<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1999.
REGISTRATION NO. 333-76947
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
I.D. SYSTEMS, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3669 22-3270799
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
90 WILLIAM STREET
SUITE 402
NEW YORK, NEW YORK 10038
(212) 677-3800
(Address and Telephone Number of Principal Executive Offices)
------------------------
JEFFREY M. JAGID
CHIEF OPERATING OFFICER
I.D. SYSTEMS, INC.
90 WILLIAM STREET
SUITE 402
NEW YORK, NEW YORK 10038
(Name, Address and Telephone Number of Agent For Service)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
HENRY I. ROTHMAN, ESQ. RUBI FINKELSTEIN, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP ORRICK, HERRINGTON & SUTCLIFFE LLP
1211 AVENUE OF THE AMERICAS 30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10112
TELEPHONE: (212) 704-6000 TELEPHONE: (212) 506-3660
TELECOPIER: (212) 704-6288 TELECOPIER: (212) 506-3730
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DATED JUNE 28, 1999
SUBJECT TO COMPLETION
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
2,000,000 SHARES
[LOGO]
COMMON STOCK
----------------
This is an initial public offering of shares of I.D. Systems, Inc. I.D.
Systems anticipates that the initial public offering price will be between $7
and $9 per share.
Prior to this offering, there has been no public market for the common
stock. Application has been made for quotation of the common stock on the Nasdaq
SmallCap Market under the symbol "IDSY" and on the Boston Stock Exchange under
the Symbol "ID".
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 6 TO READ ABOUT CERTAIN FACTORS
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF ANY COMMON STOCK.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- ----------
<S> <C> <C>
Initial public offering price................................................. $ $
Underwriting discount......................................................... $ $
Proceeds, before expenses, to I.D. Systems.................................... $ $
</TABLE>
I.D. Systems granted the underwriters a 45-day option to purchase, under
certain circumstances, up to an additional 300,000 shares of common stock at the
initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York,
New York on or about , 1999.
GILFORD SECURITIES INCORPORATED
Prospectus dated , 1999
<PAGE>
[DESCRIPTION OF PICTURES]
Pictures in inside front cover:
<TABLE>
<S> <C>
Caption: Wireless Monitoring and Tracking Systems for Virtually Any Object.
Top Left: Picture of cargo in boxes.
Caption: Shipping & Delivery Companies.
Top Right: Picture of forklift in warehouse.
Caption: Companies with forklift fleets.
Bottom Left: Picture of care fleet.
Caption: Car Rental Companies.
Bottom Right: Picture of fleet of railcars.
Caption: Railcar & Transportation Companies.
Scattered
Captions: Analyze Performance; Reduce overhead costs; Increase Profits; Improve
Operating Efficiency.
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND I.D. SYSTEMS' FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
I.D. SYSTEMS, INC.
OUR BUSINESS
I.D. Systems, Inc. designs, develops, and produces a wireless monitoring and
tracking system that uses radio frequency technology. Our system can monitor,
track, analyze, and control the movement of virtually any object, including
vehicles, equipment and packages. Our products enable users to improve operating
efficiencies, reduce costs and increase profits. Our principal customer to date
has been the United States Postal Service. Other commercial customers have also
recently placed orders for our system. We are currently marketing our system to
four major industries but believe that our system may be used in a wider variety
of industries.
OUR SYSTEM
The main components of our system are miniature computers that attach to the
monitored and tracked objects as well as monitoring devices that exchange
information with these miniature computers. Customers may access the data
collected by our system via the Internet. Our system provides many advantages
over conventional radio frequency systems.
OUR OFFICES
Our principal executive offices are located at 90 William Street, Suite 402,
New York, NY 10038, and our telephone number is (212) 677-3800. Our corporate
website can be found at www.id-systems.com. Information contained on our website
does not constitute part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by I.D. Systems..... 2,000,000
Shares to be outstanding after this
offering......................... 5,414,375 shares
Use of Proceeds.................... - sales, marketing and customer support;
- web-based customer support;
- custom chip development and miniaturization;
- expansion of hardware and software lab;
- research and development; and
- working capital and general corporate purposes.
Proposed Nasdaq SmallCap Market
Symbol........................... "IDSY"
Proposed Boston Stock Exchange
Symbol........................... "ID"
</TABLE>
Unless stated otherwise, all information in this prospectus assumes:
- An initial public offering price of $8.00;
- the underwriters' over-allotment option is not exercised; and
- a 1.25 to 1 stock split of common stock immediately prior to the effective
date of this prospectus;
and excludes:
- 1,243,750 shares of common stock issuable upon the exercise of outstanding
options; and
- 1,118,750 shares of common stock reserved for future issuance under our
stock option plans.
3
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table summarizes the financial data for our business. We were
treated as an S corporation through December 31, 1998 and, accordingly, were not
subject to federal or state income taxes. Subsequent to December 31, 1998, we
filed an election to be taxed as a C corporation effective January 1, 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ------------------------
<S> <C> <C> <C> <C>
1997* 1998* 1998* 1999*
---------- ------------ ---------- ------------
STATEMENT OF OPERATIONS DATA:
Revenues................................ $733,000 $ 3,324,000 $ 411,000 $ 1,015,000
Gross profit............................ 464,000 1,691,000 301,000 409,000
Income (loss) from operations........... (18,000) 544,000 77,000 17,000
Net income--historical.................. 75,000 476,000 65,000 2,000
Historical net income per share-- basic
and diluted........................... .00
Weighted average common shares
outstanding--basic.................... 3,414,000
Weighted average common shares
outstanding--diluted.................. 3,947,000
</TABLE>
* Pro forma net income (loss), which provides for federal and state income
taxes which would have been provided had we been a C corporation for the
years ended December 31, 1997 and December 31, 1998 and the three months
ended March 31, 1998 was $543,000, $284,000 and $39,000 respectively. Pro
forma net income for 1997 includes a $468,000 pro forma income tax benefit
that will not be available to offset C corporation income in future years.
Pro forma net income per share, basic and diluted, for the years ended
December 31, 1997 and December 31, 1998 and the three months ended March 31,
1998 was $.17, $.08 and $.01, respectively. The weighted average common
shares outstanding was 3,154,000, basic and diluted, for the year ended
December 31, 1997, 3,414,000, basic, and 3,779,000, diluted, for the year
ended December 31, 1998 and 3,414,000, basic, and 3,526,000, diluted, for
the three months ended March 31, 1998.
The following table indicates a summary of our balance sheet at December 31,
1998:
- on an actual basis; and
- on an as adjusted basis to reflect the sale of 2,000,000 shares of common
stock, after deducting underwriting discounts and commissions and
estimated offering expenses.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AT MARCH 31, 1999
---------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ -------------
Working capital.................................................. $ 941,000 $ 14,886,000
Total assets..................................................... 2,467,000 16,348,000
Total liabilities................................................ 1,457,000 1,438,000
Stockholders' equity............................................. 1,010,000 14,910,000
</TABLE>
4
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO
INVEST IN THE SHARES OF OUR COMMON STOCK.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
Although we were incorporated in August 1993, we did not initiate sales of
our initial line of products until March 1995. As a result, we have a limited
operating history upon which you may evaluate our business and prospects. Our
prospectus must be considered in light of risks, expenses, delays, problems and
difficulties frequently encountered by early stage companies.
THE LOSS OF NET SALES TO OUR MAJOR CUSTOMER WOULD HAVE A MATERIAL ADVERSE
EFFECT ON US
Our largest customer, the U.S. Postal Service, accounted for approximately
99%, 95% and 100% of revenues, in 1997, 1998 and the three months ended March
31, 1999. Our contract with the U.S. Postal Service expires in September 2000.
The contract may be terminated, however, at any time at the discretion of the
U.S. Postal Service. The loss of this customer would likely have a material
adverse effect on our business, financial condition and results of operations.
THE MARKET FOR OUR TECHNOLOGY IS UNCERTAIN
Our success is highly dependent on market acceptance of our wireless
monitoring and tracking system. The market for wireless monitoring and tracking
products and services is new and rapidly evolving and we are not certain that
our target customers will purchase our wireless monitoring and tracking system.
As a result, demand and market acceptance for our products is uncertain. We
cannot assure you that the market for wireless monitoring and tracking
technology will continue to emerge or become sustainable. If the market for our
products fails to grow, develops more slowly than we expect, or becomes
saturated with competing products or services, then our business, financial
condition and results of operations will be materially adversely affected.
THE DELIVERY OF OUR SYSTEM REQUIRES A LONG LEAD TIME
The design, manufacture and delivery of our system to our customers requires
a long lead time due to the amount of customization typically involved in its
production. This amount of time is difficult to predict. In the event our system
takes longer to develop for particular customers than predicted, we may lose
existing customers or find it more difficult to obtain additional customers.
THERE ARE RISKS RELATED TO DOING BUSINESS WITH FEDERAL GOVERNMENT AGENCIES
Contracts with Federal government agencies require annual funding approval
and are terminable at the discretion of such agencies. A reduction in spending
by Federal government agencies could limit the continued funding of our existing
contracts with them and could limit our ability to obtain additional contracts.
These limitations, if significant, could also have a material adverse effect on
our business, financial condition and results of operations.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
Based on our current operating plan, we anticipate that the net proceeds of
this offering and cash provided by operations will allow us to meet our cash
requirements for at least 12 months following the date of this prospectus. We
may require additional funding sooner than anticipated. In addition, unplanned
acquisition and development opportunities and other contingencies may arise,
which could require us to raise additional capital. If we raise additional
capital through the sale of equity, including preferred stock, or convertible
debt securities, the percentage ownership of our then existing stockholders will
be diluted.
We currently do not have a credit facility or any commitments for additional
financing. We cannot be certain that additional financing will be available when
and to the extent required. If adequate funds
5
<PAGE>
are not available on acceptable terms, we may be unable to fund our expansion,
develop or enhance our products or respond to competitive pressures. Such
limitation could have a material adverse effect on our business, financial
condition and results of operations.
OUR FAILURE TO PROTECT OUR PROPRIETARY TECHNOLOGY MAY IMPAIR OUR COMPETITIVE
POSITION
Although we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot be certain
that:
- we will be able to protect our technology adequately;
- our patent and any other issued patents will not be successfully
challenged by one or more third parties, which could result in our loss of
the right to prevent others from exploiting the technology claimed in the
patent or inventions claimed in any other issued patents;
- competitors will not be able to develop similar technology independently;
- intellectual property laws will protect our intellectual property rights;
and
- third parties will not assert that our products infringe upon their
patents, copyrights or trade secrets.
If we are not successful in protecting our intellectual property, there
could be a material adverse effect on our business, financial condition and
results of operations.
PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY
LITIGATION
Litigation may be necessary in order to enforce our patents, copyrights or
other intellectual property rights, to protect our trade secrets, to determine
the validity and scope of the proprietary rights of others or to defend against
claims of infringement. This type of litigation could result in the expenditure
of significant financial and managerial resources and could result in
injunctions preventing us from distributing certain products. Such claims could
materially adversely affect our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE
Our market is characterized by rapid technological change and frequent new
product announcements. Significant technological changes could render our
existing technology obsolete. If we are unable to successfully respond to these
developments or do not respond in a cost-effective way, our business, financial
condition and results of operations will be materially adversely affected. To be
successful, we must adapt to our rapidly changing market by continually
improving the responsiveness, services and features of our products and by
developing new features to meet customer needs. Our success will depend, in
part, on our ability to adapt to rapidly changing technologies, to enhance our
existing services and to develop new services and technologies that address the
needs of our customers.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO RECRUIT ADDITIONAL PERSONNEL,
OUR BUSINESS MAY SUFFER
We are dependent on the continued employment and performance of our
executive officers and key employees, particularly Kenneth S. Ehrman, President,
Jeffrey Jagid, Chief Operating Officer and General Counsel, Bert Loosmore,
Executive Vice President of Engineering, and Michael Ehrman, Executive Vice
President of Software Development. We have entered into three year employment
agreements with each of Kenneth S. Ehrman, Jeffrey Jagid, Bert Loosmore and
Michael Ehrman. We have applied for key man life insurance policies on our key
employees. The loss of the services of our executive officers or key employees
could have a material adverse effect on our business, financial condition and
results of operations.
6
<PAGE>
WE RELY ON SUBCONTRACTORS
In order to meet our requirements under our contracts, we rely on the
efforts and skills of subcontractors for manufacturing our products for delivery
to our customers in significant volume. The absence of qualified subcontractors
with whom we have a satisfactory relationship could adversely affect the quality
of our services and products and our ability to perform under our contracts.
REGULATORY UNCERTAINTIES COULD HARM OUR BUSINESS
Our products transmit radio frequency waves, an activity governed by certain
rules and regulations promulgated by the Federal Communications Commission. Our
ability to design, develop and sell our products will continue to be affected by
such rules and regulations. The implementation of unfavorable regulations or
unfavorable interpretations of existing regulations by courts or regulatory
bodies could require us to incur significant compliance costs, cause the
development of the affected markets to become impractical and otherwise
adversely affect our business, financial condition and results of operations.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MANAGE GROWTH
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, technical, operational and financial
resources. If we are unable to manage our growth effectively, our business,
financial condition and results of operations will be materially adversely
affected. To manage our expected growth, we will have to implement and improve
our operational and financial systems and train and manage our growing employee
base. We will also need to maintain and expand our relationships with customers,
subcontractors, and other third parties.
OUR NEW PRODUCTS MAY CONTAIN TECHNOLOGICAL FLAWS AND WE MAY INCUR POTENTIAL
PRODUCT LIABILITY FOR PRODUCTS SOLD BY US
Complex technological products like ours often contain undetected errors or
failures when first introduced or as new versions are released. Despite testing
by us, there still may be errors in new products, even after commencement of
commercial shipments. The occurrence of these errors could result in delays or
failure to achieve market acceptance of our products, which could have a
material adverse effect on our business, financial condition and results of
operations. In addition, because our products are used in business-critical
applications, any errors or failures in these products may give rise to
substantial product liability claims, which also could have a material adverse
effect on our business, financial condition and results of operations.
YEAR 2000 RISKS MAY HARM OUR BUSINESS
Although we have developed internal proprietary software that is Year 2000
compliant, can operate on a stand-alone basis and does not rely on technology
supplied by third parties, there can be no assurance that discovered Year 2000
problems will not occur in the hardware, software or equipment of our customers
that will require substantial revision.
In addition, there can be no assurance that governmental agencies, utility
companies, third-party service providers and others outside of our control will
be Year 2000 compliant. The failure by these entities to be Year 2000 compliant
could result in a systemic failure beyond our control such as transportation
systems, telecommunications or electrical failure. Any of these failures could
also prevent us from delivering our system to our customers, which would have a
material adverse effect on our business, results of operations and financial
condition.
7
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about I.D. Systems and our
industry. These forward-looking statements involve risks and uncertainties. I.D.
Systems' actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, as more fully
described in the "Risk Factors" section and elsewhere in this prospectus. I.D.
Systems undertakes no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
8
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 2,000,000 shares of common stock
offered by us are estimated to be approximately $13,900,000 after deducting
underwriting discounts and commissions and other expenses of the offering. If
the underwriters' over-allotment option is exercised in full we estimate that
net proceeds will be $16,060,000. We expect to use the net proceeds, assuming no
exercise of the underwriters' over-allotment option, approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE
APPROXIMATE OF NET
DOLLAR AMOUNT PROCEEDS
-------------- -------------
<S> <C> <C>
Sales, marketing and customer support............................................... $ 3,500,000 25.1%
Web-based customer support.......................................................... 500,000 3.6
Custom chip development and miniaturization......................................... 4,000,000 28.8
Expansion of hardware lab........................................................... 500,000 3.6
Expansion of software lab........................................................... 500,000 3.6
Research and development............................................................ 1,000,000 7.2
Working capital, and general corporate purposes..................................... 3,900,000 28.1
-------------- -----
Total........................................................................... $ 13,900,000 100.0%
-------------- -----
-------------- -----
</TABLE>
SALES, MARKETING AND CUSTOMER SUPPORT. Represents anticipated costs
associated with marketing our system to targeted markets and advertisers,
including salaries for employees that market our system and travel expenses with
respect to marketing.
WEB-BASED CUSTOMER SUPPORT. Represents costs associated with developing a
web-based customer support service.
CUSTOM CHIP DEVELOPMENT AND MINIATURIZATION. Represents anticipated costs
associated with the development of Application Specific Integrated Circuits for
the miniaturization and optimization of our asset communicators.
EXPANSION OF HARDWARE LAB. Represents costs associated with expanding our
in-house capabilities for design and development of our products. Costs include
additional design, simulation, test equipment and the purchase of additional
prototyping tools.
EXPANSION OF SOFTWARE LAB. Represents costs associated with purchasing
tools to be used to enhance our software products as well as salaries for
additional software engineers.
RESEARCH AND DEVELOPMENT. Represents costs associated with initiatives
intended to enhance the performance and increase the capability of our products.
Costs include the hiring of additional employees, construction of prototypes and
testing.
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. Working capital may be
used, among other things, to pay salaries of our executive officers, rent, trade
payables, professional fees, and other operating expenses. Please see
"Management."
The allocation of the net proceeds from this offering set forth above
represents our best estimate based upon our currently proposed plans and
assumptions relating to our operations and certain assumptions regarding general
economic conditions. If any of these factors change, we may find it necessary or
advisable to reallocate some of the proceeds within the above-described
categories or to use portions for other purposes.
We anticipate that the net proceeds of this offering, together with
projected revenues from our operations, will be sufficient to fund our
operations and capital requirements for at least 12 months
9
<PAGE>
following this offering. We cannot assure you, however, that such funds will not
be expended earlier due to unanticipated changes in economic conditions or other
circumstances that we cannot foresee. In the event our plans change or our
assumptions change or prove to be inaccurate, we could be required to seek
additional financing sooner than currently anticipated. We also expect that,
when the opportunity arises, we may acquire or invest in complementary
businesses, products or technologies. We have no present understandings,
commitments or agreements with respect to any material acquisition or
investment.
Pending the use of proceeds in the manner mentioned above, the net proceeds
of this offering will be invested principally in short-term, interest-bearing
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We do
not intend to declare or pay any dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
10
<PAGE>
DILUTION
As of March 31, 1999, our net tangible book value was $965,000 or
approximately $0.28 per share of common stock. Net tangible book value per share
represents the amount of our total tangible assets less total liabilities
divided by the number of shares of common stock. After giving effect to the sale
of the 2,000,000 shares of common stock offered hereby and after deducting the
underwriting discount and estimated offering expenses payable by us, the net
tangible book value, as adjusted, would have been approximately $14,910,000 or
$2.75 per share. This represents an immediate increase in net tangible book
value of $2.47 per share of common stock to existing stockholders and an
immediate dilution of $5.25 per share or 66% to new investors. The following
table illustrates this per share dilution
<TABLE>
<S> <C> <C>
Initial public offering price................................................. $ 8.00
Net tangible book value before this offering.................................. $ 0.28
Increase per share attributable to this offering.............................. 2.47
---------
Adjusted net tangible book value per share after this offering................ 2.75
---------
Dilution per share to new investors........................................... $ 5.25
---------
---------
</TABLE>
Assuming the exercise in full of the over allotment option, our net tangible
book value at March 31, 1999 would have been approximately $2.99 per share,
representing an immediate increase in net tangible book value of $2.71 per share
to our existing stockholders and an immediate dilution in net tangible book
value of $5.01 per share to new investors.
The following table summarizes the number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share provided by existing stockholders and by investors purchasing shares of
common stock in this offering.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- --------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 3,414,000 63.1% $ 1,687,000 9.5% $ 0.49
New Investors........................................ 2,000,000 36.9% 16,000,000 90.5% $ 8.00
---------- --------- ------------- ---------
Total............................................ 5,414,000 100.0% $ 17,687,000 100.0%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
This discussion and table assumes no exercise of other outstanding stock
options or warrants. As of the date of this prospectus, there are options
outstanding to purchase a total of 1,243,750 shares of common stock at a
weighted average exercise price of $1.09 per share. To the extent these options
are exercised, there will be further dilution to new investors.
11
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of March 31,
1999. Our as adjusted capitalization reflects the sale by us of the common stock
offered hereby less underwriting discounts and estimated offering expenses:
<TABLE>
<CAPTION>
MARCH 31, 1999
---------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
------------ -------------
Noncurrent notes payable-stockholders................................................ $ 75,000 $ 75,000
Stockholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares authorized, none issued............ -- --
Common stock, $.01 par value: 10,000,000 shares authorized; 3,414,000 shares issued
and outstanding, actual; 5,414,000 shares issued and outstanding, as adjusted...... 34,000 54,000
Additional paid-in capital........................................................... 1,653,000 15,533,000
Accumulated deficit.................................................................. (677,000) (677,000)
------------ -------------
Total stockholders' equity....................................................... 1,010,000 14,910,000
------------ -------------
Total capitalization........................................................... $ 1,085,000 $ 14,985,000
------------ -------------
------------ -------------
</TABLE>
Our stated number of shares of common stock outstanding does not include
200,000 shares of common stock reserved for issuance upon exercise of the
representative's warrants and 1,243,750 shares of common stock issuable upon
exercise of outstanding options at a weighted average exercise price of $1.09
per share.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected statements of operations data for the years ended December 31,
1997 and December 31, 1998 and for the three-month periods ended March 31, 1998
and March 31, 1999 and the selected balance sheet data as of December 31, 1998
and March 31, 1999 have been derived from the audited and unaudited financial
statements included elsewhere in this prospectus. Results for the three months
ended March 31, 1999 are not necessarily indicative of those for the full fiscal
year. The data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and accompanying notes thereto appearing elsewhere in
the prospectus. We have historically been treated as an S Corporation and,
accordingly, have not been subject to federal or state income taxes. Subsequent
to December 31, 1998, we filed an election to be taxed as a C corporation
effective January 1, 1999.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994* 1995* 1996* 1997* 1998* 1998* 1999
--------- --------- --------- --------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ -- $ 292,000 $ 321,000 $ 733,000 $3,324,000 $ 411,000 $1,015,000
Cost of revenues.............. -- 302,000 333,000 269,000 1,633,000 110,000 606,000
--------- --------- --------- --------- ---------- ---------- ----------
Gross profit.................. -- (10,000) (12,000) 464,000 1,691,000 301,000 409,000
--------- --------- --------- --------- ---------- ---------- ----------
Operating costs and expenses:
Selling, general and
administrative............ 129,000 312,000 574,000 460,000 1,083,000 219,000 392,000
Research and development.... 3,000 197,000 9,000 22,000 64,000 5,000 --
--------- --------- --------- --------- ---------- ---------- ----------
Total operating costs and
expenses.................... 132,000 509,000 583,000 482,000 1,147,000 224,000 392,000
--------- --------- --------- --------- ---------- ---------- ----------
Income (loss) from
operations.................. (132,000) (519,000) (595,000) (18,000) 544,000 77,000 17,000
Interest income (expense),
net......................... 6,000 10,000 (19,000) (23,000) (6,000) (13,000)
--------- --------- --------- --------- ---------- ---------- ----------
Net income (loss) before
income taxes................ (132,000) (513,000) (585,000) (37,000) 521,000 71,000 4,000
Income tax provision
(benefit)................... -- -- -- (112,000) 45,000 6,000 2,000
--------- --------- --------- --------- ---------- ---------- ----------
Net income
(loss)--historical.......... $(132,000) $(513,000) $(585,000) $ 75,000 $ 476,000 $ 65,000 $ 2,000
--------- --------- --------- --------- ---------- ---------- ----------
--------- --------- --------- --------- ---------- ---------- ----------
Historical net income per
share--basic and diluted.... $.00
Weighted average common shares
outstanding
--basic..................... 3,414,000
--diluted................... 3,947,000
</TABLE>
- ------------------------------
* Pro forma net income (loss), which provides for federal and state income
taxes which would have been provided had we been a C corporation for the
years ended December 31, 1994, December 31, 1995, December 31, 1996,
December 31, 1997 and December 31, 1998 and the three months ended March 31,
1998 was $(132,000), $(513,000), $(585,000), $543,000, $284,000 and $39,000,
respectively. Pro forma net income for 1997 includes a $468,000 pro forma
income tax benefit that will not be available to offset C corporation income
in future years. Pro forma net income (loss) per share, basic and diluted,
for these periods was $(.12), $(.24), $(.20), $.17, $.08 and $.01,
respectively. The weighted average common shares outstanding was 1,091,000,
basic and diluted, for the year ended December 31, 1994, 2,103,000, basic
and diluted, for the year ended December 31, 1995, 2,864,000, basic and
diluted, for the year ended December 31, 1996, 3,154,000, basic and diluted,
for the year ended December 31, 1997, 3,414,000, basic, and 3,779,000,
diluted, for the year ended December 31, 1998 and 3,414,000, basic, and
3,526,000, diluted, for the three months ended March 31, 1998.
13
<PAGE>
The adjusted balance sheet data as of March 31, 1999 reflects the sale of
2,000,000 shares of common stock offered hereby after deducting the underwriting
commission and other offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, MARCH 31, 1999
------------------------------------------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AS
1994 1995 1996 1997 1998 ACTUAL ADJUSTED
--------- --------- --------- --------- ---------- ---------- -----------
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 380,000 $ 503,000 $ 154,000 $ 406,000 $1,130,000 $1,432,000 $15,358,000
Working capital........................... 299,000 414,000 75,000 644,000 1,098,000 941,000 14,886,000
Total assets.............................. 408,000 540,000 301,000 764,000 2,102,000 2,467,000 16,348,000
Total liabilities......................... 81,000 89,000 234,000 268,000 1,094,000 1,457,000 1,438,000
Total stockholders' equity................ 328,000 451,000 67,000 496,000 1,008,000 1,010,000 14,910,000
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of I.D. Systems should be read in conjunction with I.D. Systems'
financial statements and notes thereto and the other financial information
included elsewhere in this prospectus. In addition to historical information,
this Management Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this prospectus contain forward-looking
information that involve risks and uncertainties. I.D. Systems' actual results
could differ materially from those anticipated by such forward-looking
information as a result of certain factors, including but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
We were incorporated in August 1993 and began to derive revenues from our
initial line of products in March 1995. Revenues are generated from design and
engineering fees as well as sales of our system. Our fees relate to the time
expended and expertise involved in customizing our system to the needs of each
individual customer. In the future, we intend to generate additional revenues by
selling software and hardware upgrades as well as on-going maintenance and
support contracts to our existing customers. We anticipate that a greater
portion of future revenues will be comprised of sales of our system.
Our initial contract was entered into with the U.S. Postal Service to
develop and install a pilot system in approximately 40 postal facilities in the
Washington D.C. metropolitan area. In 1997, we entered into a follow-on
agreement with the United States Postal Service which provides for the wireless
monitoring and tracking of mail in approximately 300 postal facilities. The
revenues expected from this agreement are approximately $6.7 million of which
$3.7 million and $4.8 million had been recognized as of December 31, 1998 and
March 31, 1999. In 1998, we obtained an order from Federal Express Corporation
and orders from other companies for an integrated tracking and monitoring system
for forklift trucks and other similar vehicles. We also entered into an
agreement with Avis Rent A Car System, Inc., which provides for the pilot sale
of a system which automates the car rental and return process.
The U.S. Postal Service accounted for approximately 99%, 95% and 100% of our
revenues in 1997, 1998 and the three months ended March 31, 1999. These
contracts provide for revenue relating to labor, materials and delivery of
goods. Our policy is to recognize revenues when time and material charges are
incurred, services are performed or goods are delivered in accordance with
conditions of related contracts. Amounts billed to customers that do not meet
the conditions of our revenue recognition policy are recorded as deferred
revenue until such conditions are met.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
information expressed as a percentage of revenue:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
-------------------------------- ------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1998 1999
--------------- --------------- ----------- -----------
Revenues..................................................... 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................................. 36.7 49.1 26.8 59.7
----- ----- ----- -----
Gross profit................................................. 63.3 50.9 73.2 40.3
Selling, general and administrative (expenses)............... 62.8 32.6 53.3 38.6
Research and development..................................... 3.0 1.9 1.2 0.0
----- ----- ----- -----
Income (loss) from operations................................ (2.5) 16.4 18.7 1.7
(Net) Interest expense....................................... (2.6) (0.7) 1.4 1.3
----- ----- ----- -----
Income before income tax provision (benefit)................. (5.1) 15.7 17.3 0.4
Income tax expense (benefit)................................. (15.3) 1.4 1.5 0.2
----- ----- ----- -----
Net income................................................... 10.2% 14.3% 15.8% 0.2%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Revenues increased to $1,015,000 in the three months ended March
31, 1999 from $411,000 in the three months ended March 31, 1998. This increase
was primarily attributable to an increase in the amount of work that was
performed by us under our contract with the United States Postal Service.
COST OF REVENUES. Cost of revenues increased to $606,000 in the three
months ended March 31, 1999 from $110,000 in the three months ended March 31,
1998. As a percentage of revenues, cost of revenues increased to 59.7% in the
three months ended March 31, 1999 from 26.8% in the three months ended March 31,
1998. This increase was primarily attributable to an increase in the portion of
revenues attributable to materials in the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998 which typically have lower
margins than revenues related to labor. Gross profit increased to $409,000 in
the three months ended March 31, 1999 from $301,000 in the three months ended
March 31, 1998. As a percentage of revenues, gross profit decreased to 40.3% in
the three months ended March 31, 1999 from 73.2% in the three months ended March
31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $392,000 in the three months ended March
31, 1999 from $219,000 in the three months ended March 31, 1998. Of this
increase, $156,000 was attributable to an increase in salaries and recruiting
fees resulting from an increase in personnel hired to accommodate our growth and
from salary increases. As a percentage of revenues, selling, general and
administrative expenses decreased to 38.6% in the three months ended March 31,
1999 from 53.3% in the three months ended March 31, 1998 due to operating
efficiencies.
RESEARCH AND DEVELOPMENT EXPENSES. During the three months ended March 31,
1998, we incurred $5,000 of expenses relating to the purchase of materials used
for research and development, which were not related to customer projects. We
did not incur any such expense during the three months ended March 31, 1999.
INTEREST EXPENSE (NET). Interest expense (net) increased to $13,000 in the
three months ended March 31, 1999 from $6,000 in the three months ended March
31, 1998. This increase was attributable to accelerated amortization of the debt
discount due to payment of the stockholder loans, offset by an
16
<PAGE>
increase in interest income earned in the three months ended March 31, 1999 on
larger average cash balances.
INCOME TAXES. Income tax expense was $2,000 in the three months ended March
31, 1999 as compared to $6,000 in the three months ended March 31, 1998 as a
result of less pre-tax income for the three months ended March 31, 1999.
Beginning January 1, 1999, we became subject to federal and state income taxes
as a C corporation.
NET INCOME. Net income was $2,000 in the three months ended March 31, 1999
as compared to $65,000 in the three month period ended March 31, 1998. This
decrease was due primarily to the reasons described above.
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES. Revenues increased to $3,324,000 in fiscal 1998 from $733,000 in
fiscal 1997. These increases were primarily attributable to a follow on contract
entered into with the United States Postal Service.
COST OF REVENUES. Cost of revenues increased to $1,633,000 in fiscal 1998
from $269,000 in fiscal 1997. As a percentage of revenues, cost of revenues
increased to 49.1% in fiscal 1998 from 36.7% in fiscal 1997. This increase was
primarily attributable to an increase in the portion of revenues attributable to
materials in fiscal 1998 as compared to fiscal 1997 which typically have lower
margins than revenues related to labor. Gross profit increased to $1,691,000 in
fiscal 1998 from $464,000 in fiscal 1997. As a percentage of revenues, gross
profit decreased to 50.9% in fiscal 1998 from 63.3% in fiscal 1997. Our gross
margins decreased in 1998 from 1997 with respect to the contract entered into
with the United States Postal Service and we expect that our gross margins will
continue to decrease with respect to this agreement. We are uncertain whether
our margins will decrease with respect to our contracts with our other customers
due to our limited operating history.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 135% to $1,083,000 in fiscal 1998 from
$460,000 in fiscal 1997. This increase is principally due to the growth in our
operations, including, $255,000 attributable to an increase in salaries
resulting from an increase in personnel hired during the year to accommodate our
growth and salary increases and $91,000 attributable to rent. As a percentage of
revenues, selling, general and administrative expenses decreased from to 32.6%
in fiscal 1998 62.8% in fiscal 1997 due to operating efficiencies.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $64,000 in fiscal 1998 from $22,000 in fiscal 1997. This increase
was attributable to increased research and development costs related to
developing new applications for our products.
INTEREST EXPENSE (NET). Interest expense (net) increased to $23,000 in
fiscal 1998 from $19,000 in fiscal 1997. This increase was attributable to
interest expense incurred in fiscal 1998 on larger average balances of
stockholder notes and capital lease obligations, offset by an increase in
interest income earned in fiscal 1998 on larger average cash balances.
INCOME TAXES. Local income tax expense was $45,000 in fiscal 1998 as
compared to a $112,000 income tax benefit in fiscal 1997. The 1997 amount
reflects the recognition of a benefit from net operating loss carry forwards
generated through December 1997.
NET INCOME. Net income increased to $476,000 in fiscal 1998 from $75,000 in
fiscal 1997. This increase was due primarily to the reasons described above.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had $1,432,000 of cash and cash equivalents and
$941,000 of working capital as compared to $1,130,000 and $1,098,000,
respectively at December 31, 1998.
Net cash provided by operating activities was $856,000 in 1998 as compared
to $211,000 used in operating activities in 1997. Net cash provided by operating
activities in 1998 was primarily due to net income of $476,000, a $266,000
increase in accounts payable and accrued expenses and a $545,000 increase in
deferred revenue, partially offset by a $601,000 increase in accounts
receivable. The use of cash in operating activities in 1997 was primarily due to
a $114,000 decrease in accounts payable and a $75,000 increase in accounts
receivable.
Cash used in investing activities in 1998 was $76,000 as compared to $31,000
in 1997. The use of cash in investing activities in 1998 and 1997 reflect
capital expenditures for fixed assets.
Net cash used in financing activities was $56,000 in 1998 as compared to
$494,000 provided by financing activities in 1997. Cash used in financing
activities in 1998 is primarily due to the repayment of stockholder loans in the
amount of $50,000. Cash provided by financing activities in 1997 resulted
primarily from $200,000 of proceeds from the issuance of common stock and
promissory notes and $274,000 of proceeds from the issuance of common stock in
connection with the exercise of warrants.
Net cash provided by operating activities was $482,000 for the three months
ended March 31, 1999 as compared to $7,000 for the three months ended March 31,
1998. Net cash provided by operating activities in the three months ended March
31, 1999 was primarily due to an increase in deferred revenue of $494,000, and a
decrease in accounts receivable of $94,000, partially offset by an increase in
prepaid expenses and other assets of $103,000.
Cash used in investing activities in the three months ended March 31, 1999
was $49,000 as compared to $29,000 in the three months ended March 31, 1998.
This increase reflects capital expenditures for fixed assets.
Net cash used in financing activities was $131,000 in the three months ended
March 31, 1999 as compared to $2,000 in the three months ended March 31, 1998.
Cash used in financing activities in the three months ended March 31, 1999
resulted primarily from a $106,000 repayment of notes payable to stockholders.
We believe our operations have not been and, in the foreseeable future, will
not be materially adversely affected by inflation or changing prices.
RECENTLY ISSUED FINANCIAL STANDARDS
We believe that recently issued financial standards will not have a
significant impact on our results of operations, financial position or cash
flows.
YEAR 2000 RISK
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
18
<PAGE>
STATE OF READINESS
We have made a preliminary assessment of the Year 2000 readiness of our
products and operating, financial and administrative systems, including the
hardware and software that comprise our system. Our assessment plan consists of:
- assessing non-information technology such as material hardware, software
and services that are both directly and indirectly related to the delivery
of our system to our users;
- assessing information technology such as operating, financial and
administrative systems;
- assessing repair or replacement requirements;
- implementing repair or replacement; and
- creating contingency plans in the event of Year 2000 failures.
The software which has been developed, tested and currently comprises our
system and which is characterized as non-information technology systems is Year
2000 compliant. Our Year 2000 compliance process is complete with respect to
systems which have been developed. We are conducting testing procedures for all
other information and non-information software and systems which we are in the
process of developing and which we believe might be affected by Year 2000
issues. Since third parties developed and currently support many of the
operating, financial and administrative systems that we use, which are
characterized as information technology systems, steps will be taken to ensure
that these third-party systems are Year 2000 compliant. We will also take steps
to ensure that our sub-contractors are Year 2000 compliant. We plan to confirm
this compliance through a combination of the representation by these third
parties of their products' Year 2000 compliance, as well as specific testing of
these systems. We plan to complete this process prior to the end of the third
quarter of fiscal 1999. Until such testing is completed we will not be able to
completely evaluate whether our systems will need to be revised or replaced. We
have the ability to use numerous third party system developers and supporters
and numerous sub-contractors and our developers, supporters and sub-contractors
may be replaced without a material adverse effect on our operations.
Accordingly, we do not consider any particular third party relationships to be
material to our operations.
COSTS
To date, we have incurred immaterial costs on Year 2000 compliance issues.
Most of our expenses are related to, and are expected to continue to be related
to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. We anticipate
that our expenses shall continue to be immaterial. Such expenses, if higher than
anticipated, could have a material adverse effect on our business, results of
operations and financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our system that would have a material adverse effect on our business, results of
operations and financial condition. There can be no assurance that we will not
discover Year 2000 compliance problems in our system that will require
substantial revision. In addition there can be no assurance that third-party
software, hardware or services on which our system will operate will not need to
be revised or replaced, all of which could be time-consuming and expensive. Our
failure to fix or replace our internally developed propriety software or
third-party software, hardware or services on a timely basis could, in the worst
case scenario, result in lost revenues, increased operating costs or the loss of
customers and other business interruptions, such as delays in delivering
products to our customers due to our sub-contractors' delay in supplying us with
components, any of which could have a material adverse effect on our business,
financial condition and results of operations. Moreover, the failure of our
customers to fix or replace their software or hardware on a timely basis could
result in an indirect adverse effect on our business, financial condition and
results of operation.
19
<PAGE>
We do not as of yet have a contingency plan for Year 2000 issues but plan to
create one prior to the end of the third quarter of fiscal 1999 if we determine
pursuant to our evaluations that such plan is necessary. We may consider
contracting with other system developers, supporters and sub-contractors which
are Year 2000 compliant if we determine that our existing developers, supporters
and sub-contractors are not compliant.
In addition, there can be no assurance that governmental agencies, utility
companies, third-party service providers and others outside of our control will
be Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could result in a systematic failure beyond our control such as a transportation
systems, telecommunications or electrical failure, which could also prevent us
from delivering our system to our customers or decrease the commercial activity
of our customers, which could have a material adverse effect on our business,
financial condition and results of operations.
20
<PAGE>
BUSINESS
GENERAL
We design, develop, and produce a wireless monitoring and tracking system
that uses radio frequency technology. Our system can monitor, track, analyze,
and control the movement of virtually any object, including vehicles, equipment
and packages. Our products enable users to improve operating efficiencies,
reduce costs, and increase profits. Our principal customer to date has been the
United States Postal Service. Federal Express Corporation, Avis Rent A Car
System, Inc., Ford Motor Corporation, Hallmark Cards, Inc., QVC Inc. and World
Color Press, Inc. have also recently placed orders for our system. For the year
ended December 31, 1998, sales were approximately $3.3 million resulting in
income from operations of approximately $500,000.
INDUSTRY OVERVIEW
GROWTH OF THE AUTOMATIC DATA COLLECTION MARKET
Our products are targeted to the automatic data collection market. This
market refers to companies that use bar-coding equipment to electronically
identify and track objects. Bar-coding technology poses numerous limitations
including line-of-sight-only capability, required human intervention and
inability to monitor and control the item to which a bar-code is affixed.
CONVENTIONAL RADIO FREQUENCY IDENTIFICATION SYSTEMS
Radio frequency identification has been developed to address the problems
presented by bar-coding technology. The basic components of any radio frequency
identification system are tags and readers. Each tag contains a miniature
receiver/transmitter and an antenna, controlled by a computer chip. The reader
is a more sophisticated microprocessor controlled transmitter and receiver. Tags
typically contain information uniquely identifying the persons or objects to
which they are attached. Tags transmit data to a central computer, which decides
on a subsequent course of action, including opening a door, sounding an alarm,
debiting an account, sending routing instructions or similar activities.
Radio frequency has many advantages over bar-coding systems, including
greater range and accuracy, reduced line-of-sight requirements, rapid
identification, and resistance to environmental influences such as dirt, rain
and extreme temperatures. Frost & Sullivan has reported that in 1985, revenues
in the United States for the radio frequency identification portion of the
automatic data collection market were $7.5 million. According to Venture
Development Corp., in 1997, total global revenues reached $540 million and are
expected to grow to $1.6 billion by 2002.
Current radio frequency identification products are typically divided into
two categories: read-only systems and read-write systems.
- READ-ONLY SYSTEMS. Read-only products were the first wireless automatic
identification products and were designed to, in certain circumstances,
replace bar-code technology. By using wireless identification tags, these
products reduce line-of-sight reading requirements, increase the amount of
data that can be transferred and allow for accurate readings in harsh
environments and on moving objects. These systems read, store, and
maintain such information in a database in a centralized computer. We
believe that read-only systems have not gained widespread acceptance
because of the large costs associated with their use as compared to the
benefits they provide.
- READ-WRITE SYSTEMS. Read-write systems were developed in order to solve
some of the limitations presented by read-only systems. Read-write
products store specific information directly on the tags, eliminating the
need to access a database in a centralized computer. However, a central
controlling computer or mainframe is needed to interpret the information
received from the tags
21
<PAGE>
and manage the decisions based on that information. The continued need for
central computer control results in systems that are relatively expensive.
I.D. SYSTEMS SOLUTION AND OUR BENEFITS
We have improved the conventional read-write system by providing processing
power, memory and data storage into our asset communicators, or tags, and system
monitors, or readers. As a result, our system does not require a controlling
central or mainframe computer to perform data communication and analysis
functions. This distinguishes our system from competing systems.
The benefits and advantages of our system include the following:
- INCREASED FLEXIBILITY. Our system is capable of meeting each customer's
requirements through low-cost customization. Due to our system's
flexibility, we can readily market our product to a diverse number of
industries by modifying the system software as well as the size and shape
of our devices.
- LOW COST. By providing processing power and memory into our system
components, we eliminate the need for customers to purchase and install a
dedicated central or mainframe computer and associated software and
required communication links. As a result, we believe our system costs
substantially less than competitive systems.
- HIGHLY RELIABLE. Our system eliminates system-wide failures that result
from "crashing" at the mainframe central station, or broken communication
links between a network of conventional readers and the central
controlling computer.
- HIGHLY FUNCTIONAL. By providing computer capabilities into our asset
communicators and system monitors, our system can monitor and track the
object to which it is attached as well as control various peripheral
devices, such as magnetic card readers, displays, and keypads.
STRATEGY
Our objective is to be the leading provider of wireless monitoring and
tracking systems. Key elements of our strategy are as follows:
EXPAND PRODUCT CAPABILITIES AND APPLICATIONS. We intend to continue to
expand our product's capabilities and applications. We believe that the
fundamental architecture of our products can be customized to support additional
features and functions which will broaden our customer base. As part of this
strategy, we have devoted and will continue to commit significant resources to
develop Application Specific Integrated Circuits that decrease the size of our
asset communicators as well as increase the functionality of our system.
STRENGTHEN SALES AND MARKETING EFFORTS. We intend to capitalize on the
growth in demand for automatic identification by continuing to market and
support our products and services. We also plan to strengthen our marketing,
sales and customer support efforts, including internet advertising, as the size
of our market opportunity and customer base increases. We will continue to
target large corporations and government agencies as well as develop strategic
relationships with system integrators and distributors in each of our target
markets.
DEVELOP ADDITIONAL REVENUE SOURCES. We intend to generate significant
revenues beyond the initial sale and installation of our base systems. We expect
to sell software and hardware upgrades as well as ongoing maintenance and
support contracts to our existing customers.
22
<PAGE>
OUR SYSTEM
The main components of our wireless monitoring and tracking system are
miniature computers called asset communicators that attach to the objects being
tracked or monitored. Each asset communicator has its own unique identification
code. Once attached to its assigned item, an asset communicator provides for the
two-way transfer of information using radio transmissions to and from
strategically-located monitoring devices called system monitors. Such two-way
communication is accomplished without a central or controlling mainframe
computer network. Our asset communicators can be tailored to fit the dimension
and functions of various objects. This flexibility allows our system to be used
in a wide variety of applications. We have obtained a patent for our system's
architecture.
Our system includes operating system software that runs on an existing
mainframe or personal computer to allow the system user to collect, manipulate
and display data from system monitors and asset communicators. This software
also enables data to be exchanged between existing computer databases and the
system monitor network. Customers with multiple facilities can access the data
for each facility over the Internet.
We believe that one of the more significant features of our system is that
the asset communicator is a mini-computer, capable of being programmed. Similar
to a personal computer, the software can be customized for several different
applications by changing its program. For example, the United States Postal
Service may elect to use the same asset communicator and system monitor hardware
to track mail as Federal Express to track vehicles. The difference lies in the
software that controls when, how, what and to whom each asset communicator
communicates, including storage and analysis. Each asset communicator and system
monitor is capable of controlling other devices such as a keypads, displays,
locks, or thermometers. This flexibility will allow our products to meet the
requirements of a wide range of markets while minimizing additional hardware
design and development costs.
OUR INITIAL TARGET MARKETS
We intend to emphasize our system's ability to adapt to the individual needs
of customers in a broad range of industries and applications. By modifying our
software without modifying our core technology, we can easily and
cost-effectively customize our system for a wide variety of uses. Initially, we
will target the following market segments:
- shipping and delivery companies;
- companies with fleets of forklift trucks and other similar vehicles;
- car rental companies; and
- railroad and transportation companies.
SHIPPING AND DELIVERY COMPANIES
Our system can be used by postal services and private sector shipping
companies to track packages as they travel through key points in distribution
centers. In these facilities, our system can be used to:
- analyze the speed and efficiency of package handling operations;
- identify bottlenecks in package handling operations;
- indicate where packages become misrouted; and
- locate misrouted packages.
The United States Postal Service inserts our asset communicators into
standard business envelopes which are tracked by system monitors throughout the
mail collection and distribution process. The
23
<PAGE>
United States Postal Service uses the data collected by our system to analyze
performance and highlight problem areas in the processing of mail.
COMPANIES WITH FLEETS OF FORKLIFTS AND OTHER SIMILAR VEHICLES
A wide variety of businesses can use our system to manage and monitor fleet
operations, such as forklift trucks and other similar vehicles in order to
become more efficient and provide security.
During a work shift, the system continually monitors and tracks each
vehicle. The system:
- continually updates each vehicle's location;
- enables real-time, two-way communication with individual vehicle
operators;
- provides maintenance schedules;
- warns of mechanical problems;
- tracks each vehicle's use, including engine hours, battery charge, time
spent in motion and time spent idle;
- requires an operator to enter a PIN authorization code or swipe a security
card to secure the vehicle; and
- requires the operator to conduct an Occupational Safety and Health
Administration checklist.
Our system provides benefits after the shift has completed. The system can
provide an evaluation of vehicle condition after the trip is completed, log the
operator off the vehicle without paperwork or direct human supervision, and shut
off the vehicle automatically. A manager can evaluate data in real-time or study
historical information stored in the system's databases.
We have received orders and delivered systems to the Federal Express
Corporation to monitor certain of their forklift trucks and other similar
vehicles. We have also received orders and delivered equipment to the United
States Postal Service's New Jersey International and Bulk Mail Center and we
have received orders from the United States Postal Service's Springfield Bulk
Mail Center, to monitor and control their forklift trucks and other similar
vehicles. We have also received orders from Ford Motor Corporation, QVC, Inc.,
Hallmark Cards, Inc. and World Color Press, Inc. for systems to monitor their
forklift trucks and other similar vehicles.
CAR RENTAL COMPANIES
Car rental companies can use our system for security, inventory control, and
value added services, as well as to improve overall operations. By attaching
asset communicators to rental cars, car rental companies can obtain real-time
information regarding all available rental cars at any site. This information
may include:
- number of available rental cars;
- vehicle identification numbers, make, model and year;
- fuel level and mileage;
- service and maintenance history; and
- rental history.
Our system also provides car rental companies with an automated and
efficient vehicle check-in and checkout process. We believe that car rental
companies desire to offer value added services and that our system provides
competitive advantages to rental car companies. Since our system is fully
automated, we believe that it offers a major reduction in the time and
inconvenience typically
24
<PAGE>
associated with the pick-up and return of a rental car. Also, our system offers
rental car companies the opportunity to reduce their staffs because we believe
that fewer service representatives will be required at each location at which
our system is installed. We have entered into an agreement with Avis to install
and test a pilot system to track their rental vehicles.
RAILCAR AND TRANSPORTATION COMPANIES
Conventional radio frequency identification tags used in this industry are
typical tags that are "read-only." As a result, we believe that the railcar and
container industry will benefit from the advantages of a wireless monitoring and
tracking system. We believe that our system will allow users in this industry
to:
- cost-effectively locate specific railcars and containers anywhere in the
world;
- monitor a railcar and containers' environment and pressure;
- keep an accurate inventory of containers at each depot;
- prevent theft, misuse or accidental use of containers as they arrive;
- ensure that railcars and containers are inspected on schedule; and
- keep an accurate history of the use of each railcar and container.
CURRENT CUSTOMERS
U.S. POSTAL SERVICE
The U.S. Postal Service is using our system to track the progress of letters
as they move into and out of selected postal facilities. The U.S. Postal Service
inserts our asset communicators into standard business envelopes which are
tracked by system monitors throughout the mail collection and distribution
process. The data collected provides evidence of performance and highlights
problem areas in the processing of mail. Our system also allows the U.S. Postal
Service to identify and eliminate bottlenecks within their facilities, which can
help improve the efficiency of the mail service. The initial program lasted
through the end of December 1996. In August 1997 the U.S. Postal Service entered
into an agreement with us to place our system in approximately 300 facilities by
the end of 1999. This agreement expires in September 2000.
We have received orders and delivered equipment to the United States Postal
Service's New Jersey International and Bulk Mail Center and we have received
orders from the United States Postal Service's Springfield Bulk Mail Center, to
track and control their forklift trucks and other similar vehicles. Our system
provides information as to each lift truck's use, including the time spent in
motion and time spent idle.
FEDERAL EXPRESS CORPORATION
We have received orders from and delivered equipment to Federal Express for
the installation of our system in certain Federal Express vehicles. Federal
Express may use this equipment to provide information on the usage of such
vehicles. The term of our agreement with Federal Express expires on May 31, 2002
but may be terminated earlier by either party upon 30 days prior written notice.
AVIS RENT A CAR SYSTEM, INC.
In October 1998, we entered into an agreement with Avis Rent A Car System,
Inc. for a pilot system. Avis will test our system in a select location to
determine whether our system will effectively monitor and track their rental
cars and automate their car rental and return process. By attaching asset
communicators to rental cars, Avis will be able to obtain real-time information
on all available cars,
25
<PAGE>
including fuel, mileage, service and maintenance history. Our system can also
provide Avis with an automated and efficient car check-in and check-out process.
If this test is successful, Avis may purchase our system for its entire U.S.
fleet. If this occurs, we have agreed not to provide our system to another
rental car company for fifteen months.
SALES AND MARKETING
As of the date of this prospectus, our team consists of employees who market
our system directly to large corporations and government agencies and by
attending trade shows. After this offering, we will expand our national sales
and marketing team.
In April 1999, we were awarded a U.S. General Services Administration
contract. The award of this contract enables any government agency to purchase
our products on an off-the-shelf basis, without competitive bidding for a period
of five years. We believe that this contract provides significant sales
opportunities with other government agencies.
We plan to add features to our website to introduce prospective customers to
our system and its benefits. Visitors to our website will be able to compare
their vehicle performance to industry averages, "test drive" our system, and
forecast their potential return on an investment in our system. We intend to
increase traffic on our website by advertising on other related websites.
MANUFACTURING
The software and hardware components of our products are designed,
integrated and tested at our facilities. We also manufacture initial prototypes
at our facilities. We have arrangements with two subcontractors to produce our
products on an as needed basis. We do not invest in costly production equipment,
employees and facilities that would be required if we were to manufacture our
products in high volume. We have not, however, entered into an agreement
providing for a long-term commitment with these subcontractors to manufacture
our products.
RAW MATERIALS AND SOURCE OF SUPPLY
The principal raw materials we require are electronic components such as
capacitors, resistors, and circuit boards. We obtain all of our raw material
requirements from local distributors and through representatives of various
manufacturers. We have numerous suppliers for each of our raw materials and
believe that such materials are readily available. We have never experienced any
disruption in the supply of any raw material that has had a material impact on
our operations.
RESEARCH AND DEVELOPMENT
We believe that our current products can be readily adapted for use in a
wide variety of markets. To maintain our competitive advantage in the market, we
plan to continue our research and development efforts to:
- EXPAND THE FLEXIBILITY OF OUR PRODUCTS. We intend to concentrate our
software design effort on developing systems for each new customer's
needs. We will, at the same time, attempt to develop "off-the-shelf"
systems to allow for widespread use of our hardware and software.
- REDUCE THE COST AND SIZE OF OUR SYSTEM. Our design objective is to
integrate the asset communicator's electronic components into Application
Specific Integrated Circuits. This will allow us to reduce the size of our
system significantly and permit high volume production. These two
improvements will enable us to reduce the cost of our system. To
accomplish this, we intend to expand our in-house hardware design
capability to design, test, and support the development of this computer
chip.
26
<PAGE>
We spent approximately $22,000 in fiscal 1997, approximately $64,000 in
fiscal 1998 on research and development. No research and development expenses
were incurred in the three months ended March 31, 1999.
COMPETITION
The market for wireless monitoring and tracking systems is relatively new,
constantly evolving and intensely competitive. We expect that competition will
intensify in the near future. Many of our current and potential competitors have
longer operating histories, greater name recognition and significantly greater
financial, technical and marketing resources than us. Our principal competitors
in the development and distribution of wireless monitoring and tracking systems
include: Unova, Inc., Motorola, Inc., Texas Instruments Incorporated, Raytheon
Company, Kasten Chase Applied Research and Micron Communications, Inc. As a
result, such competitors may be able to develop products comparable or superior
to us or adapt more quickly to new technologies or evolving customer
requirements. Competitive factors in this market include:
- the ability to customize technology to a customer's particular use;
- quality and reliability of products and software;
- ease of use and interactive features;
- cost per system; and
- compatibility with the user's existing network components and software
systems.
INTELLECTUAL PROPERTY
We currently have one patent issued in the U.S. relating to our product's
architecture and technology and corresponding applications in selected foreign
countries. The patent and currently pending corresponding foreign applications
may not provide us with any competitive advantage. Many of our current and
potential competitors dedicate substantially greater resources to protection and
enforcement of intellectual property rights, especially patents. If a patent is
issued in the future to a competitor which covers our products, we would need to
either obtain a license or design around the patent. We may not be able to
obtain such a license on acceptable terms, if at all, nor design around the
patent.
We attempt to avoid infringing known proprietary rights of third parties in
our product development efforts. However, we have not conducted and do not
conduct comprehensive patent searches to determine whether we infringe patents
or other proprietary rights held by third parties. In addition, it is difficult
to proceed with certainty in a rapidly evolving technological environment in
which there may be numerous patent applications pending, many of which are
confidential when filed, with regard to similar technologies. If we were to
discover that our products violate third-party proprietary rights, we may not be
able to:
- obtain licenses to continue offering such products without substantial
reengineering;
- reengineer our products successfully;
- obtain licenses on commercially reasonable terms, if at all; or
- litigate an alleged infringement successfully or settle without
substantial expense and damage awards.
Any claims against us relating to the infringement of third-party
proprietary rights, even if without merit, could result in our spending
significant financial and managerial resources or in injunctions
27
<PAGE>
preventing us from distributing certain products. Such claims could materially
adversely affect our business, financial condition and results of operations.
Our software products are susceptible to unauthorized copying and uses that
may go undetected, and policing such unauthorized use is difficult. In general,
our efforts to protect our intellectual property rights through patent,
copyright, trademark and trade secret laws may not be effective to prevent
misappropriation of our technology, or to prevent the development and design by
others of products or technologies similar to or competitive with those
developed by us. Our failure or inability to protect our proprietary rights
could materially adversely affect our business, financial condition and results
of operations.
EMPLOYEES
We currently have 22 full time employees, of which 15 are engaged in product
development and customization, three in manufacturing, three in marketing, and
one in operations and administration. We expect to hire additional employees
following this offering. None of our employees is represented by a union and we
have not experienced any work stoppages.
PROPERTY
We lease approximately 5,650 square feet of office space in New York, New
York pursuant to a lease that expires on March 31, 2003. The rent is currently
$9,040 per month, excluding any commitment to contribute towards increases in
real estate taxes, and will increase annually to a maximum rental of $10,741 per
month.
LEGAL PROCEEDINGS
We currently are not involved in any legal proceedings.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are our directors, nominees for directors and executive
officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Kenneth S. Ehrman................... 29 President and Director
Jeffrey M. Jagid.................... 30 Chief Operating Officer, General Counsel and Director
N. Bert Loosmore.................... 30 Executive Vice President of Engineering and Director
Michael L. Ehrman................... 26 Executive Vice President of Software Development
Bruce Jagid......................... 59 Treasurer and Director
Martin G. Rosansky.................. 60 Secretary and Director
Lawrence Burstein................... 56 Nominee for Director
Robert J. Reale..................... 53 Nominee for Director
</TABLE>
KENNETH S. EHRMAN is a founder and has been President and director of I.D.
Systems since inception in 1993. He graduated from Stanford University in 1991
with a Bachelor of Science in Industrial Engineering, where he studied
Management, Production and Finance. Upon his graduation, and until the inception
of I.D. Systems in 1993, Mr. Ehrman worked as a production manager with a
Silicon Valley networking company. Mr. Ehrman is the brother of Michael L.
Ehrman.
JEFFREY M. JAGID has been Chief Operating Officer and director of I.D.
Systems, as well as its General Counsel since he joined I.D. Systems in 1995.
Mr. Jagid received a Bachelor of Business Administration from Emory University
in 1991 and a Juris Doctor degree from the Benjamin N. Cardozo School of Law in
1994. Prior to joining I.D. Systems, Mr. Jagid was a corporate litigation
associate at the law firm of Newman Tannenbaum Helpern Syracuse & Hirschtritt
LLP, in New York City. Mr. Jagid is a member of the Bars of the States of New
York and New Jersey. Mr. Jagid is the son of Bruce Jagid.
N. BERT LOOSMORE is a founder and has served as the Executive Vice President
of Engineering and Director of I.D. Systems since inception. Mr. Loosmore
graduated from Stanford University in 1991 with a Bachelor of Science in
Electrical Engineering, where he concentrated on computer hardware and software,
including microprocessor design. From 1991 to 1992, he worked at International
Business Machines, Inc. as a Design and Test Engineer and later as a Production
Engineer. From 1992 until the inception of I.D. Systems in 1993, Mr. Loosmore
was a Production Engineer at a Silicon Valley networking company.
MICHAEL L. EHRMAN has served as the Executive Vice President of Software
Development since he joined I.D. Systems in 1995. Mr. Ehrman served as a
director of I.D. Systems from the date he joined I.D. Systems until April 1999.
Mr. Ehrman graduated from Stanford University in 1994 with a Master of Science
in Engineering Economics Systems as well as a Bachelor of Science in Computer
Systems Engineering. Upon his graduation in 1994, Mr. Ehrman was employed as a
Consultant for Anderson Consulting in New York. Mr. Ehrman is the brother of
Kenneth Ehrman.
BRUCE JAGID is a founder, and has served as Treasurer and a director of I.D.
Systems since inception. Mr. Jagid has served as Chairman of the Board of
Directors of Ultralife Batteries, Inc., a public company devoted to the
development and manufacture of primary and secondary lithium battery systems,
from March 1991 to January 1999, served as Chief Executive Officer from January
1992 to January 1999 and currently serves as a director. Mr. Jagid co-founded
and served as a director of Zatec, Inc., a manufacturer of precision components
from 1991 to 1997, when Zatec was sold. Mr. Jagid also co-founded Coining
Technologies, Inc., a metal stamping company, in 1991 and has since served as
its President and director. Mr. Jagid also serves as a President and director of
Brumar
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Industries, Inc., an investment and consulting company which he co-founded in
1989. Mr. Jagid is also a director of THQ, Inc. Mr. Jagid co-founded Power
Conversion, Inc. in 1970, and was its President until January 1989. Mr. Jagid
received his Bachelor of Science in Mechanical Engineering from the City College
of New York and obtained his masters degree in Mechanical Engineering from
Rensselaer Polytechnic Institute. Mr. Jagid is the father of Jeffrey M. Jagid.
MARTIN G. ROSANSKY is a founder, and has served as Secretary of I.D. Systems
since inception. In March 1991 Mr. Rosansky co-founded and served as the Vice
Chairman of Ultralife Batteries, Inc. Mr. Rosansky co-founded Zatec, Inc. in
1991 which was sold in 1997. Mr. Rosansky currently serves as Chief Operating
Officer and Director of Coining Technologies, Inc., which he co-founded in 1991,
and Brumar Industries, Inc., which he co-founded in 1989. In 1970, Mr. Rosansky
co-founded Power Conversion, Inc., where he was Chairman of the Board, Secretary
and Treasurer from 1970 to January 1989. Mr. Rosansky earned a Bachelor of
Science in Mechanical Engineering from Polytechnic Institute of Brooklyn.
LAWRENCE BURSTEIN has been nominated as a director of I.D. Systems, and is
expected to become a director following the consummation of this offering. Since
March 1996, Mr. Burstein has served as President and director of Unity Venture
Capital Associates, Ltd., a private investment company. From January 1982 to
March 1996, Mr. Burstein was Chairman of the Board and a principal stockholder
of Trinity Capital Corporation, a private investment company. Mr. Burstein is a
director of THQ, Inc., Brazil Fast Food Corp., CAS Medical Systems, Inc., Unity
First Acquisition Corp., Quintel Communications, Inc. and Medical Nutrition Inc.
Mr. Burstein received a Bachelor of Arts in Economics from the University of
Wisconsin and a Bachelor of Law from Columbia Law School.
ROBERT J. REALE has been nominated as a director of I.D. Systems, and is
expected to become a director following the consummation of this offering. Mr.
Reale has served as President and Chief Executive Officer of Montenay
International Corp., a holding company primarily specializing in the design,
construction, operation and maintenance of waste processing and power generation
plants. From 1992 to 1995, Mr. Reale served as President and Chief Executive
Officer of Savoy Environmental, Inc., a company funded by domestic and
international investors for the purpose of acquiring interests in environmental
companies. In 1987, Mr. Reale founded JWP Energy & Environment. From 1972 to
1987, Mr. Reale was employed by International Paper Co. where he was a Vice
President and General Manager of its Kraft Paper Group. Mr. Reale earned a
Bachelor of Science from Hofstra University, a masters degree in Management from
the Polytechnic Institute of Brooklyn and completed the Executive Masters in
Business Administration from Dartmouth's Amos Tuck School of Business.
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. Our
executive officers serve at the discretion of the Board of Directors and until
their successors are duly elected and qualified.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued, for the
fiscal years ended December 31, 1998, for I.D. Systems' President and three most
highly compensated executive officers other than its President, whose salary and
bonus were in excess of $100,000. There is no executive
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<PAGE>
officer, other than those listed on the following table, who was awarded, earned
or paid more than $100,000 for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
COMPENSATION AWARDS($)
-------------------- ------------------------------
<S> <C> <C> <C> <C>
RESTRICTED SECURITIES
STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARD OPTIONS/SARS(#)
- -------------------------------------------------------------- --------- --------- ----------- -----------------
Kenneth S. Ehrman............................................. $ 80,000 $ 40,000 -- --
President
Jeffrey M. Jagid.............................................. $ 80,000 $ 40,000 -- --
Chief Operating Officer and General Counsel
N. Bert Loosmore.............................................. $ 80,000 $ 40,000 -- --
Executive Vice President of Engineering
Michael L. Ehrman............................................. $ 80,000 $ 40,000 -- --
Executive Vice President of Software Development
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted during the year ended
December 31, 1998 to I.D. Systems' President and three most highly compensated
executive officers. No options were exercised by such persons during fiscal
1998.
The following options:
- were granted under I.D. Systems' 1995 Employee Stock Option Plan;
- vest 20% on the first anniversary of the date of grant and an additional
20% each subsequent anniversary from the date of grant; and
- are exercisable at a price which represents the fair market value for the
common stock on the date of grant.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SHARES GRANTED
UNDERLYING TO EMPLOYEES
OPTIONS IN FISCAL YEAR EXERCISE EXPIRATION
NAME GRANTED (%) PRICE ($/SH) DATE
- ----------------------------------------------------- ----------- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
Kenneth S. Ehrman.................................... 56,250 12.9% $ 1.20 September 2008
Jeffrey M. Jagid..................................... 90,625 20.7% $ 1.20 September 2008
N. Bert Loosmore..................................... 56,250 12.9% $ 1.20 September 2008
Michael L. Ehrman.................................... 90,625 20.7% $ 1.20 September 2008
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding options held as
of December 31, 1998 by each of I.D. Systems' President and three most highly
compensated executive officers. No options were exercised by such persons during
fiscal 1998. There was no public trading market for our common
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<PAGE>
stock as of December 31, 1998. The value of unexercised in-the-money options at
fiscal year-end is based on the assumed initial public offering price of $8.00
per share less the exercise price per share.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS OF FISCAL YEAR END IN-THE-MONEY OPTIONS AT
(#) FISCAL YEAR-END($)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kenneth S. Ehrman..................... 47,500 121,250 338,000 834,500
Jeffrey M. Jagid...................... 72,500 205,625 493,000 1,398,250
N. Bert Loosemore..................... 47,500 121,250 338,000 834,500
Michael L. Ehrman..................... 72,500 205,625 514,000 1,412,250
</TABLE>
EMPLOYMENT AGREEMENTS
We have entered into three year employment agreements with each of Kenneth
Ehrman, Jeffrey Jagid, N. Bert Loosmore and Michael Ehrman. Pursuant to the
agreements, Kenneth Ehrman and Jeffrey Jagid are entitled to base salaries of
$108,000 and N. Bert Loosmore and Michael Ehrman are entitled to base salaries
of $96,000. Each employment agreement also provides that the employee is
entitled to a bonus as determined by the board of directors, from time to time,
and options under I.D. Systems' 1999 Stock Option Plan. Each Employment
Agreement provides for a term of three years and is renewable upon mutual
consent.
The employment agreements may be terminated for cause and, in the event of
change in control of I.D. Systems, each employee is entitled to a lump sum
payment equal to the greater of one year's salary or the base salary and
benefits that would have been received by the employee if he had remained
employed by I.D. Systems the remainder of the three year term.
The employment agreements also contain confidentiality and non-competition
provisions prohibiting the employee from competing against I.D. Systems and
disclosing trade secrets and other proprietary information.
1995 EMPLOYEE STOCK OPTION PLAN
In July 1995, the board of directors of I.D. Systems adopted a stock option
plan. This plan authorizes the granting of options to purchase up to an
aggregate of 1,250,000 shares of common stock to its key employees and
consultants. The options are non-qualified stock options. As of the date of this
prospectus, options to purchase 1,243,750 shares of common stock are outstanding
under this plan. Options to purchase 337,500 shares are exercisable at $.80 per
share and options to purchase 906,250 shares are exercisable at $1.20 per share.
The options vest over a period of five years. This plan terminates at the close
of business on July 8, 2005.
1999 STOCK OPTION PLAN
In April 1999, the board of directors and stockholders of I.D. Systems
adopted the 1999 Stock Option Plan, pursuant to which, 812,500 shares of common
stock are reserved for issuance upon the exercise of options. This plan is
designed to serve as an incentive for retaining qualified and competent
employees, directors and consultants.
Our board of directors, or a committee administers this plan and is
authorized, in its discretion, to grant options to all eligible employees of
this plan including officers and directors of, and consultants to, I.D. Systems.
The plan provides for the granting of both incentive stock options and
non-qualified stock options. Options can be granted under this plan on terms and
at prices as determined by the
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<PAGE>
board of directors, or a committee of the board of directors, except that the
exercise price of incentive options will not be less than the fair market value
of common stock on the date of grant. In the case of an incentive stock option
granted to a stockholder who owns more than 10% of the total combined voting
power of all classes of stock of I.D. Systems, the per share exercise proceeds
will not be less than 110% of the fair market value on the date of grant. The
aggregate fair market value, determined on the date of grant, of the shares
covered by incentive stock options granted under the plan that become
exercisable by a grantee for the first time in any calendar year is subject to a
$100,000 limit.
As of the date of this prospectus, we have agreed to grant 35,000 options to
purchase common stock under this plan.
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the 1999 Director
Option Plan. This plan was adopted by the board of directors and approved by the
stockholders in April 1999. This plan will not become effective until the date
of this offering. This plan has a term of ten years, unless terminated sooner by
the board. A total of 300,000 shares of common stock have been reserved for
issuance under this plan.
This plan provides for the automatic grant of 15,000 shares of common stock
to each non-employee director at the time he or she is first elected to the
board of directors. He or she will automatically be granted a subsequent option
to purchase 2,000 shares of common stock on the first day of each fiscal
quarter, if on such date he or she has served on the board for at least six
months. Each option grant under this plan will have a term of 10 years and will
vest on a cumulative monthly basis over a four-year period. The exercise price
of all options will be equal to the fair market value of the common stock on the
date of grant.
Each of the plans provides for vesting to accelerate and become fully vested
in the event of a change of control of I.D. Systems and the options are not
assumed or substituted by a successor competitor.
COMMITTEES OF THE BOARD OF DIRECTORS
We have established a compensation committee which consists of Bruce Jagid
and Martin Rosansky. We intend to establish an audit committee of the Board of
Directors within 90 days after the consummation of this offering which will be
comprised of at least two independent directors.
DIRECTOR COMPENSATION
I.D. Systems reimburses its directors for reasonable travel expenses
incurred in connection with their activities on behalf of I.D. Systems but does
not pay its directors any fees for board participation. Each non-employee
director will automatically be granted 15,000 shares of common stock at the time
he or she is first elected to the board of directors and options to purchase
2,000 shares of common stock on the first day of each fiscal quarter, if on such
day he or she has served on the board for at least six months.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation eliminates the liability of a director of
I.D. Systems for monetary damages for breach of duty as a director, subject to
certain exceptions. Our certificate of incorporation also provides for I.D.
Systems to indemnify each director of I.D. Systems to the fullest extent
permitted by the Delaware General Corporation Law. The foregoing provisions may
reduce the likelihood of derivative litigation against directors and may
discourage or deter stockholders or mange from suing directors for breaches of
their duty of care, even though such an action, if successful, might otherwise
benefit I.D. Systems and its stockholders. We have entered into indemnification
agreements with certain of our directors and officers in connection with their
service as our directors and officers. We have been advised that in the opinion
of the Securities and Exchange Commission such indemnification
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<PAGE>
is against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by us of expenses incurred or paid by our director,
officer or controlling person in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
us is against public policy as expressed in the Securities Act of 1933, as
amended, and will be governed by the final adjudication of such issue.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of common stock held by:
- each person or entity who is known by I.D. Systems to beneficially own
five percent or more of the common stock;
- each director and executive officer of I.D. Systems; and
- all directors and executive officers of I.D. Systems as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
NUMBER OF SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNERS(L) OWNED(2) OFFERING OFFERING
- ------------------------------------------------------------------------ ----------------- ----------- -----------
<S> <C> <C> <C>
Kenneth S. Ehrman....................................................... 531,463(3) 15.4% 9.7%
N. Bert Loosmore........................................................ 548,125(4) 15.8% 10.0%
Bruce Jagid............................................................. 504,700(5) 14.6% 9.3%
Martin G. Rosansky...................................................... 550,538(6) 15.9% 10.1%
Michael Ehrman.......................................................... 154,025(7) 4.4% 2.8%
Jeffrey M. Jagid........................................................ 199,750(8) 5.7% 3.6%
All directors and executive officers as a group (6 persons)............. 2,488,601(9) 66.6% 43.4%
</TABLE>
- ------------------------
(1) Unless otherwise indicated, the address for each named individual or group
is in care of I.D. Systems, Inc., 90 William Street, Suite 402, New York, NY
10038.
(2) Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common
stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days from
the date of this prospectus upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that
are held by such person (but not those held by any other person) and which
are exercisable within 60 days of the date of this prospectus have been
exercised and converted.
(3) Includes 47,500 shares of common stock underlying options granted to Mr.
Ehrman pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(4) Includes 47,500 shares of common stock underlying options granted to Mr.
Loosmore pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(5) Includes 40,000 shares of common stock underlying options granted to Mr.
Jagid pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(6) Includes 40,000 shares of common stock underlying options granted to Mr.
Rosansky pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of this prospectus.
(7) Includes 72,500 shares of common stock underlying options granted to Mr.
Ehrman pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
(8) Includes 72,500 shares of common stock underlying options granted to Mr.
Jagid exercisable within sixty days of this prospectus.
(9) Includes 320,000 shares of common stock underlying options granted to such
individuals pursuant to I.D. Systems' 1995 Employee Stock Option Plan and
exercisable within sixty days of the date of this prospectus.
35
<PAGE>
CERTAIN TRANSACTIONS
In May 1998, we issued a purchase order in the amount of $390,000 to
Ultralife Batteries, Inc., a NASDAQ listed company on whose board of directors
Mr. Bruce Jagid and Mr. Rosansky serve. Mr. Bruce Jagid is our Treasurer and a
director and Mr. Rosansky is our Secretary and a director.
We believe that this transaction was fair and reasonable to us and was on
terms no less favorable than could have been obtained from unaffiliated third
parties. Any such future transactions will be on terms no less favorable to us
than could be obtained from unaffiliated parties and will be approved by our
compensation committee.
36
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 15,000,000 shares of common stock, par value $.01
per share and 5,000,000 shares of preferred stock, par value $.01 per share. As
of the date of this prospectus, we have outstanding 3,414,375 shares of common
stock owned by approximately 36 holders of record.
COMMON STOCK
The holders of the common stock are entitled to one vote for each share held
of record in the election of directors of I.D. Systems and in all other matters
to be voted on by the stockholders. There is no cumulative voting with respect
to the election of directors. As a result, the holders of more than 50 percent
of the shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
- to receive any dividends as may be declared by the board of directors out
of funds legally available for such purpose; and
- in the event of the liquidation, dissolution, or winding up of I.D.
Systems, to share ratably in all assets remaining after payment of
liabilities and after provision has been made for each class of stock, if
any, having preference over the common stock. All of the outstanding
shares of common stock are, and the shares of common stock offered hereby
will be, upon issuance and sale, validly issued, fully paid, and
nonassessable. Holders of common stock have no preemptive right to
subscribe for or purchase additional shares of any class of our capital
stock.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in the certificate of incorporation to provide by resolution
for the issuance of shares of preferred stock, in one or more classes or series,
and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock, is American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
REPORTS TO STOCKHOLDERS
We have agreed, subject to the sale of the shares of common stock in this
offering, that on or before the date of this prospectus, we will register our
common stock under the provisions of Section 12(g) of the Exchange Act of 1934
and we will use our best efforts to maintain registration. Such registration
will require us to comply with periodic reporting, proxy solicitation and
certain other requirements of the Exchange Act.
37
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, we will have 5,414,375 shares of
common stock outstanding, assuming no exercise of outstanding options and
warrants, of which the 2,000,000 shares being offered hereby will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate", which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act.
All of the remaining 3,414,375 shares of common stock currently outstanding
are "restricted securities" or owned by "affiliates", as those terms are defined
in Rule 144, and may not be sold publicly unless they are registered under the
Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. The 3,414,375 restricted shares, will be eligible for sale,
without registration, under Rule 144, 90 days following the date of this
prospectus.
LOCKUP AGREEMENT
Holders of all of the 3,414,375 outstanding shares of common stock have
agreed for a period of 12 months following the date of this prospectus without
the representative's prior written consent not to:
- sell or otherwise dispose of any shares of common stock in any public
market transaction including pursuant to Rule 144; and
- exercise any rights held by such holders to cause us to register any
shares of common stock for sale pursuant to the Securities Act, in each
case, for a period of 12 months following the date of this prospectus,
without the representative's prior written consent.
RULE 144
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
I.D. Systems or persons whose shares are aggregated with an affiliate who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the then outstanding shares of the issuer's common stock; or
- the average weekly trading volume during the four calendar weeks preceding
such sale, provided that certain public information about the issuer as
required by Rule 144 is then available and the seller complies with
certain other requirements.
RULE 144(K)
A person who is not an affiliate, has not been an affiliate within three
months prior to sale, and has beneficially owned the restricted shares for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
NO PRIOR MARKET
Prior to this offering, there has been no market for the common stock and no
prediction can be made as to the effect, if any, that market sales of shares of
common stock or the availability of such shares for sale will have on the market
prices of the common stock prevailing from time to time. Nevertheless, the
possibility that substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices for the common stock and
could impair our ability to raise capital through the sale of its equity
securities.
38
<PAGE>
CERTAIN CHARTER AND BYLAWS PROVISIONS
AND DELAWARE ANTI-TAKEOVER STATUE
I.D. Systems is subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. This section prevents Delaware corporations
from engaging under certain circumstances, in a "business combination", which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder," or a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons, for three years following the date such stockholder became an
"interested stockholder," unless:
- the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors prior to the date the
"interested stockholder" attained such status;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers; or
- on or after the date of the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
I.D. Systems' certificate of incorporation eliminates the right of
stockholders to act by written consent without a meeting and the right of
stockholders to call special meetings of stockholders. The amended and restated
certificate of incorporation and bylaws do not provide for cumulative voting in
the election of directors. The authorization of undesignated preferred stock
makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of I.D. Systems. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of I.D. Systems. The amendment of any of these provisions would
require approval by holders of at least 75% of the outstanding common stock.
39
<PAGE>
UNDERWRITING
I.D. Systems and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. The material
terms of the Underwriting Agreement are set forth below. Subject to the terms
and conditions contained in the Underwriting Agreement, each underwriter has
severally agreed to purchase the number of shares of common stock indicated in
the following table. Gilford Securities Incorporated is the representative of
the underwriters.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Gilford Securities Incorporated............................................ 2,000,000
-----------------
Total.................................................................. 2,000,000
-----------------
-----------------
</TABLE>
The underwriters are committed to purchase all of the shares of common stock
offered by I.D. Systems if any shares of I.D. Systems are purchased.
The underwriters initially will offer the common stock to the public at the
price specified on the cover pages of this prospectus. The underwriters may
allow to some dealers a concession of not more than $ per share of
common stock. The underwriters also may allow, and any other dealers may
reallow, a concession of not more than $ per share of common stock to
some other dealers.
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional 300,000
shares from I.D. Systems to cover such sales at the initial public offering
price less the underwriting discounts and non-accountable expense allowance. If
any shares are purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth
above.
I.D. Systems has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act 1933. I.D. Systems
has agreed to pay to the representative a non-accountable expense allowance
equal to two percent of the gross proceeds derived from the sale of the shares
of common stock underwritten, $25,000 of which has been paid to date.
I.D. Systems has applied to list the common stock on the Nasdaq SmallCap
Market under the symbol IDSY and on the Boston Stock Exchange under the symbol
ID.
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representative has repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
SmallCap Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
40
<PAGE>
I.D. Systems, its directors, officers and stockholders have agreed with the
underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable or exercisable for shares of common stock
during the period from the date of this prospectus continuing through the date
12 months after the date of this prospectus, without the prior written consent
of the representative.
I.D. Systems has agreed to issue and sell to the representative and/or its
designees, for nominal consideration, five year warrants to purchase 200,000
shares of common stock. The representative's warrants are exercisable for a
period of four years commencing one year after the date of this prospectus, at a
price equal to 140% of the initial public offering price of the common stock.
The representative's warrants are restricted from sale, transfer, assignment or
hypothecation for a period of 12 months from the date of this prospectus, except
to officers of the representative. The representative's warrants contain
anti-dilution provisions providing for adjustments of the number of shares of
common stock issuable on exercise and the exercise price upon the occurrence of
some events, including stock dividends, stock splits, mergers, acquisitions and
recapitalization. The representative's warrants grant to the holders of the
warrants and to the holders of the underlying securities the right to register
the securities underlying the representative's warrants.
I.D. Systems has agreed that for three years from the effective date of the
registration statement, the representative may designate one person for election
to the board of directors of I.D. Systems. In the event that the representative
elects not to designate one person for election to the board of directors, then
it may designate one person to attend all meetings of the board of directors for
a period of five years. I.D. Systems has agreed to reimburse the
representative's designee for all out-of-pocket expenses incurred in connection
with the designees' attendance at meetings of the board of directors.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price of the common stock was determined by
negotiation between I.D. Systems and the representative. Among the factors
considered in determining such prices and terms, were the prevailing market
conditions, including the history of and the prospects for the industry in which
we compete, an assessment of our management, our prospects and our capital
structure. The offering price does not necessarily bear any relationship to our
assets, results of operations or net worth.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby will be passed upon for us by Parker Chapin Flattau & Klimpl,
LLP, New York, New York. Orrick, Herrington & Sutcliffe LLP, New York, New York
has acted as counsel for the underwriters in connection with this offering.
EXPERTS
The financial statements as of December 31, 1998 and for the years ended
December 31, 1997 and 1998 included in this prospectus have been audited by
Richard A. Eisner & Company LLP, independent auditors, as indicated in their
report with respect thereto, and are included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
41
<PAGE>
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the Securities Act
with the Securities and Exchange Commission in Washington, D.C. with respect to
the securities offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to us and the securities offered hereby, reference is
made to the registration statement and the exhibits and schedules thereto filed
as a part thereof. Statements contained in this prospectus as to the contents of
any contract or other document filed as an exhibit to the registration statement
to are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. The registration statement, including all amendments, exhibits and
schedules thereto, may be inspected without charge at the office of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Securities and Exchange Commission's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material may also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Securities and Exchange Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding issues that file electronically with the Commission.
The address of site is http://www.sec.gov.
42
<PAGE>
I.D. SYSTEMS, INC.
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS
Independent auditors' report............................................................................. F-2
Balance sheets as of December 31, 1998 and March 31, 1999 (unaudited).................................... F-3
Statements of operations for the years ended December 31, 1997 and 1998 and for the three-month periods
(unaudited) ended March 31, 1998 and 1999.............................................................. F-4
Statements of changes in stockholders' equity for the years ended December 31, 1997 and 1998 and for the
three-month period (unaudited) ended March 31, 1999.................................................... F-5
Statements of cash flows for the years ended December 31, 1997 and 1998 and for the three-month periods
(unaudited) ended March 31, 1998 and 1999.............................................................. F-6
Notes to financial statements............................................................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
I.D. Systems, Inc.
New York, New York
Upon the consummation of the 1.25 for 1 stock split described in the second
sentence of Note B[3] and the items described in Notes I[3] and I[4] we would be
in a position to issue the following auditors' report:
Richard A. Eisner & Company, LLP
New York, New York
April 20, 1999
"We have audited the accompanying balance sheet of I.D. Systems, Inc. as of
December 31, 1998 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended December 31, 1997 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
"We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
"In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of I.D. Systems, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1998, in conformity with generally accepted
accounting principles."
New York, New York
April 20, 1999
With respect to Notes I[1] and I[2]
June 1, 1999
With respect to Notes B[3], I[3] and I[4]
, 1999
F-2
<PAGE>
I.D. SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents............................................................ $1,130,000 $ 1,432,000
Accounts receivable.................................................................. 741,000 647,000
Due from stockholders................................................................ 23,000
Deferred taxes....................................................................... 67,000 67,000
Prepaid expenses and other current assets............................................ 21,000 124,000
------------ ------------
Total current assets........................................................... 1,982,000 2,270,000
Fixed assets--net.................................................................... 117,000 150,000
Deferred registration costs.......................................................... 45,000
Other assets......................................................................... 3,000 2,000
------------ ------------
$2,102,000 $ 2,467,000
------------ ------------
------------ ------------
LIABILITIES
Accounts payable and accrued expenses................................................ $ 329,000 $ 281,000
Capital lease obligations............................................................ 10,000 9,000
Deferred revenue..................................................................... 545,000 1,039,000
------------ ------------
Total current liabilities...................................................... 884,000 1,329,000
Capital lease obligations............................................................ 16,000 14,000
Deferred rent........................................................................ 38,000 39,000
Notes payable--stockholders, less unamortized debt discount of $44,000 and $19,000... 156,000 75,000
------------ ------------
1,094,000 1,457,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock; authorized 15,000,000 shares, $.01 par value; issued and outstanding
3,414,000 shares................................................................... 34,000 34,000
Additional paid-in capital........................................................... 1,653,000 1,653,000
Accumulated deficit.................................................................. (679,000) (677,000)
------------ ------------
1,008,000 1,010,000
------------ ------------
$2,102,000 $ 2,467,000
------------ ------------
------------ ------------
</TABLE>
F-3
<PAGE>
I.D. SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................................. $ 733,000 $ 3,324,000 $ 411,000 $ 1,015,000
Cost of revenues......................................... 269,000 1,633,000 110,000 606,000
------------ ------------ ------------ ------------
Gross profit............................................. 464,000 1,691,000 301,000 409,000
------------ ------------ ------------ ------------
Selling, general and administrative expenses............. 460,000 1,083,000 219,000 392,000
Research and development expenses........................ 22,000 64,000 5,000
------------ ------------ ------------ ------------
Income (loss) from operations............................ (18,000) 544,000 77,000 17,000
------------ ------------ ------------ ------------
Interest income.......................................... 6,000 25,000 3,000 15,000
Interest expense......................................... (25,000) (48,000) (9,000) (28,000)
------------ ------------ ------------ ------------
Income (loss) before taxes............................... (37,000) 521,000 71,000 4,000
Income tax provision (benefit)........................... (112,000) 45,000 6,000 2,000
------------ ------------ ------------ ------------
NET INCOME--HISTORICAL................................... $ 75,000 $ 476,000 $ 65,000 $ 2,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
HISTORICAL NET INCOME PER SHARE-BASIC AND DILUTED........ $ .00
------------
------------
NET INCOME--HISTORICAL................................... $ 75,000 $ 476,000 $ 65,000
PRO FORMA INCOME TAXES (BENEFIT)......................... (468,000) 192,000 26,000
------------ ------------ ------------
PRO FORMA NET INCOME..................................... $ 543,000 $ 284,000 $ 39,000
------------ ------------ ------------
------------ ------------ ------------
PRO FORMA NET INCOME PER SHARE--BASIC AND DILUTED........ $ .17 $ .08 $ .01
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-- BASIC INCOME
PER SHARE.............................................. 3,154,000 3,414,000 3,414,000 3,414,000
EFFECT OF POTENTIAL COMMON SHARES FROM EXERCISE OF
OPTIONS................................................ 365,000 112,000 533,000
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-- DILUTED
INCOME PER SHARE....................................... 3,154,000 3,779,000 3,526,000 3,947,000
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
F-4
<PAGE>
I.D. SYSTEMS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL COMMON
NUMBER OF PAID-IN STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL SUBSCRIBED DEFICIT EQUITY
---------- --------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--JANUARY 1, 1997................... 3,000,000 $ 30,000 $ 1,292,000 $ (25,000) $ (1,230,000) $ 67,000
Payment of subscription receivable......... 25,000 25,000
Shares issued with interim financing....... 167,000 2,000 66,000 68,000
Exercise of warrants....................... 247,000 2,000 295,000 297,000
Net income for the year ended December 31,
1997..................................... 75,000 75,000
---------- --------- ------------ ----------- ------------- ------------
BALANCE--DECEMBER 31, 1997................. 3,414,000 34,000 1,653,000 0 (1,155,000) 532,000
Net income for the year ended December 31,
1998..................................... 476,000 476,000
---------- --------- ------------ ----------- ------------- ------------
BALANCE--DECEMBER 31, 1998................. 3,414,000 34,000 1,653,000 0 (679,000) 1,008,000
Net income for the three months ended March
31, 1999 (unaudited)..................... 2,000 2,000
---------- --------- ------------ ----------- ------------- ------------
BALANCE--MARCH 31, 1999 (UNAUDITED)........ 3,414,000 $ 34,000 $ 1,653,000 $ 0 $ (677,000) $1,010,000
---------- --------- ------------ ----------- ------------- ------------
---------- --------- ------------ ----------- ------------- ------------
</TABLE>
F-5
<PAGE>
I.D. SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------- -------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
----------- ------------ ----------- ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 75,000 $ 476,000 $ 65,000 $ 2,000
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 24,000 39,000 9,000 17,000
Amortization of debt discount.......................... 10,000 14,000 3,000 25,000
Deferred taxes......................................... (112,000) 45,000 6,000
Deferred rent expense.................................. 38,000 13,000 1,000
Deferred revenue....................................... 545,000 494,000
Changes in:
Accounts receivable.................................. (75,000) (601,000) (122,000) 94,000
Inventory............................................ (3,000) 33,000
Prepaid expenses and other assets.................... (16,000) 1,000 (103,000)
Accounts payable and accrued expenses................ (114,000) 266,000 33,000 (48,000)
----------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities....................................... (211,000) 856,000 7,000 482,000
----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets................................. (31,000) (76,000) (29,000) (49,000)
----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subscription receivable.................... 25,000
Payment of lease obligations............................. (5,000) (6,000) (2,000) (3,000)
Proceeds from sale of stock and promissory notes......... 200,000
Proceeds from exercise of warrants....................... 274,000
Payment of stockholder loans............................. (50,000)
Receipt of amount due from stockholders.................. 23,000
Payment of notes payable--stockholders................... (106,000)
Payment of deferred registration costs................... (45,000)
----------- ------------ ----------- ------------
Net cash provided by (used in) financing
activities....................................... 494,000 (56,000) (2,000) (131,000)
----------- ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 252,000 724,000 (24,000) 302,000
Cash and cash equivalents--beginning of period............. 154,000 406,000 406,000 1,130,000
----------- ------------ ----------- ------------
CASH AND CASH EQUIVALENTS--END OF PERIOD................... $ 406,000 $ 1,130,000 $ 382,000 $ 1,432,000
----------- ------------ ----------- ------------
----------- ------------ ----------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................... $ 1,000 $ 31,000 $ 2,000 $ 30,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING INFORMATION:
Equipment acquired pursuant to capital lease
obligations.............................................. $ 11,000 $ 19,000
</TABLE>
F-6
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE A--THE COMPANY
I.D. Systems, Inc. (the "Company") develops wireless monitoring, tracking and
information collection systems. The Company customizes its wireless, intelligent
tracking and monitoring system for applications involving various types of
assets including vehicles, materials, equipment and people. The Company was
incorporated in Delaware in 1993 and commenced operations in January 1994.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] INTERIM FINANCIAL INFORMATION:
The financial information presented as of March 31, 1999 and for the
three-month periods ended March 31, 1998 and March 31, 1999 is unaudited,
but in the opinion of management contains all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of such
financial information. Results of operations for interim periods are not
necessarily indicative of those to be achieved for full fiscal years.
[2] USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[3] STOCK SPLIT:
On November 10, 1997, the Board of Directors approved a 10 for 1 stock
split. Subsequent to December 31, 1998 the Company effected a 1.25 for 1
stock split. The accompanying financial statements and notes hereto give
retroactive effect to the stock splits and accordingly, the number of
shares are stated on a post split basis.
[4] CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investment instruments purchased
with a maturity of three months or less to be cash equivalents.
Substantially all of the Company's cash and cash equivalents at December
31, 1998 were held at one financial institution.
[5] FIXED ASSETS AND DEPRECIATION:
Fixed assets are recorded at cost and depreciated using an accelerated
method over the estimated useful lives of the assets which range from five
to seven years. Equipment under capital leases are amortized using an
accelerated method over the terms of the respective leases, or their
estimated useful lives, whichever is shorter.
[6] RESEARCH AND DEVELOPMENT:
Research and development costs are charged to expense as incurred.
[7] PATENT COSTS:
Costs incurred in connection with acquiring patent rights are charged to
expense as incurred.
F-7
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] REVENUE RECOGNITION:
Revenues in 1997 and 1998 and in the three months ended March 31, 1999 were
principally earned pursuant to two contracts with the United States Postal
Service in connection with the development and sales of wireless monitoring
systems and tracking devices. Revenues are recognized when related time and
material charges are incurred, services are performed or goods are
delivered in accordance with conditions of related contracts. Amounts
billed to customers that do not meet the conditions of the Company's
revenue recognition policy are recorded as deferred revenue until such
conditions are met.
[9] BENEFIT PLAN:
The Company maintains a retirement plan under Section 401(k) of the
Internal Revenue Code which covers all eligible employees. The Company
contributed approximately $6,000 and $6,000 to the plan for the year ended
December 31, 1998 and for the three months ended March 31, 1999,
respectively. The Company may decide to make additional contributions to
the plan.
[10] RENT EXPENSE:
Expense related to the Company's facility lease is recorded on a
straight-line basis over the lease term. The difference between rent
expense incurred and the amount paid is recorded as deferred rent and is
amortized over the lease term.
[11] STOCK-BASED COMPENSATION:
The Company accounts for stock-based employee compensation under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation".
[12] INCOME TAXES:
The Company had elected to be treated as an S corporation for federal and
state income tax purposes. As a result of this election, the income of the
Company was taxed directly to the individual stockholders. The Company
continued to be subject to New York City income tax. Subsequent to December
31, 1998, the Company filed an election to be taxed as a C corporation and,
effective January 1, 1999, became subject to federal, state and local
income taxes. See Note F for pro forma information regarding the
incremental income tax provisions which would have been recorded if the
Company had been a taxable corporation, based on the tax laws in effect
during the years ended December 31, 1997 and 1998 and the three months
ended March 31, 1998.
The Company does not currently intend to make any distributions of S
corporation earnings.
[13] NET INCOME PER SHARE:
The Company calculates its net income per share in accordance with the
provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires a
dual presentation of "basic" and "diluted" income per share on the face of
the statements of operations. Basic income per share is computed by
dividing the net income by the weighted average number of shares of common
stock outstanding during each period. Diluted income per share includes the
effect, if any, from the potential exercise or conversion of securities,
such as stock options and warrants, which would
F-8
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[13] NET INCOME PER SHARE: (continued)
result in the issuance of incremental shares of common stock. For the year
ended December 31, 1997 the basic and diluted amounts are the same since
the effect from the potential exercise of 800,000 outstanding stock options
would have been anti-dilutive. Per share amounts for the years ended
December 31, 1997, December 31, 1998 and the three months ended March 31,
1998 are pro forma to reflect income taxes that would have been recorded
had the Company been a C corporation.
[14] FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, capital lease obligations and notes
payable approximate their fair values due to the short period to maturity
of these instruments.
F-9
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE C--FIXED ASSETS
Fixed assets are stated at cost and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31,
1998 1999
------------ -----------
<S> <C> <C>
Laboratory equipment.............................................. $ 24,000 $ 30,000
Computer software................................................. 15,000 21,000
Computer hardware................................................. 60,000 94,000
Furniture and fixtures............................................ 50,000 53,000
Equipment under capital lease..................................... 39,000 39,000
------------ -----------
188,000 237,000
Accumulated depreciation and amortization......................... 71,000 87,000
------------ -----------
$ 117,000 $ 150,000
------------ -----------
------------ -----------
</TABLE>
NOTE D--EQUIPMENT LEASE OBLIGATIONS
The Company leases equipment under various agreements with original terms of 36
to 60 months and accounts for these leases as capital leases. The net book value
of the equipment held under capital leases was approximately $23,000 and $21,000
at December 31, 1998 and March 31, 1999, respectively.
Future lease payments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1999............................................................................ $ 12,000
2000............................................................................ 5,000
2001............................................................................ 5,000
2002............................................................................ 5,000
2003............................................................................ 4,000
------------
31,000
Amount representing interest.................................................... 5,000
------------
Present value of future lease payments.......................................... 26,000
Amount due within one year...................................................... 10,000
------------
$ 16,000
------------
------------
</TABLE>
F-10
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE E--STOCKHOLDERS' EQUITY
[1] COMMON STOCK:
Pursuant to the terms of the Company's stockholders' agreement dated
December 1993, the Company was initially capitalized by the issuance of an
aggregate of 1,250,000 shares of common stock to four individuals who
contributed an aggregate of $100,000. Upon execution of the agreement, two
stockholders each loaned the Company $37,500, bearing interest at 7 1/2%,
payable on demand. The agreement also provided, among other things, for
options for each of the other two stockholders to purchase an additional
312,500 shares for $12,500. In December 1994, both stockholders exercised
their options, financing the transaction through notes payable to the
Company which were paid in November 1997. The agreement further provided
that, in the event that the options were exercised, each of the two
stockholders who loaned the Company money would convert $12,500 of their
loans to the Company to equity and, in January 1995, $25,000 of loans were
contributed to equity and no additional shares were issued. The remaining
loans payable in the amount of $50,000 along with accrued interest were
repaid by the Company in December 1998.
In April 1997, the Company completed a private placement whereby it sold
167,000 shares of common stock and issued $200,000 of promissory notes
maturing in April 2002 bearing interest at 8% per annum for gross proceeds
of $200,000. The common stock issued was valued at $68,000 representing debt
discount which is being amortized over the five-year term of the promissory
notes. As a result, the effective annual interest rate was approximately
15%. For the years ended December 31, 1997 and 1998, $10,000 and $14,000 was
amortized, respectively, and is included in interest expense. In February
1999, the Company repaid $105,000 of the notes plus $28,000 of accrued
interest pursuant to required prepayment provisions of the notes.
Accordingly, the Company reduced debt discount and recorded an expense of
$23,000 in connection with the repayment.
In November 1997, the Company issued 247,000 shares of common stock and
received proceeds of $274,000 and a subscription receivable of $23,000 which
was received by the Company subsequent to December 31, 1998 in connection
with the exercise of warrants issued in connection with an equity financing
in a prior year. All other warrants issued in connection with such financing
expired in November 1997.
[2] STOCK OPTIONS:
The Company has adopted a nonqualified stock option plan (the "1995 Plan")
which authorizes the granting, to key employees and consultants, of options
to purchase up to an aggregate of 1,250,000 shares of the Company's common
stock. The 1995 Plan is administered by the Board of Directors, which has
the authority to determine the term during which an option may be exercised
(not more than 10 years), the exercise price of an option and the rate at
which options may be exercised.
F-11
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE E--STOCKHOLDERS' EQUITY (CONTINUED)
[2] STOCK OPTIONS: (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1997 and 1998 and March 31, 1999 and changes during the periods ending on
those dates, is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------- THREE MONTHS ENDED
1997 1998 MARCH 31, 1999
---------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----------- ---------- ----------- ---------- -----------
Outstanding at beginning of
period.......................... 425,000 $ 0.88 800,000 $ 1.03 1,238,000 $ 1.09
Granted........................... 375,000 1.20 438,000 1.20 12,000 1.20
Forfeited......................... 6,000 1.20
--------- ----- ---------- ----- ---------- -----
Outstanding at end of period...... 800,000 1.03 1,238,000 1.09 1,244,000 1.09
--------- ----- ---------- ----- ---------- -----
--------- ----- ---------- ----- ---------- -----
Exercisable at end of period...... 170,000 0.88 330,000 0.95 333,000 0.96
--------- ----- ---------- ----- ---------- -----
--------- ----- ---------- ----- ---------- -----
</TABLE>
The following table summarizes information about stock options at December
31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------ OPTIONS EXERCISABLE
WEIGHTED -------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ---------- ------------ ----------- --------- ------------ -----------
<C> <C> <S> <C> <C> <C>
$0.80...... 338,000 7 years $ 0.80 203,000 $ 0.80
$1.20...... 900,000 9 years 1.20 130,000 1.20
------------ ----------- --------- ------------ -----
1,238,000 8 years 1.09 333,000 0.95
------------ ----------- --------- ------------ -----
------------ ----------- --------- ------------ -----
</TABLE>
At March 31, 1999, 1,244,000 options were outstanding, with a weighted
average remaining contractual life of 8 years and a weighted average
exercise price of $1.09. At March 31, 1999 333,000 options were exercisable
with a weighted average exercise price of $0.96.
The Company applies APB Opinion 25 and related interpretations in accounting
for options. Accordingly, no compensation cost has been recognized for
employee stock option grants. Had compensation cost for employee stock
option grants been determined based on the fair value at
F-12
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE E--STOCKHOLDERS' EQUITY (CONTINUED)
[2] STOCK OPTIONS: (CONTINUED)
the grant dates for awards consistent with the method of SFAS No. 123, the
Company would have reported the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- ---------------------
1997 1998 1998 1999
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Historical net income (loss)............................... $ 40,000 $ 409,000 $ 51,000 $ (21,000)
Historical net income (loss) per share--basic and
diluted.................................................. $ (.01)
Pro forma net income....................................... 508,000 217,000 25,000
Pro forma net income per share--basic and diluted.......... .16 .06 .01
</TABLE>
The fair value of each option grant on the date of grant is estimated using
the Black-Scholes option-pricing model with a minimum value volatility of
effectively 0%, expected life of options of 7 years, risk free interest rate
of 6% and a dividend yield of 0%. The weighted average fair value of options
granted during the years ended December 31, 1997 and 1998 were $.37 and
$.44, respectively.
NOTE F--INCOME TAXES (BENEFIT) AND PRO FORMA INCOME TAXES (BENEFIT)
[1] HISTORICAL:
Through December 31, 1998 the Company was only subject to local income
taxes. The income tax benefit of $112,000 in 1997 reflects the recognition,
at December 31, 1997, of a deferred tax asset relating to the Company's net
operating loss carryforwards for local tax purposes. $109,000 of such
benefit relates to a reduction in the valuation allowance which had
previously been provided due to management's uncertainty regarding the
Company's ability to generate taxable income against which it could apply
its net operating loss carryforwards. The Company recognized the benefit
when a substantial contract was entered into in 1997 which management
believed would generate profits sufficient to realize the tax benefit. The
income tax provisions of $45,000 and $9,000 for the year ended December 31,
1998 and the three months ended March 31, 1998, respectively reflect the
utilization of a portion of the deferred tax asset to reduce the current
portion of tax expense for those periods. As a result the Company has a
deferred tax asset of $67,000 at December 31, 1998, which reflects the
Company's net operating loss carryforwards for local income taxes of
approximately $750,000 and which expire through 2012. The Company is subject
to an annual limitation on the utilization of a portion of its net operating
loss carryforwards. Future stock issuances may subject the Company to
additional limitations.
F-13
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE F--INCOME TAXES (BENEFIT) AND PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)
[1] HISTORICAL: (CONTINUED)
Subsequent to December 31, 1998 the Company filed an election to be taxed as
a C corporation, effective January 1, 1999 and accordingly is subject to
federal, state and local income taxes. The Company has recorded an income
tax provision of $2,000 for the three months ended March 31, 1999. The
Company's net operating loss carryforwards at March 31, 1999 was $746,000,
which can only be used for local income taxes, resulting in a deferred tax
asset of $67,000 at March 31, 1999.
The difference between income taxes (benefits) at the statutory federal
income tax rate and income taxes (benefits) reported in the statements of
operations are attributable to the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTH PERIOD ENDED
DECEMBER 31, MARCH 31,
----------------------- ---------------------------
<S> <C> <C> <C> <C>
1997 1998 1998 1999
----------- ---------- ------------ -------------
<CAPTION>
<S> <C> <C> <C> <C>
Income taxes (benefit) at the federal
statutory rate....................... $ (13,000) $ 177,000 $ 24,000 $ 1,000
State and local income taxes (benefit),
net of effect on federal taxes....... (4,000) 60,000 8,000 1,000
Reduction of valuation allowance....... (109,000)
Effect of S corporation status......... 468,000 (192,000) (26,000)
Reduction of pro forma valuation
allowance............................ (454,000)
----------- ---------- ------------ ------
$ (112,000) $ 45,000 $ 6,000 $ 2,000
----------- ---------- ------------ ------
----------- ---------- ------------ ------
</TABLE>
[2] PRO FORMA:
As a result of the S corporation election, the financial statements do not
include a provision for federal and state income taxes through December 31,
1998. Pro forma net income in the accompanying statements of operations
includes pro forma adjustments for federal and state income taxes (benefits)
which would have been provided (recognized) had the S corporation election
not been in effect and is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31, 1998
----------------------- -------------------------
<S> <C> <C> <C>
1997 1998
----------- ----------
Deferred:
Federal................................. $ (354,000) $ 145,000 $ 20,000
State................................... (114,000) 47,000 6,000
----------- ---------- -------
Pro forma taxes (benefit) on income....... $ (468,000) $ 192,000 $ 26,000
----------- ---------- -------
----------- ---------- -------
</TABLE>
F-14
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE F--INCOME TAXES (BENEFIT) AND PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)
[2] PRO FORMA (CONTINUED):
The pro forma tax benefit of $468,000 for 1997 reflects a pro forma deferred
tax asset relating to the Company's net operating loss carryforwards for
federal and state purposes. $454,000 of such pro forma benefit relates to a
reduction in the pro forma valuation reserve which had previously been
provided. The pro forma benefit was recognized when the Company entered into
a substantial contract in 1997 which management believed would generate
profits sufficient to realize the tax benefit had the Company been a C
corporation.
NOTE G--COMMITMENTS AND OTHER MATTERS
[1] OPERATING LEASES:
The Company has entered into various operating leases which provide for
minimum annual rent payments as follows:
<TABLE>
<CAPTION>
OFFICE
FACILITIES OTHER
---------- ---------
<S> <C> <C>
1999................................................................... $ 108,000 $ 45,000
2000................................................................... 117,000 30,000
2001................................................................... 126,000 10,000
2002................................................................... 129,000
2003................................................................... 32,000
---------- ---------
$ 512,000 $ 85,000
---------- ---------
---------- ---------
</TABLE>
The office lease also provides for escalations relating to increases in real
estate taxes and certain operating expenses. Expenses relating to operating
leases aggregated approximately $48,000, $141,000, $27,000 and $28,000 for
the years ended December 31, 1997 and 1998 and for the three-month periods
ended March 31, 1998 and March 31, 1999, respectively.
[2] CONCENTRATION OF CUSTOMERS:
One customer accounted for approximately 99%, 95% and 100% of the Company's
revenues during the years ended December 31, 1997 and 1998 and for the three
months ended March 31, 1999, respectively.
This customer accounted for approximately 92% and 96% of the Company's
accounts receivable balance at December 31, 1998 and March 31, 1999,
respectively.
[3] RELATED PARTY TRANSACTIONS:
During the years ended December 31, 1997 and 1998 and the three months ended
March 31, 1999, the Company purchased approximately $18,000, $33,000 and
$66,000, respectively, of components from a company where two of the
directors are directors of the Company. Additionally, at December 31, 1998
and March 31, 1999 $357,000 and $291,000 remained open under a purchase
order issued in 1998.
F-15
<PAGE>
I.D. SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO DATA AS OF MARCH 31, 1999
AND THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999)
NOTE H--PROPOSED PUBLIC OFFERING
The Company has signed a letter of intent with an underwriter with respect to a
proposed public offering of the Company's securities. There is no assurance that
such offering will be consummated. In connection therewith, the Company
anticipates incurring substantial costs, which, if the offering is not
consummated, will be charged to expense.
NOTE I--SUBSEQUENT EVENTS
[1] STOCK OPTION PLANS:
The Company has adopted the 1999 Stock Option Plan and the 1999 Director
Option Plan pursuant to which the Company may grant options to purchase up
to 812,500 and 300,000 shares of common stock, respectively. The Company has
agreed to grant 35,000 options under the 1999 Stock Option Plan.
[2] EMPLOYMENT AGREEMENTS:
In June 1999, the Company entered into three-year employment agreements with
four executives which provide for aggregate annual compensation of $408,000
and entitle the executives to salary increases, bonuses and stock options to
be determined by the board of directors. The agreements also provide for
severance payments through the end of the agreements.
[3] PREFERRED STOCK:
Subsequent to December 31, 1998, the Company authorized 5,000,000 shares of
preferred stock. The Company's board of directors has the authority to issue
shares of preferred stock and to determine the price and terms of those
shares.
[4] COMMON SHARES AUTHORIZED:
Subsequent to December 31, 1998, the Company increased the number of common
shares authorized to 15,000,000.
F-16
<PAGE>
[INSIDE BACK COVER PAGE]
Pictures in inside back cover:
<TABLE>
<S> <C>
Caption: Wireless Monitoring and Tracking Systems for Virtually Any Object.
Top Right: Picture of I.D. Systems' software.
Caption: Operating system software.
Bottom Right: Picture of PC assessing Internet overlooking warehouse.
Caption: Data Collection Via Internet.
Top Left: Picture of I.D. Systems' Asset Communicator.
Caption: System monitor
Bottom Left: Picture of I.D. Systems' Asset Communicator.
Caption: Asset Communicator
Scattered
Captions: User friendly; wide variety of applications; proprietary software;
patented system architecture.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON
ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER TO
SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN
JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Forward Looking Statements................................................ 8
Use of Proceeds........................................................... 9
Dividend Policy........................................................... 10
Dilution.................................................................. 11
Capitalization............................................................ 12
Selected Financial Data................................................... 13
Management Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 15
Business.................................................................. 21
Management................................................................ 29
Principal Stockholders.................................................... 35
Certain Transactions...................................................... 36
Description of Securities................................................. 37
Shares Eligible for Future Sale........................................... 38
Certain Charter and Bylaws Provisions and Delaware Anti-Takeover Statue... 39
Underwriting.............................................................. 40
Legal Matters............................................................. 41
Experts................................................................... 41
Additional Information.................................................... 42
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO A
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTION.
[LOGO]
2,000,000 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
GILFORD SECURITIES
INCORPORATED
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") contains
the provisions entitling the Registrant's directors and officers to
indemnification from judgments, fines, amounts paid in settlement, and
reasonable expenses (including attorney's fees) as the result of an action or
proceeding in which they may be involved by reason of having been a director or
officer of the Registrant.
The Certificate of Incorporation includes provisions to the effect that
(subject to certain exceptions) the Registrant shall, to the maximum extent
permitted from time to time under the law of the State of Delaware, indemnify,
and upon request shall advance expenses to, any director or officer to the
extent that such indemnification and advancement of expenses is permitted under
such law, as may from time to time be in effect. In addition, the By-Laws
require the Registrant to indemnify, to the full extent permitted by law, any
director, officer, employee or agent of the Registrant for acts which such
person reasonable believes are not in violation of the Registrant's corporate
purposes as set forth in the Certificate of Incorporation. At present, the DGCL
provides that, in order to be entitled to indemnification, an individual must
have acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the Registrant's best interests.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any charger provision, by-law, contract, arrangement,
statute or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. See Item 28.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the underwriter) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee and the NASD filing
fee, all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee................................................................... $ 5,649
NASD filing fee.................................................................... 2,340
Nasdaq listing expenses............................................................ 10,000
Boston Stock Exchange listing fee.................................................. 7,750
Blue sky fees and expenses (including legal and filing fees)....................... 21,000
Printing expenses (other than stock certificates).................................. 50,000
Printing and engraving of stock certificates....................................... 3,000
Legal fees and expenses (other than Blue Sky)...................................... 225,000
Consulting fee..................................................................... --
Accounting fees and expenses....................................................... 100,000
Transfer Agent and Registrar fees and expenses..................................... 3,500
Miscellaneous expenses............................................................. 71,761
---------
Total.......................................................................... $ 500,000
---------
---------
</TABLE>
- ------------------------
* To be filed by amendment
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In October 1996, the Registrant issued a total of 166,675 shares of common
stock to 31 of its then existing stockholders pursuant to a private placement,
in consideration for payment by such stockholders to the Registrant of $200,010
in cash.
In April 1997 the Registrant issued a series of promissory notes and a total
of 166,737.5 shares of common stock to 29 of its then existing stockholders, in
consideration for an aggregate payment by such stockholders to the Registrant of
$200,090 in cash.
In November 1997 the Registrant issued 247,175 shares of common stock to 24
of its then existing stockholders upon exercise of warrants which had been
issued to such stockholders on November 15, 1995 at a price of $1.20 per share.
Registrant received $296,610 in cash as a result of the exercise of the
warrants.
In issuing securities under the exemption provided by Section 4(2) of the
Securities Act, the Registrant relied on representations made by each purchaser
and made the determinations pursuant to its obligations that such purchaser was
either an "accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated under the Securities Act or that such purchaser has
such knowledge and experience in financial and business matters that such person
was capable of evaluating the merits and risks of the investment.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Restated By-Laws of the Registrant.
4.1 Specimen Certificate of the Registrant's Common Stock.
4.2 Form of Representative's Warrant Agreement, including Form of Warrant Certificate.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1 Agreement between the Registrant and the U.S. Postal Service: Offer and Award Standard dated August 22,
1997, as modified on May 12, 1998, September 8, 1998 and March 5, 1999.*
10.2 Employment Agreement between the Registrant and Kenneth S. Ehrman.*
10.3 Employment Agreement between the Registrant and Jeffrey M. Jagid.*
10.4 Employment Agreement between the Registrant and N. Bert Loosmore.*
10.5 Employment Agreement between the Registrant and Michael L. Ehrman.*
10.6 Office Lease dated September 30, 1997 between the Registrant and Tov LLC.*
10.7 1995 Non-Qualified Stock Option Plan.*
10.8 1999 Stock Option Plan.*
10.9 Form of Indemnification Agreement.*
10.10 1999 Director Stock Option Plan.*
10.11 Master Equipment Purchase Agreement dated April 19, 1999 between the Registrant and Federal Express
Corporation.*
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed previously.
II-2
<PAGE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing as specified in the Underwriting Agreement Common Stock
certificates in such denominations and registered in such names as required by
the Underwriting Agreement to permit prompt delivery to each purchaser.
For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Securities and Exchange Commission declared it effective.
For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized Amendment No. 3 to the
Registration Statement to be signed on its behalf by the undersigned, in New
York County, State of New York, on the 24th day of June, 1999.
I.D. SYSTEMS, INC.
By: /s/ KENNETH S. EHRMAN
-----------------------------------------
Kenneth S. Ehrman
President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ KENNETH S. EHRMAN President (Principal
- ------------------------------ Executive Officer) and June 24, 1999
Kenneth S. Ehrman Director
* Director
- ------------------------------ June 24, 1999
Jeffrey M. Jagid
* Director
- ------------------------------ June 24, 1999
N. Bert Loosmore
/s/ BRUCE JAGID Treasurer (Principal
- ------------------------------ Financial and Accounting June 24, 1999
Bruce Jagid Officer) and Director
* Director
- ------------------------------ June 24, 1999
Martin G. Rosansky
<TABLE>
<S> <C> <C> <C>
*By: /s/ KENNETH S. EHRMAN
-------------------------
Kenneth S. Ehrman
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Restated By-Laws of the Registrant.
4.1 Specimen Certificate of the Registrant's Common Stock.
4.2 Form of Representative's Warrant Agreement, including Form of Warrant Certificate.
5.1 Opinion of Parker Chapin Flattau & Klimpl, LLP.
10.1 Agreement between the Registrant and the U.S. Postal Service: Offer and Award Standard dated August 22,
1997, as modified on May 12, 1998, September 8, 1998 and March 5, 1999.*
10.2 Employment Agreement between the Registrant and Kenneth S. Ehrman.*
10.3 Employment Agreement between the Registrant and Jeffrey M. Jagid.*
10.4 Employment Agreement between the Registrant and N. Bert Loosmore.*
10.5 Employment Agreement between the Registrant and Michael L. Ehrman.*
10.6 Office Lease dated September 30, 1997 between the Registrant and Tov LLC.*
10.7 1995 Non-Qualified Stock Option Plan.*
10.8 1999 Stock Option Plan.*
10.9 Form of Indemnification Agreement.*
10.10 1999 Director Stock Option Plan.*
10.11 Master Equipment Purchase Agreement dated April 19, 1999 between the Registrant and Federal Express
Corporation.*
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Parker Chapin Flattau & Klimpl, LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-5).*
27.1 Financial Data Schedule.*
</TABLE>
- ------------------------
* Filed previously.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
I. D. SYSTEMS, INC.
The undersigned having filed its original certificate of
incorporation under the name I.D. Systems, Inc. with the Secretary of State of
the state of Delaware on August 24, 1993, thereby forming a corporation under
and subject to the requirements of the Delaware General Corporation Law, does
hereby further amend and restate its certificate of incorporation as follow:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is I. D. SYSTEMS, INC.
SECOND: The address, including street, number, city, and county, of
the registered office of the corporation in the State of Delaware is 32
Loockerman Square, Suite L-100, City of Dover, County of Kent; and the name of
the registered agent of the corporation in the state of Delaware is the
Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be
conducted and promoted by the corporation, which shall be in addition to the
authority of the corporation to conduct any lawful business, to promote any
lawful purpose, and 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:
(A) AUTHORIZED STOCK. The total number of shares of all classes of
stock which the Corporation has authority to issue is twenty million
(20,000,000), consisting of (a) fifteen million (15,000,000) shares of
Common Stock par value $.01 per share (the "Common Stock"), and (b) five
million (5,000,000) shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock").
(B) PREFERRED STOCK. The Preferred Stock may be issued from time
to time in one or more series. The Board of Directors is hereby authorized
to create and provide for the issuance of shares of Preferred Stock in
series and, by filing a certificate pursuant to the applicable law of the
State of Delaware (hereinafter referred to as a "Preferred Stock
Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, power,
preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
<PAGE>
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of
the following:
(i) The designation of the series, which may be by
distinguishing number, letter or title.
(ii) The number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the
Preferred Stock Designation) increase or decrease (but not below the
number of shares thereof then outstanding).
(iii) Whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series.
(iv) The dates at which dividends, if any, shall be payable.
(v) The redemption rights and price or prices, if any, for
shares of the series.
(vi) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(vii) The amounts payable on, and the preferences, if any, of
shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation.
(viii) Whether the shares of the series shall be convertible into
or exchangeable for shares of any other class or series, or any other
security, of the Corporation or any other corporation, and, if so, the
specification of such other class or series of such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates at which such shares shall be convertible or
exchangeable and all other terms and conditions upon which such conversion
may be made.
(ix) Restrictions on the issuance of shares of the same series or
of any other class or series.
(x) The voting rights, if any, of the holders of shares of the
series.
(xi) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof as the Board of Directors shall determine.
-2-
<PAGE>
(C) COMMON STOCK. Each share of Common Stock shall be entitled to
one vote per share.
RESOLVED, that the Certificate of Incorporation of the Corporation
be further amended by addition of an ARTICLE ELEVENTH, ARTICLE TWELFTH and
ARTICLE THIRTEENTH to read as follows:
FIFTH: Then name and the mailing address of the corporator are as
follows:
<TABLE>
<CAPTION>
NAME MAILING ADDRESS
---- ---------------
<S> <C>
N. S. Truax 32 Loockerman Square
Suite L-100
Dover, Delaware 19901
</TABLE>
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between
this corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this corporation under this provisions of section 291 of
Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation
under the provisions of Section 279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. if a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders of class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
EIGHTH: The personal liability of the directors of the corporation
is hereby eliminated to the fullest extent permitted by the provisions of
paragraph (7) of subsection (b) of Section 102 of the General Corporation
Law of the State of Delaware, as the same may be amended and supplemented.
-3-
<PAGE>
NINTH: The corporation shall, to the fullest extent permitted by
the provisions of Section 145 of the General Corporation Law of the State
of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section
from and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any By-Law, agreement, vote
of stockholders or disinterested directors or otherwise, bot as to action
in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of such a person.
TENTH: From time to time any of the provisions of this certificate
of incorporation may be amended, altered or repealed, 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 and at the time prescribed by said
laws, and all rights at any time conferred upon the stockholders of the
corporation by this certificate of incorporation are granted subject to
the provisions of this Article ELEVENTH.
ELEVENTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders. Special meetings
of stockholders of the Corporation may be called only by (i) the Board of
Directors pursuant to a resolution adopted by a majority of the entire
Board of Directors, either upon motion of a director or upon written
request by the holders of at least 50% of the voting power of all the
shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class or (ii)
the chairman of the Board or the president of the Corporation.
TWELFTH: In addition to any requirements of the General Corporation
Law of Delaware (and notwithstanding the fact that a lesser percentage may
be specified by the General Corporation Law of Delaware), the affirmative
vote of the holders of at least 75% of the voting power of all of the
shares of capital stock of the Corporation then entitled to vote generally
in the election of directors, voting together as a single class, shall be
required for the stockholders of the Corporation to amend, alter, change,
adopt or repeal Article Eleventh or Article Twelfth hereof."
The Board of Directors of the Corporation has adopted resolutions by
unanimous written consent setting forth the amendment herein contained,
declaring its advisability and providing that such resolutions be presented for
adoption by a vote at an annual meeting by the holders of a majority of the
shares entitled to vote thereon. By a vote at the annual meeting of the
-4-
<PAGE>
stockholders of a majority of the outstanding shares of the Common Stock and
Series A Preferred Stock of the Corporation voting together, such amendment has
been adopted in accordance with Section 242 of the General Corporation Law of
the State of Delaware.
Signed and attested to on ________ __, 1999.
(Corporate Seal)
-----------------------------------
Kenneth S. Ehrman, President
Attest:
- -----------------------------------
-5-
<PAGE>
Exhibit 3.2
RESTATED BYLAWS
OF
I. D. SYSTEMS, INC.
(a Delaware corporation)
---------------
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in
the corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General
<PAGE>
Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. 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 date 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.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, 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 date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the
-2-
<PAGE>
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. 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.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS
-TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
-3-
<PAGE>
-PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
-CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
-NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
-STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list
-4-
<PAGE>
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is present. The
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine the stock ledger, the list required by this section or the books of
the corporation, or to vote at any meeting of stockholders.
-CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, a Vice-President, or, if none of the foregoing is in
office and present and acting, by a chairman to be chosen by the stockholders.
The Secretary of the corporation, or in his absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
Assistant Secretary is present the chairman of the meeting shall appoint a
secretary of the meeting.
-PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
-INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take and sign an
oath faithfully to execute the duties of inspectors at such meeting with strict
impartiality and according to the best of his ability. The inspectors, if any,
shall determine the number of shares of stock outstanding and the voting power
of each, the shares of stock represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots, or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots, or consents,
determine the result, and do such acts as are proper to conduct the election or
vote with fairness to all stockholders. On request of the person presiding at
the meeting, the inspector or inspectors, if any, shall make a report in writing
of any challenge, question, or matter determined by him or them and execute a
certificate of any fact found by him or them.
-QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
-5-
<PAGE>
-VOTING. Each share of stock shall entitle the holders thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITIONS. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of 2 persons. Thereafter the number of
directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be one. The number
of directors may be increased or decreased by action of the stockholders or of
the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
-6-
<PAGE>
-TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
-PLACE. Meetings shall be held at such place within or without the
State of Delaware as shall be fixed by the Board.
-CALL. No call shall be required for regular meetings for which the
time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, the President, or a majority of the directors in office.
-NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required
for regular meetings for which the time and place have been fixed. Written,
oral, or any other mode of notice of the time and place shall be given for
special meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
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. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
-QUORUM AND ACTION. A majority of the whole Board shall constitute a
quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
-CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman
of the Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.
-7-
<PAGE>
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. 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. 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. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise powers and authority of the Board of Directors in the management of
the business and affairs of the corporation with the exception of any authority
the delegation of which is prohibited by Section 141 of the General Corporation
Law, and may authorize the seal of the corporation to be affixed to all papers
which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or 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 of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation may consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as prescribed in
these Bylaws and shall have such
-8-
<PAGE>
additional authority and duties as may be designated by the Board of Directors.
Any officer may be removed, with or without cause, by the Board of Directors.
Any vacancy in any office may be filled by the Board of Directors.
1. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a member
of the Board and shall preside at its meetings and at all meetings of
stockholders. He shall, subject to the direction and under the supervision of
the Board, be the chief executive officer of the corporation and shall have
general charge of the business and affairs of the corporation and shall keep the
Board fully advised. At the direction of the Board, he shall have power in the
name of the corporation and on its behalf to execute any and all deeds,
mortgages, contracts, agreements and other instruments in writing. He shall
employ and discharge employees and agents of the corporation, except such as
shall hold their offices by appointment of the Board, but he may delegate these
powers to other officers as to employees under their immediate supervision. He
shall see that the acts of the executive officers conform to the policies of the
corporation as determined by the Board and shall have such powers and perform
such other duties as may from time to time be assigned to him by the Board.
2. PRESIDENT. The President shall, subject to the direction and under
the supervision of the Board, be the chief operating officer of the corporation,
and have such powers and perform such duties as generally pertain to the office
of President, as well as such further powers and duties as may be prescribed by
the Board.
3. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if any,
shall be a member of the Board. If the office of Chairman of the Board be
vacant, or if the Chairman of the Board be absent, he shall preside at meetings
of the stockholders and of the Board. He shall have such powers and perform such
duties as may be prescribed by the Board.
4. VICE PRESIDENTS. Each Vice President shall have such powers and
perform such duties as the Board or the Chairman of the Board, the President or
the Vice Chairman of the Board, if any, may from time to time prescribe, and
shall perform such other duties as may be prescribed in these Bylaws. In the
absence or inability to act of the Chairman of the Board, the President and Vice
Chairman of the Board, the Vice President next in order as designated by the
Board, or in the absence of such designation, senior in length of service in
such capacity, who shall be present and able to act, shall perform all the
duties and may exercise any of the powers of the President, subject to the
control of the Board. The performance of any duty by a Vice President shall be
conclusive evidence of his power to act.
5. TREASURER. The Treasurer shall have the care and custody of all
funds and securities of the corporation which may come into his control and he
shall deposit the same to the credit of the corporation in such banks or other
depositary or depositories as the Board may designate. He may endorse all
commercial documents requiring endorsements for or on behalf of the corporation
and may sign all receipts and vouchers for payments made to the corporation. He
shall render an account of his transactions to the Board as often as it shall
require the same and shall
-9-
<PAGE>
at all reasonable times exhibit his books and accounts to any director, and
shall cause to be entered regularly in books kept for that purpose full and
accurate account of all moneys received and disbursed by him on account of the
corporation. He shall, if required by the Board, give the corporation a bond in
such sums and with such securities as shall be satisfactory to the Board,
conditioned upon the faithful performance of his duties and for the restoration
to the corporation in case of his death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in his possession, or under his control, belonging to the corporation. He shall
have such further powers and duties as are incident to the position of
Treasurer, subject to the control of the Board.
6. SECRETARY. The Secretary shall record the proceedings of meetings of
the Board and of the stockholders in a book kept for that purpose and shall
attend to the giving and serving of all notices of the corporation. He shall
have custody of the seal of the corporation and shall affix the seal to all
certificates of shares of stock of the corporation (if required by the form of
such certificates) and to such other papers or documents as may be proper and,
when the seal is so affixed, he shall attest the same by his signature wherever
required. He shall have charge of the stock certificate book, transfer book and
stock ledger, and such other books and papers as the Board may direct. He shall,
in general, perform all duties of Secretary, subject to the control of the
Board.
7. ASSISTANT TREASURERS. In the absence or inability of the Treasurer
to act, any Assistant Treasurer may perform all the duties and exercise all of
the powers of the Treasurer, subject to the control of the Board. The
performance of any such duty shall be conclusive evidence of his power to act.
An Assistant Treasurer shall also perform such other duties as the Treasurer or
the Board may from time to time assign to him.
8. ASSISTANT SECRETARIES. In the absence or inability of the Secretary
to act, any Assistant Secretary may perform all the duties and exercise all the
powers of the Secretary, subject to the control of the Board. The performance of
any such duty shall be conclusive evidence of his power to act. An Assistant
Secretary shall also perform such other duties as the Secretary or the Board may
from time to time assign to him.
9. OTHER OFFICERS. Other officers shall perform such duties and have
such powers as may from time to time be assigned to them by the Board.
10. DELEGATION OF DUTIES. In case of the absence of any officer of the
corporation, or for any other reason that the Board may deem sufficient, the
Board may confer, for the time being, the powers or duties, or any of them, of
such officer upon any other officer, or upon any director.
ARTICLE IV
CORPORATE SEAL
-10-
<PAGE>
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
AMENDMENTS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
-11-
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
AMERICAN BANK NOTE COMPANY
680 BLAIR MILL ROAD
HORSHAM, PA 19044
(218) 657-3480
- --------------------------------------------------------------------------------
SALES: J. NAPOLITANO: 212 593-5700
- --------------------------------------------------------------------------------
/NET/BANKNOTE/HOME 12/I.D./H61880
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRODUCTION COORDINATOR: LISA MARTIN: 215-830-2155
PROOF OF JUNE 10, 1999
I.D. SYSTEMS, INC.
H 61880 face
- --------------------------------------------------------------------------------
OPERATOR: eg/lr/eg
- --------------------------------------------------------------------------------
rev 2
- --------------------------------------------------------------------------------
================================================================================
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
I.D. SYSTEMS, INC.
COMMON STOCK INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 449489 10 3
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
OF THE PAR VALUE OF $.01 PER SHARE OF
============================= I.D. SYSTEMS, INC. =============================
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
Amended and Restated Certificate of Incorporation and Amended and Restated
Bylaws of the Corporation and all amendments thereto to all of which the holder
by acceptance hereof by assents. This Certificate is not valid unless
countersigned by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of the duly authorized officers.
Dated:
/s/ Martin G. Rosansky [SEAL] /s/ Kenneth S. Ehrman
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
================================================================================
<PAGE>
I.D. SYSTEMS, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE CORPORATION OR THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to the applicable laws of regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - _________________ Custodian ______________
(Cust) (Minor)
under Uniform Gifts to Minors
Act_______________________
(State)
Additional Abbreviations may also be used though not in the above list.
For Value Received, ___________________________hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNED)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________Shares
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Date________________________________
________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
SIGNATURE(S) GUARANTEED ________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT
IS LOST, STOLEN, MUTILATED OR DESTROYED, THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY
AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
<PAGE>
- --------------------------------------------------------------------------------
AMERICAN BANK NOTE COMPANY
680 BLAIR MILL ROAD
HORSHAM, PA 19044
(215) 657-3480
- --------------------------------------------------------------------------------
SALES: J. NAPOLITANO: 212 593-5700
- --------------------------------------------------------------------------------
/NET/BANKNOTE/HOME 12/I.D./H61880
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRODUCTION COORDINATOR: LISA MARTIN: 215-830-2155
PROOF OF MAY 20, 1999
I.D. SYSTEMS, INC.
H 61880 back
- --------------------------------------------------------------------------------
OPERATOR: eg
- --------------------------------------------------------------------------------
NEW
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 4.2
OHS DRAFT
- --------------------------------------------------------------------------------
I.D. SYSTEMS, INC.
AND
GILFORD SECURITIES INCORPORATED
REPRESENTATIVE'S
WARRANT AGREEMENT
DATED AS OF , 1999
- --------------------------------------------------------------------------------
<PAGE>
REPRESENTATIVE'S WARRANT AGREEMENT dated as of _________, 1999
between I.D. SYSTEMS, INC., a Delaware corporation (the "Company"), and GILFORD
SECURITIES INCORPORATED (hereinafter referred to variously as the "Holder" or
"Holders" or the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative
warrants ("Warrants") to purchase up to an aggregate 200,000 shares of Common
Stock, $0.01 par value, of the Company; and
WHEREAS, the Representative has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated as of the date
hereof between the Company and the several Underwriters listed therein to act as
the Representative in connection with the Company's proposed public offering of
up to 2,000,000 shares of Common Stock at a public offering price of $______ per
share of Common Stock (the "Public Offering"); and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Representative in consideration for, and as
part of the Representative's compensation in connection with, the Representative
acting as the Representative pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of an aggregate twenty dollars ($20.00),
the agreements herein set forth and other good and valuable consideration,
hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1. GRANT. The Representative (or its designees) is hereby granted the
right to purchase, at any time from _____________, 2000 [twelve months after
date of this Agreement], until 5:30 P.M., New York time, on ___________, 2004
[five years after date of this Agreement], up to an aggregate of 200,000 shares
of Common Stock at an initial exercise price (subject to adjustment as provided
in SECTION 8 hereof) of $_____ per share of Common Stock [120% of initial public
offering price per share of Common Stock], subject to the terms and conditions
of this Agreement. Except as set forth herein, the shares of Common Stock are in
all respects identical to the shares of Common Stock being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement. The shares of Common Stock are sometimes hereinafter
referred to collectively as the "Securities."
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
Section 3.1 METHOD OF EXERCISE. The Warrants initially are
exercisable at an aggregate initial exercise price per share of Common Stock
set forth in SECTION 6 hereof payable by certified or official bank check in
New York Clearing House funds, subject to adjustment as provided in SECTION 8
hereof. Upon surrender of a Warrant Certificate with the annexed Form of
Election to Purchase duly executed, together with payment of the Exercise
Price (as hereinafter defined) for the shares of Common Stock purchased at
the Company's principal executive offices (presently located at 90 William
Street, Suite 402, New York, New York 10038) the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or
2
<PAGE>
certificates for the shares of Common Stock so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holder thereof, in whole or in part (but not as to fractional shares of the
Common Stock). Warrants may be exercised to purchase all or part of the shares
of Common Stock. In the case of the purchase of less than all the shares of
Common Stock purchasable under any Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock purchasable thereunder.
Section 3.2 EXERCISE BY SURRENDER OF WARRANT. In addition to the
method of payment set forth in SECTION 3.1 and in lieu of any cash payment
required thereunder, the Holder(s) of the Warrants shall have the right at
any time and from time to time to exercise the Warrants in full or in part by
surrendering the Warrant Certificate in the manner specified in SECTION 3.1
hereof. The number of shares of Common Stock to be issued pursuant to this
SECTION 3.2 shall be equal to the difference between (a) the number of shares
of Common Stock in respect of which the Warrants are exercised and (b) a
fraction, the numerator of which shall be the number of shares of Common
Stock in respect of which the Warrants are exercised multiplied by the
Exercise Price and the denominator of which shall be the Market Price (as
defined in SECTION 3.3 hereof) of the shares of Common Stock. Solely for the
purposes of this paragraph, Market Price shall be calculated either (i) on
the date on which the form of election attached hereto is deemed to have been
sent to the Company pursuant to Section 14 hereof ("Notice Date") or (ii) as
the average of the Market Prices for each of the five trading days preceding
the Notice Date, whichever of (i) or (ii) is greater.
Section 3.3 DEFINITION OF MARKET PRICE. As used herein, the phrase
"Market Price" at any date shall be deemed to be when referring to the Common
Stock, the last reported sale price, or,
3
<PAGE>
in case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading or by the Nasdaq National Market ("NNM"),
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange or quoted by NNM, the average closing bid price as furnished
by the National Association of Securities Dealers, Inc. ("NASD") through NNM or
similar organization if NNM is no longer reporting such information, or if the
Common Stock is not quoted on NNM, as determined in good faith (using customary
valuation methods) by resolution of the members of the Board of Directors of the
Company, based on the best information available to it.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of SECTIONS 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares
of Common Stock (and/or other securities, property or rights issuable upon the
exercise of the Warrants) shall be
4
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executed on behalf of the Company by the manual or facsimile signature of the
then Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer. Certificates representing the shares of Common Stock (and/or other
securities, property or rights issuable upon exercise of the Warrants) shall be
dated as of the Notice Date (regardless of when executed or delivered) and
dividend bearing securities so issued shall accrue dividends from the Notice
Date.
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representative.
6. EXERCISE PRICE.
Section 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in SECTION 8 hereof, the initial exercise price of each Warrant shall
be $_____ per share of Common Stock [120% of the initial public offering price
of the Common Stock]. The adjusted exercise price shall be the price which
shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of SECTION 8 hereof. Any
transfer of a Warrant shall constitute an automatic transfer and assignment
of the registration rights set forth in SECTION 7 hereof with respect to the
Securities or other securities, properties or rights underlying the Warrants.
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Section 6.2 EXERCISE PRICE. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending
upon the context or unless otherwise specified.
7. REGISTRATION RIGHTS.
Section 7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The
Warrants and the shares of Common Stock or other securities issuable upon
exercise of the Warrants (collectively, the "Warrant Securities") have not
been registered under the Securities Act of 1933, as amended (the "Act").
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Warrant Securities shall bear the following legend:
The securities represented by this
certificate have not been registered under
the Securities Act of 1933, as amended
("Act"), and may not be offered or sold
except pursuant to (i) an effective
registration statement under the Act, (ii)
to the extent applicable, Rule 144 under the
Act (or any similar rule under such Act
relating to the disposition of securities),
or (iii) an opinion of counsel, if such
opinion shall be reasonably satisfactory to
counsel to the issuer, that an exemption
from registration under such Act is
available.
Section 7.2 PIGGYBACK REGISTRATION. If, at any time commencing after
the date hereof and expiring five (5) years after the effective date of the
Public Offering, the Company proposes to register any of its securities under
the Act (other than pursuant to Form S-4, Form S-8 or a comparable
registration statement) it will give written notice by registered mail, at
least thirty (30) days prior to the filing of each such registration
statement, to the Representative and to all other Holders of the Warrants
and/or the Warrant Securities of its intention to do so. If the
Representative or other Holders of the Warrants and/or Warrant Securities
notify the Company within twenty (20) business days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the
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Representative and such Holders of the Warrants and/or Warrant Securities the
opportunity to have any such Warrant Securities registered under such
registration statement.
Notwithstanding the provisions of this SECTION 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this SECTION 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
Section 7.3 DEMAND REGISTRATION.
(a) At any time commencing after the date hereof and expiring five (5)
years after the effective date of the Public Offering, the Holders of the
Warrants and/or Warrant Securities representing a "Majority" (as hereinafter
defined) of such securities (assuming the exercise of all of the Warrants) shall
have the right (which right is in addition to the registration rights under
SECTION 7.2 hereof), exercisable by written notice to the Company, to have the
Company prepare and file with the Securities and Exchange Commission (the
"Commission"), on one occasion, a registration statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for the Company and counsel for the Representative and Holders, in order
to comply with the provisions of the Act, so as to permit a public offering and
sale of their respective Warrant Securities for nine (9) consecutive months by
such Holders and any other Holders of the Warrants and/or Warrant Securities who
notify the Company within ten (10) days after receiving notice from the Company
of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this SECTION 7.3 (whether such request is made
pursuant to SECTION 7.3(a) or 7.3(c)
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hereof) by any Holder or Holders to all other registered Holders of the Warrants
and the Warrant Securities within ten (10) days from the date of the receipt of
any such registration request.
(c) In addition to the registration rights under SECTION 7.2 and
SECTION 7.3(a), at any time commencing after the date hereof and expiring five
(5) years thereafter, any Holder(s) of Warrants and/or Warrant Securities shall
have the right, exercisable by written request to the Company, to have the
Company prepare and file with the Commission, on one occasion, a registration
statement so as to permit a public offering and sale for nine (9) consecutive
months by any such Holder(s) of its or their Warrants and/or Warrant Securities;
PROVIDED, HOWEVER, that the provisions of SECTION 7.4(b) hereof shall not apply
to any such registration request and all costs incident thereto shall be at the
expense of the Holder(s) making such request.
(d) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in SECTION 7.4(a) hereof pursuant to the
written notice specified in SECTION 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company may, at its option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities requesting such registration, repurchase (i) any and all
Warrant Securities of such Holders at the higher of the Market Price per share
of Common Stock, determined as of (x) the date of the notice sent pursuant to
SECTION 7.3(a) or (y) the expiration of the period specified in SECTION 7.4(a)
and (ii) any and all Warrants of such Holders at such Market Price less the
Exercise Price of such Warrant. Such repurchase shall be in immediately
available funds and shall close within two (2) days after the later of (i) the
expiration of the period specified in SECTION 7.4(a) or (ii) the delivery of the
written notice of election specified in this SECTION 7.3(d).
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Section 7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall use
its best efforts to have any registration statements declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
SECTIONS 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Warrant Securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the Holder(s), provided that the Company
shall not be obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under the laws of
any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant Securities
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of SECTION 15 of the Act or SECTION
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability
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(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the provisions
pursuant to which the Company has agreed to indemnify each of the Underwriters
contained in Section 7 of the Underwriting Agreement.
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of SECTION 15 of the Act or
SECTION 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holders, or their successors or assigns, for
specific inclusion in such registration statement to the same extent and with
the same effect as the provisions contained in SECTION 7 of the Underwriting
Agreement pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as requiring
the Holder(s) to exercise their Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities other
than the Warrant Securities to be included in any registration statement filed
pursuant to SECTION 7.3 hereof, or permit any other registration statement to be
or remain effective during the effectiveness of a registration statement filed
pursuant to Section 7.3 hereof (other than (i) shelf
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registrations effective prior thereto and (ii) registrations on Form S-4 or
S-8), without the prior written consent of the Holders of the Warrants and
Warrant Securities representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed to
such Holder or underwriter, of (i) an opinion of counsel to the Company, dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement) relating to the due incorporation of
the Company, the validity of the shares being issued, the due execution and
delivery of the underwriting agreement and Rule 10b-5, and (ii) a "cold comfort"
letter dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated the date
of the closing under the underwriting agreement) signed by the independent
public accountants who have issued a report on the Company's financial
statements included in such registration statement, covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, with respect to events subsequent to the date of such
financial statements, as are customarily covered in accountants' letters
delivered to underwriters in underwritten public offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months thereafter,
make "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with SECTION 11(a) of the Act and covering a period of at least 12 consecutive
months beginning after the effective date of the registration statement.
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(j) The Company shall deliver promptly to each Holder participating in
the offering requesting the correspondence and memoranda described below and to
the managing underwriters, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the NASD. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriters selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested pursuant to SECTION 7.3(a) to be
included in such underwriting, which may be the Representative. Such agreement
shall be satisfactory in form and substance to the Company, each Holder and such
managing underwriter(s), and shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the managing underwriter(s). The Holders shall
be parties to any underwriting agreement relating to an underwritten sale of
their Warrant Securities whether pursuant to SECTION 7.2 or SECTION 7.3(a) and
may, at their option, require that any or all of the representations, warranties
and covenants of the Company to or for the benefit of such underwriter(s) shall
also be made to and for the benefit of such Holders. Such Holders shall not be
required to make any representations or warranties to or agreements with the
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Company or the underwriter(s) except as they may relate to such Holders and
their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in reference to
the Holders of Warrants or Warrant Securities, shall mean in excess of fifty
percent (50%) of the then outstanding Warrants or Warrant Securities that (i)
are not held by the Company, an affiliate, officer, creditor, employee or agent
thereof or any of their respective affiliates, members of their family, persons
acting as nominees or in conjunction therewith and (ii) have not been resold to
the public pursuant to a registration statement filed with the Commission under
the Act.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
Section 8.1 SUBDIVISION AND COMBINATION. In case the Company shall
at any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
Section 8.2 STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company
shall pay a dividend in, or make a distribution of, shares of Common Stock or
of the Company's capital stock convertible into Common Stock, the Exercise
Price shall forthwith be proportionately decreased. An adjustment made
pursuant to this SECTION 8.2 shall be made as of the record date for the
subject stock dividend or distribution.
Section 8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment
of the Exercise Price pursuant to the provisions of this SECTION 8, the
number of Warrant Securities issuable upon the exercise at the adjusted
exercise price of each Warrant shall be adjusted to the nearest full amount
by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Securities issuable upon
exercise of the Warrants immediately prior to such
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adjustment and dividing the product so obtained by the adjusted Exercise Price.
Section 8.4 DEFINITION OF COMMON STOCK. For the purpose of this
Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company
as may be amended as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value,
or from no par value to par value.
Section 8.5 MERGER OR CONSOLIDATION. In case of any consolidation of
the Company with, or merger of the Company with, or merger of the Company
into, another corporation (other than a consolidation or merger which does
not result in any reclassification or change of the outstanding Common
Stock), the corporation formed by such consolidation or merger shall execute
and deliver to the Holder a supplemental warrant agreement providing that the
holder of each Warrant then outstanding or to be outstanding shall have the
right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of stock and other
securities and property receivable upon such consolidation or merger, by a
holder of the number of securities of the Company for which such Warrant
might have been exercised immediately prior to such consolidation, merger,
sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in SECTION
8. The above provision of this subsection shall similarly apply to successive
consolidations or mergers.
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Section 8.6 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No
adjustment of the Exercise Price shall be made if the amount of said
adjustment shall be less than two cents (24) per Warrant Security, provided,
however, that in such case any adjustment that would otherwise be required
then to be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall amount to at least two cents (24) per
Warrant Security.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrants, nor shall it be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights.
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11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock, and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on the Amex or Nasdaq.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings or capital surplus (in
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accordance with applicable law), as indicated by the accounting
treatment of such dividend or distribution on the books of the Company;
or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. NOTICES.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
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(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in SECTION 3
hereof or to such other address as the Company may designate by notice
to the Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the Representative may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Representative) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Representative may deem necessary or desirable and which the Company and
the Representative deem shall not adversely affect the interests of the Holders
of Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of
business on __________, 2006. Notwithstanding the foregoing, the indemnification
provisions of SECTION 7 shall survive such termination until the close of
business on _________, 2012.
17. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each
Warrant Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of New York and for all purposes shall be construed in
accordance with the laws of said State without giving effect to the rules of
said State governing the conflicts of laws.
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The Company, the Representative and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Representative and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Representative
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
set forth in SECTION 13 hereof. Such mailing shall be deemed personal service
and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, the Representative and the Holders agree that
the prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefore.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contains the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
19. SEVERABILITY. If any provision of this Agreement shall be held to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
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20. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Representative and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
the Representative and any other registered Holders of Warrant Certificates or
Warrant Securities.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
I.D. SYSTEMS, INC.
BY:
----------------------------------
Name:
Title:
Attest:
- -------------------------------
Secretary
GILFORD SECURITIES INCORPORATED
BY:
----------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, ___________, 2004
No. W- Warrants to Purchase
____ shares of Common
Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________, or
registered assigns, is the registered holder of ________ Warrants to purchase
initially, at any time from _________, 2000 until 5:30 p.m. New York time on
__________, 2004 ("Expiration Date"), up to 200,000 fully-paid and
non-assessable shares of common stock, $0.01 par value ("Common Stock"), of
I.D. SYSTEMS, INC., a Delaware corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise
Price"), of $_____ per share of Common Stock upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of _________, 1999 between the Company and GILFORD
SECURITIES INCORPORATED (the "Warrant Agreement"). Payment of the Exercise
Price shall be made by certified or official bank check in New York Clearing
House funds payable to the order of the Company or by surrender of this
Warrant Certificate.
<PAGE>
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of _____________, 1999
I.D. SYSTEMS, INC.
BY:
---------------------------------
Name:
Title:
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
approximately __________________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or
official bank check payable in New York Clearing House Funds to the
order of I.D. Systems, Inc. in the amount of $_______________________,
all in accordance with the terms of Section 3.1 of the Representative's
Warrant Agreement dated as of _________, 1999 between, I.D. Systems,
Inc. and Gilford Securities Incorporated The undersigned requests that
a certificate for such securities be registered in the name of _______
whose address is ___________ and that such Certificate be delivered to
___________ whose address is ________________.
Dated:
Signature
-----------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
---------------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder)
5
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase:
approximately _____________________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrants all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of ________, 1999 between I.D. Systems, Inc. and Gilford
Securities Incorporated. The undersigned requests that a certificate for such
securities be registered in the name of ____________ whose address is _________
and that such Certificate be delivered to _________ whose address is __________.
Dated:
Signature
--------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-----------------------------------------------------
(Insert Social Security or Other Identifying Number
of Holder)
6
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED______________hereby sells, assigns and transfers
unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ____ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
-------------- SIGNATURE:
-------------------------------------------
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant
Certificate.)
-----------------------------------------------------
Insert Social Security or Other Identifying Number of
Assignee)
7
<PAGE>
Exhibit 5.1
June 24, 1999
I.D. Systems, Inc.
90 Williams Street, Suite 402
New York, New York 10038
Gentlemen:
We have acted as counsel to I.D. Systems, Inc., a Delaware corporation
(the "COMPANY"), in connection with its filing of a registration statement on
Form SB-2 (File No. 333- 75169) (the "REGISTRATION STATEMENT") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the offering of 2,300,000 shares of Common Stock, par value $.01 per
share (including 300,000 shares subject to an over-allotment option) (the
"SHARES"), which will be sold by the Company, all as more particularly described
in the Registration Statement.
In our capacity as counsel to the Company, we have examined originals or
copies, satisfactory to us, of the Company's (i) Restated Certificate of
Incorporation, (ii) By-laws and (iii) resolutions of the Company's Board of
Directors. We have also reviewed such other matters of law and examined and
relied upon such corporate records, agreements, certificates and other documents
as we have deemed relevant and necessary as a basis for the opinion hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies or facsimiles. As to any facts material to such opinion, we have, to the
extent that relevant facts were not independently established by us, relied on
certificates of public offi cials and certificates of officers or other
representatives of the Company.
On the basis of the foregoing, we are of the opinion that the Shares have
been validly authorized and, when sold as contemplated in the Registration
Statement, will be legally issued, fully paid and non-assessable.
<PAGE>
I.D. Systems, Inc. -2- June 24, 1999
We hereby consent to the use of our name under the caption
"Legal Matters" in the Registration Statement and the filing of this opinion as
an exhibit to the Registration Statement.
Very truly yours,
/s/ Parker Chapin Flattau & Klimpl, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 3 to Registration Statement
(No. 333-76947) on Form SB-2 of our report dated April 20, 1999 on the
financial statements of I.D. Systems, Inc. as of December 31, 1998 and for
the years ended December 31, 1997 and December 31, 1998. We also consent to
the reference to our firm under the caption "Experts" in the Prospectus.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
New York, New York
June 24, 1999
