
made only by the Board, and when so made will be effective, conclusive and
binding for all purposes with respect to this Plan and all Options then
outstanding. No such adjustments will be required by reason of the issuance or
sale by the Company for cash or other consideration of additional Shares or
securities convertible into or exchangeable for Shares. The rights of all
Optionee's will be changed to the extent necessary to comply with any listing
rules applying to the re-organisation of capital at the time of the
re-organisation.
9. Modification, Extension and Renewal of Options. Subject to the terms and
conditions and within the limitations of this Plan, the Administrator may
modify, extend or renew outstanding Options granted under this Plan, or accept
the surrender of outstanding Options (to the extent not theretofore exercised)
and authorize the granting of new Options in substitution therefor (to the
extent not theretofore exercised). Notwithstanding the foregoing, no
modification of any Option will, without the consent of the Optionee, reduce the
number of Shares covered by the Option, defer vesting of the Option, or convert
a Vested Option to an Unvested Option.
10. Governing Law; Venue. The internal laws of the State of Delaware
(irrespective of its choice of law principles) will govern the validity of this
Plan, the construction of its terms and the interpretation of the rights and
duties of the parties hereunder and under any Option Agreement. Any party may
seek to
Page 10
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CATUITY INC.
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enforce its rights under this Plan or any Option Agreement entered into
under this Plan in any court of competent jurisdiction located within the
judicial district in which the Company then has a principal place of business.
11. Amendment and Discontinuance. The Board may amend, suspend or discontinue
this Plan at any time or from time to time; provided that no action of the Board
will, without the approval of the stockholders of the Company, materially
increase (other than by reason of an adjustment pursuant to section 8 hereof)
the maximum aggregate number of Option Shares in the Option Pool, materially
increase the benefits accruing to Eligible Participants, or materially modify
the category of, or eligibility requirements for persons who are Eligible
Participants. However, except as provided in section 6.8, no such action may
alter or impair any Option previously granted under this Plan without the
consent of the Optionee, nor may the number of Option Shares in the Option Pool
be reduced to a number that is less than the aggregate number of Option Shares
(i) that may be issued pursuant to the exercise of all outstanding and unexpired
Options granted hereunder, and (ii) that have been issued and are outstanding
pursuant to the exercise of Options granted hereunder.
12. Information Provided by Company. Prior to the date on which the Company is
required to file its annual financial statements with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, the Company
annually will provide the Company's financial statements (which statements need
not be audited) to each Optionee who is an employee of the Company or any of its
Subsidiaries, and each Optionee will, by virtue of entering into an Option
Agreement, be deemed to have agreed (and to cause any investment advisers to
whom the Optionee proposes to make such information available to agree) to keep
such information confidential and not to use, disclose or copy such information
for any purpose whatsoever other than determining whether to exercise an Option.
The Company deems such financial statements to be the valuable trade secrets of
the Company, and in the event of any wrongful use, disclosure or other breach of
the obligation to maintain the confidentiality of such financial information,
the Company may seek to enforce all of its available legal and equitable rights
and remedies, and may notify local law enforcement officials that a criminal
misappropriation of the Company's trade secrets has taken place.
13. No Stockholder Rights. No rights or privileges of a stockholder in the
Company are conferred by reason of the granting of an Option. No Optionee will
become a stockholder in the Company with respect to any Option Shares unless and
until the Option has been properly exercised and the Option Price fully paid as
to the portion of the Option exercised. No Optionee will become entitled to
participate in any new issue of securities, other than securities issued under
section 8 of this Plan, unless and until the Option has been properly exercised
and the Option Price fully paid as to the portion of the Option exercised.
Page 11
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CATUITY INC.
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14. Copies of Plan. A copy of this Plan will be delivered to each Optionee at
or before the time he, she or it executes an Option Agreement.
Date Plan Adopted by Board of Directors: _____________________
Date Plan Approved by the Stockholders: _____________________
Page 12
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CATUITY INC.
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CATUITY INC.
STOCK OPTION PLAN
Exhibit A
Definitions
1. "10% stockholder" means a person who owns, either directly or indirectly by
virtue of the ownership attribution provisions set forth in Section 424(d) of
the Code at the time he or she is granted an Option, stock possessing more than
10% of the total combined voting power or value of all classes of stock of the
Company and/or of its Subsidiaries.
2. "1933 Act" means the Securities Act of 1933, as amended.
3. "Administrator" has the meaning set forth in section 5 of the Plan.
4. "Board" has the meaning set forth in section 1 of the Plan.
5. "Business Combination" has the meaning set forth in section 6.8 of the Plan.
6. "Change of Control Closing" has the meaning set forth in section 6.8 of the
Plan.
7. "Change of Control Transaction" has the meaning set forth in section 6.8 of
the Plan.
8. "Code" means the Internal Revenue Code of 1986, as amended (references herein
to Sections of the Code are intended to refer to Sections of the Code as enacted
at the time of the Plan's adoption by the Board and as subsequently amended, or
to any substantially similar successor provisions of the Code resulting from
recodification, renumbering or otherwise).
9. "Company" has the meaning set forth in section 1 of the Plan.
10. "Disability" means any physical or mental disability which results in a
Termination of Eligibility Status under applicable law, except that for purposes
of section 6.1(c) of the Plan, the term "disability" means permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
11. "Donative Transfer" with respect to Option Shares means any voluntary
Transfer by a transferor other than for value or the payment of consideration to
the transferor.
12. "Eligible Participants" has the meaning set forth in section 3 of the Plan.
Page 13
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CATUITY INC.
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20. "Option Agreement" has the meaning set forth in section 1 of the Plan.
21. "Option Pool" has the meaning set forth in section 4 of the Plan.
22. "Option Price" has the meaning set forth in section 5(c)(iii) of the Plan.
23. "Option Shares" has the meaning set forth in section 1 of the Plan, provided
that for purposes of section 6, the term "Option Shares" includes all Shares
issued by the Company to a Holder (or his, her or its predecessor) by reason of
such holdings, including any securities which may be acquired as a result of a
stock split, stock dividend, and other distributions of Shares in the Company
made upon, or in exchange for, other securities of the Company.
24. "Option Term" has the meaning set forth in section 5(c)(iv) of the Plan.
25. "Optionee" has the meaning set forth in section 1 of the Plan.
26. "Options" has the meaning set forth in section 1 of the Plan.
27. "Plan" has the meaning set forth in section 1 of the Plan.
28. "Shares" has the meaning set forth in section 1 of the Plan.
29. "Subsidiary" has the same meaning as "subsidiary corporation" as defined in
Section 424(f) of the Code.
30. "Successor Entity" means a corporation or other entity that acquires all or
substantially all of the assets of the Company, or which is the surviving or
parent entity resulting from a Business Combination, as that term is defined in
section 6.8 of the Plan.
31. "Tax Withholding Liability" in connection with the exercise of any Option
means all federal and state income taxes, social security tax, and any other
taxes applicable to the compensation income arising from the transaction
required by applicable law to be withheld by the Company.
32. "Termination of Eligibility Status" means (i) in the case of any employee of
the Company and/or any of its Subsidiaries, a termination of his or her
employment, whether by the employee or employer, and whether voluntary or
involuntary, including without limitation as a result of the death or disability
of the employee, (ii) in the case of any advisor, consultant, or independent
contractor of the Company and/or any of its Subsidiaries, the termination of the
services relationship pursuant to any contract between the parties or otherwise
under applicable law, and (iii) in the case of any director of the Company
and/or any of its Subsidiaries, the death of or resignation by the director or
his or her removal from the board in the manner provided by the articles of
incorporation, bylaws or
Page 14
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CATUITY INC.
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other organic instruments of the Company or Subsidiary or otherwise in
accordance with applicable law.
33. "Termination for Cause" means (i) in the case of an Optionee who is an
employee of the Company and/or any of its Subsidiaries, a termination by the
employer of the Optionee's employment for "cause" as defined by applicable law,
by any contract of employment or the Option Agreement, or if not defined
therein, pursuant to the "For Cause Standard" set forth below, (ii) in the case
of an Optionee who is or which is an advisor, consultant or independent
contractor to the Company and/or any of its Subsidiaries, a termination of the
services relationship by the hiring party for "cause" or breach of contract, as
defined by applicable law, by any contract between the parties or the Option
Agreement, or if not defined therein, pursuant to the "For Cause Standard" set
forth below, and (iii) in the case of an Optionee who is a director of the
Company and/or any of its Subsidiaries, removal of him or her from the board of
directors by action of the stockholders or, if permitted by applicable law and
the articles, bylaws or other organic documents of the Company or the
Subsidiary, as the case may be, or pursuant to applicable law, by the other
directors), in connection with the good faith determination of the board of
directors (or of the Company's or Subsidiary's stockholders if so required, but
in either case excluding the vote of the subject individual if he or she is a
director or a stockholder) that the Optionee has engaged in any acts which
breach any fiduciary duty to the Company, any of its Subsidiaries or their
stockholders, or in any acts involving dishonesty or moral turpitude or in any
acts that materially and adversely affect the business, affairs or reputation of
the Company or any of its Subsidiaries (the "For Cause Standard").
34. "Transfer" with respect to Option Shares, includes, without limitation, a
voluntary or involuntary sale, assignment, transfer, conveyance, pledge,
hypothecation, encumbrance, disposal, loan, gift, attachment or levy of those
Shares, including any Involuntary Transfer, Donative Transfer or transfer by
will or under the laws of descent and distribution.
35. "Unvested Option" has the meaning set forth in section 5(c)(vii) of the
Plan.
36. "Unvested Shares" has the meaning set forth in section 5(c)(viii) of the
Plan.
37. "Vested Option" has the meaning set forth in section 5(c)(vii) of the Plan.
38. "Vested Shares" has the meaning set forth in section 5(c)(viii) of the Plan.
15
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<RECEIVABLES> 586,863
<ALLOWANCES> 157,704
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<CURRENT-ASSETS> 6,012,286
<PP&E> 470,717
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0
0
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