<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1999.
REGISTRATION NO. 333-76947
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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 7, 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. 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
Our products are targeted to the automatic data collection market. This
market primarily refers to companies that use bar-coding equipment to
electronically identify and track objects. Radio frequency identification was
developed to address problems presented by bar-coding technology. Venture
Development Corporation estimates that global revenues for products which use
radio frequency identification systems were $540 million in 1997 and are
projected to increase to $1.6 billion by 2002.
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. Since our system does not need a
central computer or mainframe, we believe our system, when compared to
conventional radio frequency systems, is:
- more flexible;
- lower in cost;
- more reliable; and
- more functional.
OUR INITIAL TARGET MARKET
Our products may be used in a wide variety of industries. We are currently
marketing our system to:
- shipping and delivery companies;
- companies with fleets of forklift trucks and other similar vehicles;
- rental car companies; and
- railroad and transportation companies.
3
<PAGE>
OUR STRATEGY
Our objective is to become the leading provider of wireless monitoring and
tracking systems. To achieve this objective, our strategy is to:
- expand product capabilities and applications by enhancing the features of
our system;
- strengthen sales and marketing efforts, including enhancing our website to
allow prospective customers to "test drive" our system and through, among
other things, Internet advertising; and
- continue to develop additional revenue sources by selling software and
hardware upgrades as well as ongoing maintenance and support contracts.
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.
4
<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>
5
<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
6
<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.
7
<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.
8
<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.
9
<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
10
<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.
11
<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 $2.45 per share of common stock to existing stockholders and an
immediate dilution of $5.25 per share 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.
12
<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.
13
<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.
14
<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>
15
<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.
16
<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
17
<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.
18
<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 $856,000 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.
19
<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.
20
<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.
21
<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
22
<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.
23
<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
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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
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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,
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<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.
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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
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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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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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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 prior to 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.
36
<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. We cannot assure you, however, that future transactions or arrangements
between us and affiliates will continue to be advantageous to us, that conflicts
of interest will not arise with respect thereto, or that if conflicts do arise,
they will be resolved in a manner favorable to us. 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.
37
<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.
38
<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.
39
<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.
40
<PAGE>
UNDERWRITING
I.D. Systems and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, 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 all the shares are not sold at the initial public
offering price, the underwriters may change the offering price and other selling
terms.
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.
41
<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 120% 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.
42
<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.
43
<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.............................................................. 6
Forward Looking Statements................................................ 9
Use of Proceeds........................................................... 10
Dividend Policy........................................................... 11
Dilution.................................................................. 12
Capitalization............................................................ 13
Selected Financial Data................................................... 14
Management Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 16
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................................................... *
Blue sky fees and expenses (including legal and filing fees)........................ *
Printing expenses (other than stock certificates)................................... *
Printing and engraving of stock certificates........................................ *
Legal fees and expenses (other than Blue Sky)....................................... *
Consulting fee...................................................................... *
Accounting fees and expenses........................................................ *
Transfer Agent and Registrar fees and expenses...................................... *
Miscellaneous expenses.............................................................. *
---------
Total........................................................................... $
---------
---------
</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
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 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and 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.
** To be filed by amendment.
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. 2 to the
Registration Statement to be signed on its behalf by the undersigned, in New
York County, State of New York, on the 7th 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 7, 1999
Kenneth S. Ehrman Director
* Director
- ------------------------------ June 7, 1999
Jeffrey M. Jagid
* Director
- ------------------------------ June 7, 1999
N. Bert Loosmore
/s/ BRUCE JAGID Treasurer (Principal
- ------------------------------ Financial Officer) and June 7, 1999
Bruce Jagid Director
* Director
- ------------------------------ June 7, 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 Amended and Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.**
4.1 Specimen Certificate of the Registrant's Common Stock.**
4.2 Form of Underwriter'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 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.
** To be filed by amendment.
<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 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT dated as of June 1, 1999, between I.D.
Systems, Inc. a Delaware corporation (the "COMPANY"), and Kenneth S. Ehrman
("EMPLOYEE").
W I T N E S S E T H :
WHEREAS, Employee has been employed directly or indirectly by the
Company for several years; and
WHEREAS, the Company desires that Employee continue to be employed by
it and render services to it, and Employee is willing to be so employed and to
render such services to the Company, all upon the terms and subject to the
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. EMPLOYMENT. Subject to and upon the terms and conditions contained
in this Agreement, the Company hereby agrees to continue to employ Employee and
Employee agrees to continue in the employ of the Company, for the period set
forth in Paragraph 2 hereof, to render to the Company, its affiliates and/or
subsidiaries the services described in Paragraph 3 hereof.
2. TERM. Employee's term of employment under this Agreement shall
be three (3) years, commencing on the date hereof and continuing through and
including May 31, 2002, unless extended in writing as provided below or
earlier terminated pursuant to the terms and conditions set forth herein (the
"EMPLOYMENT TERM").
3. DUTIES. (a) Employee shall serve as a senior executive of the
Company subject to the authority of the Board of Directors of the Company. If
elected by the Board of Directors, Employee will serve as President of the
Company. Employee shall perform all duties and services incident to the
positions held by him.
(b) Employee agrees to abide by all By-laws and policies of the
Company promulgated from time to time by the Company.
4. EXCLUSIVE SERVICES AND BEST EFFORTS. Employee agrees to devote his
best efforts, energies and skill to the discharge of the duties and
responsibilities attributable to his position, and to this end, he will devote
his full time and attention during regular business hours to
<PAGE>
the business and affairs of the Company, subject to the provisions of the last
sentence of subparagraph 11(b) hereof.
5. COMPENSATION. (a) As compensation for his services and covenants
hereunder, Employee shall receive a salary ("SALARY"), payable pursuant to the
Company's normal payroll procedures in place from time to time, at the rate of
$108,000 per annum, less all necessary and required federal, state and local
payroll deductions. Employee shall be entitled to receive salary increases as
may be determined from time to time by the Board of Directors of the Company.
(b) In addition to such Salary, Employee shall be entitled to
receive such bonuses as may be determined from time to time by the Board of
Directors of the Company and shall be eligible to receive stock options
entitling Employee to acquire shares of Common Stock under the Company's 1999
Stock Option Plan, pursuant to the policies of the Company from time to time to
generally make available stock options, to executive employees.
6. BUSINESS EXPENSES. Employee shall be reimbursed for, and entitled
to advances (subject to repayment to the Company if not actually incurred by
Employee) with respect to those business expenses incurred by him which are
reasonable and necessary for Employee to perform his duties under this Agreement
in accordance with policies established from time to time by the Company.
7. EMPLOYEE BENEFITS. (a) During the Employment Term, Employee shall
be entitled to such insurance, disability and health and medical benefits and be
entitled to participate in such retirement plans or programs as are from time to
time generally made available to executive employees of the Company pursuant to
the policies of the Company; PROVIDED THAT Employee shall be required to comply
with the conditions attendant to coverage by such plans and shall comply with
and be entitled to benefits only in accordance with the terms and conditions of
such plans. The Com pany may withhold from any benefits payable to Employee all
federal, state, local and other taxes and amounts as shall be permitted or
required to be withheld pursuant to any applicable law, rule or regulation.
(b) Employee shall be entitled to vacation in accordance with the
Company's policy in effect for executive staff, which shall be taken at such
time or times as shall be mutually agreed upon with the Company.
8. DEATH AND DISABILITY. (a) The Employment Term shall terminate on
the date of Employee's death, in which event Employee's Salary, reimbursable
expenses and benefits owing to Employee through the date of Employee's death
shall be paid to his estate. Employee's estate will not be entitled to any other
compensation upon termination of this Agreement pursuant to this subparagraph
8(a).
(b) The Employment term shall terminate upon Employee's
Disability. For purposes of this Agreement, "Disability" shall mean a physical
or mental disability or infirmity
-2-
<PAGE>
that prevents the material performance by Employee of his duties hereunder
lasting for a continuous period of six months or longer. The reasoned and good
faith judgment of the Company's Board of Directors as to Disability shall be
based on such competent medical evidence as shall be presented to it by Employee
or by any physician or group of physicians or other competent medical experts
employed by Employee or the Company to advise the Company's Board of Directors.
In case of such termination, Employee shall be entitled to receive his Salary,
reimbursable expenses and benefits owing to Employee through the date of
termination. In addition, the Company shall pay to Employee, within 60 days of
the date of Employee's termination, in a lump-sum, an amount equal to Employee's
then annual Salary. Employee will not be entitled to any other compensation upon
termination of his employment pursuant to this subparagraph 8(b).
9. TERMINATION. The Company shall have the right to terminate the
employment of Employee and to terminate this Agreement in the event of: (a) The
repeated willful failure of Employee substantially to perform his duties
hereunder (other than any such failure due to physical or mental illness) that
has not been cured reasonably promptly after a written demand for substantial
performance is delivered to Employee by the Company's Board of Directors, which
demand identifies the manner in which the Company's Board of Directors believes
that Employee has not substantially performed his duties hereunder, (b)
Conviction of, or entering a plea of nolo contendere to, a crime that
constitutes a felony, (c) Employee's engaging in serious misconduct that is
injurious to the Company, (d) the material breach by Employee of any written
covenant or agreement with the Company not to disclose any information
pertaining to the Company or not to compete with the Company including (without
limitation) the covenants and agreements contained in paragraph 11 hereof. Upon
such termination, the Company shall be released from any and all further
obligations under this Agreement, except that the Company shall be obligated to
pay Employee his Salary, reimbursable expenses and benefits owing to Employee
through the day on which Employee is terminated. Employee will not be entitled
to any other compensation upon termination of this Agreement pursuant to this
Paragraph 9.
10. CHANGE IN CONTROL - TERMINATION OF EMPLOYMENT AND COMPENSATION IN
EVENT OF TERMINATION. (a) After a Change in Control (as defined below) of the
Company has occurred, if either Employee terminates his employment within six
(6) months after he has obtained actual knowledge of the Change in Control or
the Company (or any successor thereto) terminates Employee's employment with the
Company after the Change in Control, Employee shall be entitled to receive a
lump-sum payment (the "TERMINATION COMPENSATION"), in cash, on the Termination
Date, in an amount equal to the greater of one year's salary or the salary,
bonuses, awards, perquisites and benefits that would have been due to the
Employee for the remainder of the Employment Term. The amount of the Termination
Compensation shall be computed, at the expense of the Company, by an independent
certified public accounting firm selected by the Board of Directors (the
"ACCOUNTANTS"), whose computation shall be conclusive and binding upon Employee
and the Company.
(b) For purposes hereof, a "CHANGE IN CONTROL" shall be deemed to
have occurred if: (i) any "person" or "group" (as such terms are used in
Sections 3(a)(9) and 13(d)(3) of
-3-
<PAGE>
the Securities Exchange Act of 1934, as amended (the "ACT")), except for an
employee stock ownership trust (or any of the trustees thereof) or any of
Kenneth S. Ehrman, N. Bert Loosmore, Bruce Jagid, Martin G. Rosansky, Michael
L. Ehrman or Jeffrey M. Jagid, becomes a "beneficial owner" (as such term is
used in Rule 13d-3 promulgated under the Act), after the date hereof,
directly or indirectly, of securities of the Company representing 20% or more
of the combined voting power of the Company's then outstanding securities;
(ii) a change in "control" of the Company (as the term "control" is defined
in Rule 12b-2 or any successor rule promulgated under the Act) shall have
occurred; (iii) the majority of the Board of Directors, as such entire Board
of Directors is composed at the date of this Agreement, no longer serve as
directors of the Company, except that there shall not be counted toward such
majority who no longer serve as directors any director who ceased to serve
either prior to the date of a Change in Control, for any reason, or at any
other time due to his death, disability or termination for cause; (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or (v) the stockholders of the
Company approve a merger or consolidation of the Company with any other
company, other than a merger or consolidation which would result in the
combined voting power of the Company's voting securities outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 70% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation. Notwithstanding the foregoing, any transaction
involving a leveraged buyout or other acquisition of the Company which would
otherwise constitute a Change in Control, in which Employee participates in
the surviving or successor entity (other than solely as an employee or
consultant), shall not constitute a Change in Control.
(c) Notwithstanding anything in this Agreement to the contrary,
Employee shall have the right, prior to the receipt by him of any amounts due
thereunder, to waive the receipt thereof or, subsequent to the receipt by him of
any amounts due hereunder, to treat some or all of such amounts as a loan from
the Company which Employee shall repay to the Company, within 90 days from the
date of receipt, with interest at the rate provided in Section 7872 of the Code.
Notice of any such waiver or treatment of amounts received as a loan shall be
given by Employee to the Company in writing and shall be binding upon the
Company.
11. DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION;
RESTRICTIVE COVENANTS. Employee acknowledges that, by his employment, he has
been and will be in a confidential relationship with the Company and will have
access to confidential information and trade secrets of the Company, its
subsidiaries and affiliates. Confidential information and trade secrets include,
but are not limited to, customer, supplier and client lists, panels and
interviewers, price lists, marketing, strategies and procedures, operational
techniques, business plans and systems, quality control procedures and systems,
special projects and survey and market research, including projects, research
and reports for any entity or client, and any other records, files, drawings,
discoveries, applications, data, computer software programs and source codes and
information concerning the business of the Company and its customers and clients
which are not in the public domain. Employee agrees that in consideration of the
execution of this Agreement by the Company:
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<PAGE>
(a) Employee will not, during the term of this Agreement or at
any time thereafter, use, or disclose to any third party, trade secrets or
confidential information of the Company, including, but not limited to,
confidential information or trade secrets belonging or relating to the Company,
its subsidiaries, affiliates, customers and clients or proprietary procedures of
the Company, its subsidiaries, affiliates customers and clients. Proprietary
procedures shall include, but shall not be limited to, all information which is
known or intended to be known only by employees of the Company, its subsidiaries
and affiliates or others in a confidential relationship with the Company or its
subsidiaries and affiliates which relates to business matters.
(b) Employee will not, during the term of this Agreement,
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, manager, stockholder, officer, director, or in any other individual or
representative capacity, engage in or participate in any business that is
competitive with any business carried on by the Company or any of its
subsidiaries or affiliates during the term of this Agreement. The ownership by
Employee of 5% or less of the issued and outstanding shares of a class of
securities which is traded on a national securities exchange or in the
over-the-counter market, shall not cause Employee to be deemed a shareholder
under this subparagraph 11(b) or constitute a breach of this subparagraph 11(b).
(c) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, directly or indirectly, work as an
employee, employer, consultant, agent, principal, partner, manager, stockholder,
officer, director, or in any other individual or representative capacity for any
person or entity who or which was a competitor of the Company or any of its
subsidiaries or affiliates during the term of Employee's employment with the
Company. The ownership by Employee of 5% or less of the issued and outstanding
shares of a class of securities which is traded on a national securities
exchange or in the over-the-counter market, shall not cause Employee to be
deemed a shareholder under this subparagraph 11(c) or constitute a breach of
this subparagraph 11(c).
(d) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, on his behalf or on behalf of any
other business enterprise, directly or indirectly, under any circumstance other
than at the direction and for the benefit of the Company, (i) solicit for
employment or employ any person who was employed by the Company or any of its
subsidiaries or affiliates during Employee's employment with the Company, or
(ii) call on, solicit, or take away any person or entity who or which was a
customer or the Company or any of its subsidiaries or affiliates during
Employee's employment with the Company.
(e) It is expressly agreed by Employee that the nature and scope
of each of the provisions set forth above in this Paragraph 11 are reasonable
and necessary. If, for any reason, any aspect of the above provisions as it
applies to Employee is determined by a court of competent jurisdiction to be
unreasonable or unenforceable, the provisions shall only be modified to the
minimum extent required to make the provisions reasonable and/or enforceable, as
the case may be. Employee acknowledges and agrees that his services are of
unique character and expressly
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<PAGE>
grants to the Company or any subsidiary or affiliate of the Company or any
successor of any of them, the right to enforce the above provisions through the
use of all remedies available at law or in equity, including, but not limited
to, injunctive relief.
(f) This Paragraph 11 and Paragraphs 12 and 13 hereof (and
Paragraphs 14 through 19 hereof as they may apply to such Paragraphs) shall
survive the expiration or termination of this Agreement for any reason.
12. COMPANY PROPERTY. (a) Any patents, inventions, discoveries,
applications or processes designed, devised, planned, applied, created,
discovered or invented by Employee in the course of Employee's employment under
this Agreement and which pertain to any aspect of the Company's or its
subsidiaries' or affiliates' business shall be the sole and absolute property of
the Company, and Employee shall promptly report the same to the Company and
promptly execute any and all documents that may from time to time reasonably be
requested by the Company to assure the Company the full and complete ownership
thereof.
(b) All records, files, lists, including computer generated
lists, drawings, documents, equipment and similar items relating to the
Company's business which Employee shall prepare or receive from the Company
shall remain the Company's sole and exclusive property. Upon termination of this
Agreement, Employee shall promptly return to the Company all property of the
Company in his possession. Employee further represents that he will not copy or
cause to be copied, print out or cause to be printed out any software, documents
or other materials originating with or belonging to the Company. Employee
additionally represents that, upon termination of his employment with the
Company, he will not retain in his possession any such software, documents or
other materials.
13. EQUITABLE RELIEF. It is mutually understood and agreed that
Employee's services are special, unique, unusual, extraordinary and of an
intellectual character giving them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in an action at law.
Accordingly, in the event of any breach of this Agreement by Employee,
including, but not limited to, the breach of any of the provisions of Paragraphs
11 or 12 hereof, the Company shall be entitled to equitable relief by way of
injunction or otherwise in addition to any damages which the Company may be
entitled to recover. In addition, the Company shall be entitled to reimbursement
from Employee, upon request, of any and all reasonable attorneys' fees and
expenses incurred by it in enforcing any term or provision of this Agreement.
14. CONSENT TO NEW YORK JURISDICTION AND VENUE. The Employee hereby
consents and agrees that the Supreme Court of the State of New York for the
County of New York and the United States District Court for the Southern
District of New York each shall have personal jurisdiction and proper venue with
respect to any dispute between the Employee and the Company. In any dispute with
the Company, the Employee will not raise, and hereby expressly waives, any
objection or defense to any such jurisdiction as an inconvenient forum.
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<PAGE>
15. NOTICE. Except as otherwise expressly provided, any notice,
request, demand or other communication permitted or required to be given under
this Agreement shall be in writing, shall be sent by one of the following means
to the Employee at his address set forth on the first page of this Agreement and
to the Company at its address set forth on the first page of this Agreement,
Attention: Jeffrey Jagid, with a copy to Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, Attention: Henry I.
Rothman, Esq. (or to such other address as shall be designated hereunder by
notice to the other parties and persons receiving copies, effective upon actual
receipt), and shall be deemed conclusively to have been given: (a) on the first
business day following the day timely deposited with Federal Express (or other
equivalent national overnight courier) or United States Express Mail, with the
cost of delivery prepaid or for the account of the sender; (b) on the fifth
business day following the day duly sent by certified or registered United
States mail, postage prepaid and return receipt requested; or (c) when otherwise
actually received by the addressee on a business day (or on the next business
day if received after the close of normal business hours or on any non-business
day).
16. INTERPRETATION; HEADINGS. The parties acknowledge and agree that
the terms and provisions of this Agreement have been negotiated, shall be
construed fairly as to all parties hereto, and shall not be construed in favor
of or against any party. The section headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
17. SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES.
Neither this Agreement, nor any of Employee's rights, powers, duties or
obligations hereunder, may be assigned by Employee. This Agreement shall be
binding upon and inure to the benefit of Employee and his heirs and legal
representatives and the Company and its successors. Successors of the Company
shall include, without limitation, any corporation or corporations acquiring,
directly or indirectly, all or substantially all of the assets of the Company,
whether by merger, consolidation, purchase, lease or otherwise, and such
successor shall thereafter be deemed "the Company" for the purpose hereof.
18. NO WAIVER BY ACTION. Any waiver or consent from the Company
respecting any term or provision of this Agreement or any other aspect of the
Employee's conduct or employment shall be effective only in the specific
instance and for the specific purpose for which given and shall not be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Company at any time or times to require performance
of, or to exercise any of its powers, rights or remedies with respect to, any
term or provision of this Agreement or any other aspect of the Employee's
conduct or employment in no manner (except as otherwise expressly provided
herein) shall affect the Company's right at a later time to enforce any such
term or provision.
19. COUNTERPARTS; NEW YORK GOVERNING LAW; AMENDMENTS; ENTIRE
AGREEMENT. This Agreement may be executed in two counterpart copies, each of
which may be executed by one of the parties hereto, but all of which, when taken
together, shall constitute a single agreement
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<PAGE>
binding upon all of the parties hereto. This Agreement and all other aspects of
the Employee's employment shall be governed by and construed in accordance with
the applicable laws pertaining in the State of New York (other than those that
would defer to the substantive laws of another juris diction). Each and every
modification and amendment of this Agreement shall be in writing and signed by
the parties hereto, and any waiver of, or consent to any departure from, any
term or provision of this Agreement shall be in writing and signed by each
affected party hereto. This Agreement contains the entire agreement of the
parties and supersedes all prior representations, agreements and understandings,
oral or otherwise, between the parties with respect to the matters contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
I.D. SYSTEMS, INC.
By: /s/ Jeffrey M. Jagid
--------------------------------
Name: Jeffrey M. Jagid
Title: COO
/s/ Kenneth S. Ehrman
-----------------------------------
KENNETH S. EHRMAN
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<PAGE>
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT dated as of June 1, 1999, between I.D.
Systems, Inc. a Delaware corporation (the "COMPANY"), and Jeffrey M. Jagid
("EMPLOYEE").
W I T N E S S E T H :
WHEREAS, Employee has been employed directly or indirectly by the
Company for several years; and
WHEREAS, the Company desires that Employee continue to be employed by
it and render services to it, and Employee is willing to be so employed and to
render such services to the Company, all upon the terms and subject to the
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. EMPLOYMENT. Subject to and upon the terms and conditions contained
in this Agreement, the Company hereby agrees to continue to employ Employee and
Employee agrees to continue in the employ of the Company, for the period set
forth in Paragraph 2 hereof, to render to the Company, its affiliates and/or
subsidiaries the services described in Paragraph 3 hereof.
2. TERM. Employee's term of employment under this Agreement shall be
three (3) years, commencing on the date hereof and continuing through and
including May 31, 2002, unless extended in writing as provided below or earlier
terminated pursuant to the terms and conditions set forth herein (the
"EMPLOYMENT TERM").
3. DUTIES. (a) Employee shall serve as a senior executive of the
Company subject to the authority of the Board of Directors of the Company. If
elected by the Board of Directors, Employee will serve as Chief Operating
Officer and General Counsel of the Company. Employee shall perform all duties
and services incident to the positions held by him.
(b) Employee agrees to abide by all By-laws and policies of the
Company promulgated from time to time by the Company.
4. EXCLUSIVE SERVICES AND BEST EFFORTS. Employee agrees to devote his
best efforts, energies and skill to the discharge of the duties and
responsibilities attributable to his position, and to this end, he will devote
his full time and attention during regular business hours to
<PAGE>
the business and affairs of the Company, subject to the provisions of the last
sentence of subparagraph 11(b) hereof.
5. COMPENSATION. (a) As compensation for his services and covenants
hereunder, Employee shall receive a salary ("SALARY"), payable pursuant to the
Company's normal payroll procedures in place from time to time, at the rate of
$108,000 per annum, less all necessary and required federal, state and local
payroll deductions. Employee shall be entitled to receive salary increases as
may be determined from time to time by the Board of Directors of the Company.
(b) In addition to such Salary, Employee shall be entitled to
receive such bonuses as may be determined from time to time by the Board of
Directors of the Company and shall be eligible to receive stock options
entitling Employee to acquire shares of Common Stock under the Company's 1999
Stock Option Plan, pursuant to the policies of the Company from time to time to
generally make available stock options, to executive employees.
6. BUSINESS EXPENSES. Employee shall be reimbursed for, and entitled
to advances (subject to repayment to the Company if not actually incurred by
Employee) with respect to those business expenses incurred by him which are
reasonable and necessary for Employee to perform his duties under this Agreement
in accordance with policies established from time to time by the Company.
7. EMPLOYEE BENEFITS. (a) During the Employment Term, Employee shall
be entitled to such insurance, disability and health and medical benefits and be
entitled to participate in such retirement plans or programs as are from time to
time generally made available to executive employees of the Company pursuant to
the policies of the Company; PROVIDED THAT Employee shall be required to comply
with the conditions attendant to coverage by such plans and shall comply with
and be entitled to benefits only in accordance with the terms and conditions of
such plans. The Com pany may withhold from any benefits payable to Employee all
federal, state, local and other taxes and amounts as shall be permitted or
required to be withheld pursuant to any applicable law, rule or regulation.
(b) Employee shall be entitled to vacation in accordance with the
Company's policy in effect for executive staff, which shall be taken at such
time or times as shall be mutually agreed upon with the Company.
8. DEATH AND DISABILITY. (a) The Employment Term shall terminate on
the date of Employee's death, in which event Employee's Salary, reimbursable
expenses and benefits owing to Employee through the date of Employee's death
shall be paid to his estate. Employee's estate will not be entitled to any other
compensation upon termination of this Agreement pursuant to this subparagraph
8(a).
(b) The Employment term shall terminate upon Employee's Disability.
For purposes of this Agreement, "Disability" shall mean a physical or mental
disability or infirmity
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<PAGE>
that prevents the material performance by Employee of his duties hereunder
lasting for a continuous period of six months or longer. The reasoned and good
faith judgment of the Company's Board of Directors as to Disability shall be
based on such competent medical evidence as shall be presented to it by Employee
or by any physician or group of physicians or other competent medical experts
employed by Employee or the Company to advise the Company's Board of Directors.
In case of such termination, Employee shall be entitled to receive his Salary,
reimbursable expenses and benefits owing to Employee through the date of
termination. In addition, the Company shall pay to Employee, within 60 days of
the date of Employee's termination, in a lump-sum, an amount equal to Employee's
then annual Salary. Employee will not be entitled to any other compensation upon
termination of his employment pursuant to this subparagraph 8(b).
9. TERMINATION. The Company shall have the right to terminate the
employment of Employee and to terminate this Agreement in the event of: (a) The
repeated willful failure of Employee substantially to perform his duties
hereunder (other than any such failure due to physical or mental illness) that
has not been cured reasonably promptly after a written demand for substantial
performance is delivered to Employee by the Company's Board of Directors, which
demand identifies the manner in which the Company's Board of Directors believes
that Employee has not substantially performed his duties hereunder, (b)
Conviction of, or entering a plea of nolo contendere to, a crime that
constitutes a felony, (c) Employee's engaging in serious misconduct that is
injurious to the Company, (d) the material breach by Employee of any written
covenant or agreement with the Company not to disclose any information
pertaining to the Company or not to compete with the Company including (without
limitation) the covenants and agreements contained in paragraph 11 hereof. Upon
such termination, the Company shall be released from any and all further
obligations under this Agreement, except that the Company shall be obligated to
pay Employee his Salary, reimbursable expenses and benefits owing to Employee
through the day on which Employee is terminated. Employee will not be entitled
to any other compensation upon termination of this Agreement pursuant to this
Paragraph 9.
10. CHANGE IN CONTROL - TERMINATION OF EMPLOYMENT AND COMPENSATION
IN EVENT OF TERMINATION. (a) After a Change in Control (as defined below) of
the Company has occurred, if either Employee terminates his employment within
six (6) months after he has obtained actual knowledge of the Change in
Control or the Company (or any successor thereto) terminates Employee's
employment with the Company after the Change in Control, Employee shall be
entitled to receive a lump-sum payment (the "TERMINATION COMPENSATION"), in
cash, on the Termination Date, in an amount equal to the greater of one
year's salary or the salary, bonuses, awards, perquisites and benefits that
would have been due to the Employee for the remainder of the Employment Term.
The amount of the Termination Compensation shall be computed, at the expense
of the Company, by an independent certified public accounting firm selected
by the Board of Directors (the "ACCOUNTANTS"), whose computation shall be
conclusive and binding upon Employee and the Company.
(b) For purposes hereof, a "CHANGE IN CONTROL" shall be deemed to
have occurred if: (i) any "person" or "group" (as such terms are used in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "ACT")), except for an employee stock
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<PAGE>
ownership trust (or any of the trustees thereof) or any of Kenneth S. Ehrman,
N. Bert Loosmore, Bruce Jagid, Martin G. Rosansky, Michael L. Ehrman or
Jeffrey M. Jagid, becomes a "beneficial owner" (as such term is used in Rule
13d-3 promulgated under the Act), after the date hereof, directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities; (ii) a
change in "control" of the Company (as the term "control" is defined in Rule
12b-2 or any successor rule promulgated under the Act) shall have occurred;
(iii) the majority of the Board of Directors, as such entire Board of
Directors is composed at the date of this Agreement, no longer serve as
directors of the Company, except that there shall not be counted toward such
majority who no longer serve as directors any director who ceased to serve
either prior to the date of a Change in Control, for any reason, or at any
other time due to his death, disability or termination for cause; (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or (v) the stockholders of the
Company approve a merger or consolidation of the Company with any other
company, other than a merger or consolidation which would result in the
combined voting power of the Company's voting securities outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 70% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation. Notwithstanding the foregoing, any transaction
involving a leveraged buyout or other acquisition of the Company which would
otherwise constitute a Change in Control, in which Employee participates in
the surviving or successor entity (other than solely as an employee or
consultant), shall not constitute a Change in Control.
(c) Notwithstanding anything in this Agreement to the contrary,
Employee shall have the right, prior to the receipt by him of any amounts due
thereunder, to waive the receipt thereof or, subsequent to the receipt by him of
any amounts due hereunder, to treat some or all of such amounts as a loan from
the Company which Employee shall repay to the Company, within 90 days from the
date of receipt, with interest at the rate provided in Section 7872 of the Code.
Notice of any such waiver or treatment of amounts received as a loan shall be
given by Employee to the Company in writing and shall be binding upon the
Company.
11. DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION;
RESTRICTIVE COVENANTS. Employee acknowledges that, by his employment, he has
been and will be in a confidential relationship with the Company and will have
access to confidential information and trade secrets of the Company, its
subsidiaries and affiliates. Confidential information and trade secrets include,
but are not limited to, customer, supplier and client lists, panels and
interviewers, price lists, marketing, strategies and procedures, operational
techniques, business plans and systems, quality control procedures and systems,
special projects and survey and market research, including projects, research
and reports for any entity or client, and any other records, files, drawings,
discoveries, applications, data, computer software programs and source codes and
information concerning the business of the Company and its customers and clients
which are not in the public domain. Employee agrees that in consideration of the
execution of this Agreement by the Company:
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<PAGE>
(a) Employee will not, during the term of this Agreement or at
any time thereafter, use, or disclose to any third party, trade secrets or
confidential information of the Company, including, but not limited to,
confidential information or trade secrets belonging or relating to the Company,
its subsidiaries, affiliates, customers and clients or proprietary procedures of
the Company, its subsidiaries, affiliates customers and clients. Proprietary
procedures shall include, but shall not be limited to, all information which is
known or intended to be known only by employees of the Company, its subsidiaries
and affiliates or others in a confidential relationship with the Company or its
subsidiaries and affiliates which relates to business matters.
(b) Employee will not, during the term of this Agreement,
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, manager, stockholder, officer, director, or in any other individual or
representative capacity, engage in or participate in any business that is
competitive with any business carried on by the Company or any of its
subsidiaries or affiliates during the term of this Agreement. The ownership by
Employee of 5% or less of the issued and outstanding shares of a class of
securities which is traded on a national securities exchange or in the
over-the-counter market, shall not cause Employee to be deemed a shareholder
under this subparagraph 11(b) or constitute a breach of this subparagraph 11(b).
(c) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, directly or indirectly, work as an
employee, employer, consultant, agent, principal, partner, manager, stockholder,
officer, director, or in any other individual or representative capacity for any
person or entity who or which was a competitor of the Company or any of its
subsidiaries or affiliates during the term of Employee's employment with the
Company. The ownership by Employee of 5% or less of the issued and outstanding
shares of a class of securities which is traded on a national securities
exchange or in the over-the-counter market, shall not cause Employee to be
deemed a shareholder under this subparagraph 11(c) or constitute a breach of
this subparagraph 11(c).
(d) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, on his behalf or on behalf of any
other business enterprise, directly or indirectly, under any circumstance other
than at the direction and for the benefit of the Company, (i) solicit for
employment or employ any person who was employed by the Company or any of its
subsidiaries or affiliates during Employee's employment with the Company, or
(ii) call on, solicit, or take away any person or entity who or which was a
customer or the Company or any of its subsidiaries or affiliates during
Employee's employment with the Company.
(e) It is expressly agreed by Employee that the nature and scope
of each of the provisions set forth above in this Paragraph 11 are reasonable
and necessary. If, for any reason, any aspect of the above provisions as it
applies to Employee is determined by a court of competent jurisdiction to be
unreasonable or unenforceable, the provisions shall only be modified to the
minimum extent required to make the provisions reasonable and/or enforceable, as
the case may be. Employee acknowledges and agrees that his services are of
unique character and expressly grants to the Company or any subsidiary or
affiliate of the Company or any successor of any of them,
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<PAGE>
the right to enforce the above provisions through the use of all remedies
available at law or in equity, including, but not limited to, injunctive relief.
(f) This Paragraph 11 and Paragraphs 12 and 13 hereof (and
Paragraphs 14 through 19 hereof as they may apply to such Paragraphs) shall
survive the expiration or termination of this Agreement for any reason.
12. COMPANY PROPERTY. (a) Any patents, inventions, discoveries,
applications or processes designed, devised, planned, applied, created,
discovered or invented by Employee in the course of Employee's employment under
this Agreement and which pertain to any aspect of the Company's or its
subsidiaries' or affiliates' business shall be the sole and absolute property of
the Company, and Employee shall promptly report the same to the Company and
promptly execute any and all documents that may from time to time reasonably be
requested by the Company to assure the Company the full and complete ownership
thereof.
(b) All records, files, lists, including computer generated
lists, drawings, documents, equipment and similar items relating to the
Company's business which Employee shall prepare or receive from the Company
shall remain the Company's sole and exclusive property. Upon termination of this
Agreement, Employee shall promptly return to the Company all property of the
Company in his possession. Employee further represents that he will not copy or
cause to be copied, print out or cause to be printed out any software, documents
or other materials originating with or belonging to the Company. Employee
additionally represents that, upon termination of his employment with the
Company, he will not retain in his possession any such software, documents or
other materials.
13. EQUITABLE RELIEF. It is mutually understood and agreed that
Employee's services are special, unique, unusual, extraordinary and of an
intellectual character giving them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in an action at law.
Accordingly, in the event of any breach of this Agreement by Employee,
including, but not limited to, the breach of any of the provisions of Paragraphs
11 or 12 hereof, the Company shall be entitled to equitable relief by way of
injunction or otherwise in addition to any damages which the Company may be
entitled to recover. In addition, the Company shall be entitled to reimbursement
from Employee, upon request, of any and all reasonable attorneys' fees and
expenses incurred by it in enforcing any term or provision of this Agreement.
14. CONSENT TO NEW YORK JURISDICTION AND VENUE. The Employee hereby
consents and agrees that the Supreme Court of the State of New York for the
County of New York and the United States District Court for the Southern
District of New York each shall have personal jurisdiction and proper venue with
respect to any dispute between the Employee and the Company. In any dispute with
the Company, the Employee will not raise, and hereby expressly waives, any
objection or defense to any such jurisdiction as an inconvenient forum.
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<PAGE>
15. NOTICE. Except as otherwise expressly provided, any notice,
request, demand or other communication permitted or required to be given under
this Agreement shall be in writing, shall be sent by one of the following means
to the Employee at his address set forth on the first page of this Agreement and
to the Company at its address set forth on the first page of this Agreement,
Attention: Jeffrey Jagid, with a copy to Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, Attention: Henry I.
Rothman, Esq. (or to such other address as shall be designated hereunder by
notice to the other parties and persons receiving copies, effective upon actual
receipt), and shall be deemed conclusively to have been given: (a) on the first
business day following the day timely deposited with Federal Express (or other
equivalent national overnight courier) or United States Express Mail, with the
cost of delivery prepaid or for the account of the sender; (b) on the fifth
business day following the day duly sent by certified or registered United
States mail, postage prepaid and return receipt requested; or (c) when otherwise
actually received by the addressee on a business day (or on the next business
day if received after the close of normal business hours or on any non-business
day).
16. INTERPRETATION; HEADINGS. The parties acknowledge and agree that
the terms and provisions of this Agreement have been negotiated, shall be
construed fairly as to all parties hereto, and shall not be construed in favor
of or against any party. The section headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
17. SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES.
Neither this Agreement, nor any of Employee's rights, powers, duties or
obligations hereunder, may be assigned by Employee. This Agreement shall be
binding upon and inure to the benefit of Employee and his heirs and legal
representatives and the Company and its successors. Successors of the Company
shall include, without limitation, any corporation or corporations acquiring,
directly or indirectly, all or substantially all of the assets of the Company,
whether by merger, consolidation, purchase, lease or otherwise, and such
successor shall thereafter be deemed "the Company" for the purpose hereof.
18. NO WAIVER BY ACTION. Any waiver or consent from the Company
respecting any term or provision of this Agreement or any other aspect of the
Employee's conduct or employment shall be effective only in the specific
instance and for the specific purpose for which given and shall not be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Company at any time or times to require performance
of, or to exercise any of its powers, rights or remedies with respect to, any
term or provision of this Agreement or any other aspect of the Employee's
conduct or employment in no manner (except as otherwise expressly provided
herein) shall affect the Company's right at a later time to enforce any such
term or provision.
19. COUNTERPARTS; NEW YORK GOVERNING LAW; AMENDMENTS; ENTIRE
AGREEMENT. This Agreement may be executed in two counterpart copies, each of
which may be executed by one of the parties hereto, but all of which, when taken
together, shall constitute a single agreement
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<PAGE>
binding upon all of the parties hereto. This Agreement and all other aspects of
the Employee's employment shall be governed by and construed in accordance with
the applicable laws pertaining in the State of New York (other than those that
would defer to the substantive laws of another juris diction). Each and every
modification and amendment of this Agreement shall be in writing and signed by
the parties hereto, and any waiver of, or consent to any departure from, any
term or provision of this Agreement shall be in writing and signed by each
affected party hereto. This Agreement contains the entire agreement of the
parties and supersedes all prior representations, agreements and understandings,
oral or otherwise, between the parties with respect to the matters contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
I.D. SYSTEMS, INC.
By: /s/ Kenneth S. Ehrman
--------------------------------
Name: Kenneth S. Ehrman
Title: President
/s/ Jeffrey M. Jagid
-----------------------------------
JEFFREY M. JAGID
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<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT dated as of June 1, 1999, between I.D.
Systems, Inc. a Delaware corporation (the "COMPANY"), and N. Bert Loosmore
("EMPLOYEE").
W I T N E S S E T H :
WHEREAS, Employee has been employed directly or indirectly by the
Company for several years; and
WHEREAS, the Company desires that Employee continue to be employed by
it and render services to it, and Employee is willing to be so employed and to
render such services to the Company, all upon the terms and subject to the
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. EMPLOYMENT. Subject to and upon the terms and conditions contained
in this Agreement, the Company hereby agrees to continue to employ Employee and
Employee agrees to continue in the employ of the Company, for the period set
forth in Paragraph 2 hereof, to render to the Company, its affiliates and/or
subsidiaries the services described in Paragraph 3 hereof.
2. TERM. Employee's term of employment under this Agreement shall be
three (3) years, commencing on the date hereof and continuing through and
including May 31, 2002, unless extended in writing as provided below or earlier
terminated pursuant to the terms and conditions set forth herein (the
"EMPLOYMENT TERM").
3. DUTIES. (a) Employee shall serve as a senior executive of the
Company subject to the authority of the Board of Directors of the Company. If
elected by the Board of Directors, Employee will serve as Executive Vice
President of Engineering of the Company. Employee shall perform all duties and
services incident to the positions held by him.
(b) Employee agrees to abide by all By-laws and policies of the
Company promulgated from time to time by the Company.
4. EXCLUSIVE SERVICES AND BEST EFFORTS. Employee agrees to devote his
best efforts, energies and skill to the discharge of the duties and
responsibilities attributable to his position, and to this end, he will devote
his full time and attention during regular business hours to
<PAGE>
the business and affairs of the Company, subject to the provisions of the last
sentence of subparagraph 11(b) hereof.
5. COMPENSATION. (a) As compensation for his services and covenants
hereunder, Employee shall receive a salary ("SALARY"), payable pursuant to the
Company's normal payroll procedures in place from time to time, at the rate of
$96,000 per annum, less all necessary and required federal, state and local
payroll deductions. Employee shall be entitled to receive salary increases as
may be determined from time to time by the Board of Directors of the Company.
(b) In addition to such Salary, Employee shall be entitled to
receive such bonuses as may be determined from time to time by the Board of
Directors of the Company and shall be eligible to receive stock options
entitling Employee to acquire shares of Common Stock under the Company's 1999
Stock Option Plan, pursuant to the policies of the Company from time to time to
generally make available stock options, to executive employees.
6. BUSINESS EXPENSES. Employee shall be reimbursed for, and entitled
to advances (subject to repayment to the Company if not actually incurred by
Employee) with respect to those business expenses incurred by him which are
reasonable and necessary for Employee to perform his duties under this Agreement
in accordance with policies established from time to time by the Company.
7. EMPLOYEE BENEFITS. (a) During the Employment Term, Employee shall
be entitled to such insurance, disability and health and medical benefits and be
entitled to participate in such retirement plans or programs as are from time to
time generally made available to executive employees of the Company pursuant to
the policies of the Company; PROVIDED THAT Employee shall be required to comply
with the conditions attendant to coverage by such plans and shall comply with
and be entitled to benefits only in accordance with the terms and conditions of
such plans. The Com pany may withhold from any benefits payable to Employee all
federal, state, local and other taxes and amounts as shall be permitted or
required to be withheld pursuant to any applicable law, rule or regulation.
(b) Employee shall be entitled to vacation in accordance with the
Company's policy in effect for executive staff, which shall be taken at such
time or times as shall be mutually agreed upon with the Company.
8. DEATH AND DISABILITY. (a) The Employment Term shall terminate on
the date of Employee's death, in which event Employee's Salary, reimbursable
expenses and benefits owing to Employee through the date of Employee's death
shall be paid to his estate. Employee's estate will not be entitled to any other
compensation upon termination of this Agreement pursuant to this subparagraph
8(a).
(b) The Employment term shall terminate upon Employee's
Disability. For purposes of this Agreement, "Disability" shall mean a physical
or mental disability or infirmity
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<PAGE>
that prevents the material performance by Employee of his duties hereunder
lasting for a continuous period of six months or longer. The reasoned and good
faith judgment of the Company's Board of Directors as to Disability shall be
based on such competent medical evidence as shall be presented to it by Employee
or by any physician or group of physicians or other competent medical experts
employed by Employee or the Company to advise the Company's Board of Directors.
In case of such termination, Employee shall be entitled to receive his Salary,
reimbursable expenses and benefits owing to Employee through the date of
termination. In addition, the Company shall pay to Employee, within 60 days of
the date of Employee's termination, in a lump-sum, an amount equal to Employee's
then annual Salary. Employee will not be entitled to any other compensation upon
termination of his employment pursuant to this subparagraph 8(b).
9. TERMINATION. The Company shall have the right to terminate the
employment of Employee and to terminate this Agreement in the event of: (a) The
repeated willful failure of Employee substantially to perform his duties
hereunder (other than any such failure due to physical or mental illness) that
has not been cured reasonably promptly after a written demand for substantial
performance is delivered to Employee by the Company's Board of Directors, which
demand identifies the manner in which the Company's Board of Directors believes
that Employee has not substantially performed his duties hereunder, (b)
Conviction of, or entering a plea of nolo contendere to, a crime that
constitutes a felony, (c) Employee's engaging in serious misconduct that is
injurious to the Company, (d) the material breach by Employee of any written
covenant or agreement with the Company not to disclose any information
pertaining to the Company or not to compete with the Company including (without
limitation) the covenants and agreements contained in paragraph 11 hereof. Upon
such termination, the Company shall be released from any and all further
obligations under this Agreement, except that the Company shall be obligated to
pay Employee his Salary, reimbursable expenses and benefits owing to Employee
through the day on which Employee is terminated. Employee will not be entitled
to any other compensation upon termination of this Agreement pursuant to this
Paragraph 9.
10. CHANGE IN CONTROL - TERMINATION OF EMPLOYMENT AND COMPENSATION
IN EVENT OF TERMINATION. (a) After a Change in Control (as defined below) of
the Company has occurred, if either Employee terminates his employment within
six (6) months after he has obtained actual knowledge of the Change in
Control or the Company (or any successor thereto) terminates Employee's
employment with the Company after the Change in Control, Employee shall be
entitled to receive a lump-sum payment (the "TERMINATION COMPENSATION"), in
cash, on the Termination Date, in an amount equal to the greater of one
year's salary or the salary, bonuses, awards, perquisites and benefits that
would have been due to the Employee for the remainder of the Employment Term.
The amount of the Termination Compensation shall be computed, at the expense
of the Company, by an independent certified public accounting firm selected
by the Board of Directors (the "ACCOUNTANTS"), whose computation shall be
conclusive and binding upon Employee and the Company.
(b) For purposes hereof, a "CHANGE IN CONTROL" shall be deemed to
have occurred if: (i) any "person" or "group" (as such terms are used in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "ACT")), except for an employee stock
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<PAGE>
ownership trust (or any of the trustees thereof) or any of Kenneth S. Ehrman,
N. Bert Loosmore, Bruce Jagid, Martin G. Rosansky, Michael L. Ehrman or
Jeffrey M. Jagid, becomes a "beneficial owner" (as such term is used in Rule
13d-3 promulgated under the Act), after the date hereof, directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities; (ii) a
change in "control" of the Company (as the term "control" is defined in Rule
12b-2 or any successor rule promulgated under the Act) shall have occurred;
(iii) the majority of the Board of Directors, as such entire Board of
Directors is composed at the date of this Agreement, no longer serve as
directors of the Company, except that there shall not be counted toward such
majority who no longer serve as directors any director who ceased to serve
either prior to the date of a Change in Control, for any reason, or at any
other time due to his death, disability or termination for cause; (iv) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets; or (v) the stockholders of the
Company approve a merger or consolidation of the Company with any other
company, other than a merger or consolidation which would result in the
combined voting power of the Company's voting securities outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 70% of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation. Notwithstanding the foregoing, any transaction
involving a leveraged buyout or other acquisition of the Company which would
otherwise constitute a Change in Control, in which Employee participates in
the surviving or successor entity (other than solely as an employee or
consultant), shall not constitute a Change in Control.
(c) Notwithstanding anything in this Agreement to the contrary,
Employee shall have the right, prior to the receipt by him of any amounts due
thereunder, to waive the receipt thereof or, subsequent to the receipt by him of
any amounts due hereunder, to treat some or all of such amounts as a loan from
the Company which Employee shall repay to the Company, within 90 days from the
date of receipt, with interest at the rate provided in Section 7872 of the Code.
Notice of any such waiver or treatment of amounts received as a loan shall be
given by Employee to the Company in writing and shall be binding upon the
Company.
11. DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION;
RESTRICTIVE COVENANTS. Employee acknowledges that, by his employment, he has
been and will be in a confidential relationship with the Company and will have
access to confidential information and trade secrets of the Company, its
subsidiaries and affiliates. Confidential information and trade secrets include,
but are not limited to, customer, supplier and client lists, panels and
interviewers, price lists, marketing, strategies and procedures, operational
techniques, business plans and systems, quality control procedures and systems,
special projects and survey and market research, including projects, research
and reports for any entity or client, and any other records, files, drawings,
discoveries, applications, data, computer software programs and source codes and
information concerning the business of the Company and its customers and clients
which are not in the public domain. Employee agrees that in consideration of the
execution of this Agreement by the Company:
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<PAGE>
(a) Employee will not, during the term of this Agreement or at
any time thereafter, use, or disclose to any third party, trade secrets or
confidential information of the Company, including, but not limited to,
confidential information or trade secrets belonging or relating to the Company,
its subsidiaries, affiliates, customers and clients or proprietary procedures of
the Company, its subsidiaries, affiliates customers and clients. Proprietary
procedures shall include, but shall not be limited to, all information which is
known or intended to be known only by employees of the Company, its subsidiaries
and affiliates or others in a confidential relationship with the Company or its
subsidiaries and affiliates which relates to business matters.
(b) Employee will not, during the term of this Agreement,
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, manager, stockholder, officer, director, or in any other individual or
representative capacity, engage in or participate in any business that is
competitive with any business carried on by the Company or any of its
subsidiaries or affiliates during the term of this Agreement. The ownership by
Employee of 5% or less of the issued and outstanding shares of a class of
securities which is traded on a national securities exchange or in the
over-the-counter market, shall not cause Employee to be deemed a shareholder
under this subparagraph 11(b) or constitute a breach of this subparagraph 11(b).
(c) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, directly or indirectly, work as an
employee, employer, consultant, agent, principal, partner, manager, stockholder,
officer, director, or in any other individual or representative capacity for any
person or entity who or which was a competitor of the Company or any of its
subsidiaries or affiliates during the term of Employee's employment with the
Company. The ownership by Employee of 5% or less of the issued and outstanding
shares of a class of securities which is traded on a national securities
exchange or in the over-the-counter market, shall not cause Employee to be
deemed a shareholder under this subparagraph 11(c) or constitute a breach of
this subparagraph 11(c).
(d) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, on his behalf or on behalf of any
other business enterprise, directly or indirectly, under any circumstance other
than at the direction and for the benefit of the Company, (i) solicit for
employment or employ any person who was employed by the Company or any of its
subsidiaries or affiliates during Employee's employment with the Company, or
(ii) call on, solicit, or take away any person or entity who or which was a
customer or the Company or any of its subsidiaries or affiliates during
Employee's employment with the Company.
(e) It is expressly agreed by Employee that the nature and scope
of each of the provisions set forth above in this Paragraph 11 are reasonable
and necessary. If, for any reason, any aspect of the above provisions as it
applies to Employee is determined by a court of competent jurisdiction to be
unreasonable or unenforceable, the provisions shall only be modified to the
minimum extent required to make the provisions reasonable and/or enforceable, as
the case may be. Employee acknowledges and agrees that his services are of
unique character and expressly grants to the Company or any subsidiary or
affiliate of the Company or any successor of any of them,
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<PAGE>
the right to enforce the above provisions through the use of all remedies
available at law or in equity, including, but not limited to, injunctive relief.
(f) This Paragraph 11 and Paragraphs 12 and 13 hereof (and
Paragraphs 14 through 19 hereof as they may apply to such Paragraphs) shall
survive the expiration or termination of this Agreement for any reason.
12. COMPANY PROPERTY. (a) Any patents, inventions, discoveries,
applications or processes designed, devised, planned, applied, created,
discovered or invented by Employee in the course of Employee's employment under
this Agreement and which pertain to any aspect of the Company's or its
subsidiaries' or affiliates' business shall be the sole and absolute property of
the Company, and Employee shall promptly report the same to the Company and
promptly execute any and all documents that may from time to time reasonably be
requested by the Company to assure the Company the full and complete ownership
thereof.
(b) All records, files, lists, including computer generated
lists, drawings, documents, equipment and similar items relating to the
Company's business which Employee shall prepare or receive from the Company
shall remain the Company's sole and exclusive property. Upon termination of this
Agreement, Employee shall promptly return to the Company all property of the
Company in his possession. Employee further represents that he will not copy or
cause to be copied, print out or cause to be printed out any software, documents
or other materials originating with or belonging to the Company. Employee
additionally represents that, upon termination of his employment with the
Company, he will not retain in his possession any such software, documents or
other materials.
13. EQUITABLE RELIEF. It is mutually understood and agreed that
Employee's services are special, unique, unusual, extraordinary and of an
intellectual character giving them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in an action at law.
Accordingly, in the event of any breach of this Agreement by Employee,
including, but not limited to, the breach of any of the provisions of Paragraphs
11 or 12 hereof, the Company shall be entitled to equitable relief by way of
injunction or otherwise in addition to any damages which the Company may be
entitled to recover. In addition, the Company shall be entitled to reimbursement
from Employee, upon request, of any and all reasonable attorneys' fees and
expenses incurred by it in enforcing any term or provision of this Agreement.
14. CONSENT TO NEW YORK JURISDICTION AND VENUE. The Employee hereby
consents and agrees that the Supreme Court of the State of New York for the
County of New York and the United States District Court for the Southern
District of New York each shall have personal jurisdiction and proper venue with
respect to any dispute between the Employee and the Company. In any dispute with
the Company, the Employee will not raise, and hereby expressly waives, any
objection or defense to any such jurisdiction as an inconvenient forum.
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<PAGE>
15. NOTICE. Except as otherwise expressly provided, any notice,
request, demand or other communication permitted or required to be given under
this Agreement shall be in writing, shall be sent by one of the following means
to the Employee at his address set forth on the first page of this Agreement and
to the Company at its address set forth on the first page of this Agreement,
Attention: Jeffrey Jagid, with a copy to Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, Attention: Henry I.
Rothman, Esq. (or to such other address as shall be designated hereunder by
notice to the other parties and persons receiving copies, effective upon actual
receipt), and shall be deemed conclusively to have been given: (a) on the first
business day following the day timely deposited with Federal Express (or other
equivalent national overnight courier) or United States Express Mail, with the
cost of delivery prepaid or for the account of the sender; (b) on the fifth
business day following the day duly sent by certified or registered United
States mail, postage prepaid and return receipt requested; or (c) when otherwise
actually received by the addressee on a business day (or on the next business
day if received after the close of normal business hours or on any non-business
day).
16. INTERPRETATION; HEADINGS. The parties acknowledge and agree that
the terms and provisions of this Agreement have been negotiated, shall be
construed fairly as to all parties hereto, and shall not be construed in favor
of or against any party. The section headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
17. SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES.
Neither this Agreement, nor any of Employee's rights, powers, duties or
obligations hereunder, may be assigned by Employee. This Agreement shall be
binding upon and inure to the benefit of Employee and his heirs and legal
representatives and the Company and its successors. Successors of the Company
shall include, without limitation, any corporation or corporations acquiring,
directly or indirectly, all or substantially all of the assets of the Company,
whether by merger, consolidation, purchase, lease or otherwise, and such
successor shall thereafter be deemed "the Company" for the purpose hereof.
18. NO WAIVER BY ACTION. Any waiver or consent from the Company
respecting any term or provision of this Agreement or any other aspect of the
Employee's conduct or employment shall be effective only in the specific
instance and for the specific purpose for which given and shall not be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Company at any time or times to require performance
of, or to exercise any of its powers, rights or remedies with respect to, any
term or provision of this Agreement or any other aspect of the Employee's
conduct or employment in no manner (except as otherwise expressly provided
herein) shall affect the Company's right at a later time to enforce any such
term or provision.
19. COUNTERPARTS; NEW YORK GOVERNING LAW; AMENDMENTS; ENTIRE
AGREEMENT. This Agreement may be executed in two counterpart copies, each of
which may be executed by one of the parties hereto, but all of which, when taken
together, shall constitute a single agreement
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<PAGE>
binding upon all of the parties hereto. This Agreement and all other aspects of
the Employee's employment shall be governed by and construed in accordance with
the applicable laws pertaining in the State of New York (other than those that
would defer to the substantive laws of another juris diction). Each and every
modification and amendment of this Agreement shall be in writing and signed by
the parties hereto, and any waiver of, or consent to any departure from, any
term or provision of this Agreement shall be in writing and signed by each
affected party hereto. This Agreement contains the entire agreement of the
parties and supersedes all prior representations, agreements and understandings,
oral or otherwise, between the parties with respect to the matters contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
I.D. SYSTEMS, INC.
By: /s/ Kenneth S. Ehrman
--------------------------------
Name: Kenneth S. Ehrman
Title: President
/s/ N. Bert Loosmore
-----------------------------------
N. BERT LOOSMORE
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<PAGE>
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT dated as of June 1, 1999, between I.D.
Systems, Inc. a Delaware corporation (the "COMPANY"), and Michael L. Ehrman
("EMPLOYEE").
W I T N E S S E T H :
WHEREAS, Employee has been employed directly or indirectly by the
Company for several years; and
WHEREAS, the Company desires that Employee continue to be employed by
it and render services to it, and Employee is willing to be so employed and to
render such services to the Company, all upon the terms and subject to the
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. EMPLOYMENT. Subject to and upon the terms and conditions contained
in this Agreement, the Company hereby agrees to continue to employ Employee and
Employee agrees to continue in the employ of the Company, for the period set
forth in Paragraph 2 hereof, to render to the Company, its affiliates and/or
subsidiaries the services described in Paragraph 3 hereof.
2. TERM. Employee's term of employment under this Agreement shall be
three (3) years, commencing on the date hereof and continuing through and
including May 31, 2002, unless extended in writing as provided below or earlier
terminated pursuant to the terms and conditions set forth herein (the
"EMPLOYMENT TERM").
3. DUTIES. (a) Employee shall serve as a senior executive of the
Company subject to the authority of the Board of Directors of the Company. If
elected by the Board of Directors, Employee will serve as Executive Vice
President of Software Development of the Company. Employee shall perform all
duties and services incident to the positions held by him.
(b) Employee agrees to abide by all By-laws and policies of the
Company promulgated from time to time by the Company.
4. EXCLUSIVE SERVICES AND BEST EFFORTS. Employee agrees to devote his
best efforts, energies and skill to the discharge of the duties and
responsibilities attributable to his position, and to this end, he will devote
his full time and attention during regular business hours to
<PAGE>
the business and affairs of the Company, subject to the provisions of the last
sentence of subparagraph 11(b) hereof.
5. COMPENSATION. (a) As compensation for his services and covenants
hereunder, Employee shall receive a salary ("SALARY"), payable pursuant to the
Company's normal payroll procedures in place from time to time, at the rate of
$96,000 per annum, less all necessary and required federal, state and local
payroll deductions. Employee shall be entitled to receive salary increases as
may be determined from time to time by the Board of Directors of the Company.
(b) In addition to such Salary, Employee shall be entitled to
receive such bonuses as may be determined from time to time by the Board of
Directors of the Company and shall be eligible to receive stock options
entitling Employee to acquire shares of Common Stock under the Company's 1999
Stock Option Plan, pursuant to the policies of the Company from time to time to
generally make available stock options, to executive employees.
6. BUSINESS EXPENSES. Employee shall be reimbursed for, and entitled
to advances (subject to repayment to the Company if not actually incurred by
Employee) with respect to those business expenses incurred by him which are
reasonable and necessary for Employee to perform his duties under this Agreement
in accordance with policies established from time to time by the Company.
7. EMPLOYEE BENEFITS. (a) During the Employment Term, Employee shall
be entitled to such insurance, disability and health and medical benefits and be
entitled to participate in such retirement plans or programs as are from time to
time generally made available to executive employees of the Company pursuant to
the policies of the Company; PROVIDED THAT Employee shall be required to comply
with the conditions attendant to coverage by such plans and shall comply with
and be entitled to benefits only in accordance with the terms and conditions of
such plans. The Com pany may withhold from any benefits payable to Employee all
federal, state, local and other taxes and amounts as shall be permitted or
required to be withheld pursuant to any applicable law, rule or regulation.
(b) Employee shall be entitled to vacation in accordance with the
Company's policy in effect for executive staff, which shall be taken at such
time or times as shall be mutually agreed upon with the Company.
8. DEATH AND DISABILITY. (a) The Employment Term shall terminate on
the date of Employee's death, in which event Employee's Salary, reimbursable
expenses and benefits owing to Employee through the date of Employee's death
shall be paid to his estate. Employee's estate will not be entitled to any other
compensation upon termination of this Agreement pursuant to this subparagraph
8(a).
(b) The Employment term shall terminate upon Employee's
Disability. For purposes of this Agreement, "Disability" shall mean a physical
or mental disability or infirmity
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<PAGE>
that prevents the material performance by Employee of his duties hereunder
lasting for a continuous period of six months or longer. The reasoned and good
faith judgment of the Company's Board of Directors as to Disability shall be
based on such competent medical evidence as shall be presented to it by Employee
or by any physician or group of physicians or other competent medical experts
employed by Employee or the Company to advise the Company's Board of Directors.
In case of such termination, Employee shall be entitled to receive his Salary,
reimbursable expenses and benefits owing to Employee through the date of
termination. In addition, the Company shall pay to Employee, within 60 days of
the date of Employee's termination, in a lump-sum, an amount equal to Employee's
then annual Salary. Employee will not be entitled to any other compensation upon
termination of his employment pursuant to this subparagraph 8(b).
9. TERMINATION. The Company shall have the right to terminate the
employment of Employee and to terminate this Agreement in the event of: (a) The
repeated willful failure of Employee substantially to perform his duties
hereunder (other than any such failure due to physical or mental illness) that
has not been cured reasonably promptly after a written demand for substantial
performance is delivered to Employee by the Company's Board of Directors, which
demand identifies the manner in which the Company's Board of Directors believes
that Employee has not substantially performed his duties hereunder, (b)
Conviction of, or entering a plea of nolo contendere to, a crime that
constitutes a felony, (c) Employee's engaging in serious misconduct that is
injurious to the Company, (d) the material breach by Employee of any written
covenant or agreement with the Company not to disclose any information
pertaining to the Company or not to compete with the Company including (without
limitation) the covenants and agreements contained in paragraph 11 hereof. Upon
such termination, the Company shall be released from any and all further
obligations under this Agreement, except that the Company shall be obligated to
pay Employee his Salary, reimbursable expenses and benefits owing to Employee
through the day on which Employee is terminated. Employee will not be entitled
to any other compensation upon termination of this Agreement pursuant to this
Paragraph 9.
10. CHANGE IN CONTROL - TERMINATION OF EMPLOYMENT AND COMPENSATION
IN EVENT OF TERMINATION. (a) After a Change in Control (as defined below) of
the Company has occurred, if either Employee terminates his employment within
six (6) months after he has obtained actual knowledge of the Change in
Control or the Company (or any successor thereto) terminates Employee's
employment with the Company after the Change in Control, Employee shall be
entitled to receive a lump-sum payment (the "TERMINATION COMPENSATION"), in
cash, on the Termination Date, in an amount equal to the greater of one
year's salary or the salary, bonuses, awards, perquisites and benefits that
would have been due to the Employee for the remainder of the Employment Term.
The amount of the Termination Compensation shall be computed, at the expense
of the Company, by an independent certified public accounting firm selected
by the Board of Directors (the "ACCOUNTANTS"), whose computation shall be
conclusive and binding upon Employee and the Company.
(b) For purposes hereof, a "CHANGE IN CONTROL" shall be deemed to
have occurred if: (i) any "person" or "group" (as such terms are used in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "ACT")), except for an employee stock
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<PAGE>
ownership trust (or any of the trustees thereof) or any of Kenneth Ehrman, N.
Bert Loosmore, Bruce Jagid, Martin Rosansky, Michael Ehrman or Jeffrey M. Jagid,
becomes a "beneficial owner" (as such term is used in Rule 13d-3 promulgated
under the Act), after the date hereof, directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities; (ii) a change in "control" of the Company
(as the term "control" is defined in Rule 12b-2 or any successor rule
promulgated under the Act) shall have occurred; (iii) the majority of the Board
of Directors, as such entire Board of Directors is composed at the date of this
Agreement, no longer serve as directors of the Company, except that there shall
not be counted toward such majority who no longer serve as directors any
director who ceased to serve either prior to the date of a Change in Control,
for any reason, or at any other time due to his death, disability or termination
for cause; (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or (v) the
stockholders of the Company approve a merger or consolidation of the Company
with any other company, other than a merger or consolidation which would result
in the combined voting power of the Company's voting securities outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 70% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation. Notwithstanding the foregoing, any transaction involving a
leveraged buyout or other acquisition of the Company which would otherwise
constitute a Change in Control, in which Employee participates in the surviving
or successor entity (other than solely as an employee or consultant), shall not
constitute a Change in Control.
(c) Notwithstanding anything in this Agreement to the contrary,
Employee shall have the right, prior to the receipt by him of any amounts due
thereunder, to waive the receipt thereof or, subsequent to the receipt by him of
any amounts due hereunder, to treat some or all of such amounts as a loan from
the Company which Employee shall repay to the Company, within 90 days from the
date of receipt, with interest at the rate provided in Section 7872 of the Code.
Notice of any such waiver or treatment of amounts received as a loan shall be
given by Employee to the Company in writing and shall be binding upon the
Company.
11. DISCLOSURE OF TRADE SECRETS AND OTHER PROPRIETARY INFORMATION;
RESTRICTIVE COVENANTS. Employee acknowledges that, by his employment, he has
been and will be in a confidential relationship with the Company and will have
access to confidential information and trade secrets of the Company, its
subsidiaries and affiliates. Confidential information and trade secrets include,
but are not limited to, customer, supplier and client lists, panels and
interviewers, price lists, marketing, strategies and procedures, operational
techniques, business plans and systems, quality control procedures and systems,
special projects and survey and market research, including projects, research
and reports for any entity or client, and any other records, files, drawings,
discoveries, applications, data, computer software programs and source codes and
information concerning the business of the Company and its customers and clients
which are not in the public domain. Employee agrees that in consideration of the
execution of this Agreement by the Company:
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<PAGE>
(a) Employee will not, during the term of this Agreement or at
any time thereafter, use, or disclose to any third party, trade secrets or
confidential information of the Company, including, but not limited to,
confidential information or trade secrets belonging or relating to the Company,
its subsidiaries, affiliates, customers and clients or proprietary procedures of
the Company, its subsidiaries, affiliates customers and clients. Proprietary
procedures shall include, but shall not be limited to, all information which is
known or intended to be known only by employees of the Company, its subsidiaries
and affiliates or others in a confidential relationship with the Company or its
subsidiaries and affiliates which relates to business matters.
(b) Employee will not, during the term of this Agreement,
directly or indirectly, as an employee, employer, consultant, agent, principal,
partner, manager, stockholder, officer, director, or in any other individual or
representative capacity, engage in or participate in any business that is
competitive with any business carried on by the Company or any of its
subsidiaries or affiliates during the term of this Agreement. The ownership by
Employee of 5% or less of the issued and outstanding shares of a class of
securities which is traded on a national securities exchange or in the
over-the-counter market, shall not cause Employee to be deemed a shareholder
under this subparagraph 11(b) or constitute a breach of this subparagraph 11(b).
(c) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, directly or indirectly, work as an
employee, employer, consultant, agent, principal, partner, manager, stockholder,
officer, director, or in any other individual or representative capacity for any
person or entity who or which was a competitor of the Company or any of its
subsidiaries or affiliates during the term of Employee's employment with the
Company. The ownership by Employee of 5% or less of the issued and outstanding
shares of a class of securities which is traded on a national securities
exchange or in the over-the-counter market, shall not cause Employee to be
deemed a shareholder under this subparagraph 11(c) or constitute a breach of
this subparagraph 11(c).
(d) Employee will not, during the term of this Agreement and for
a period of twelve (12) months thereafter, on his behalf or on behalf of any
other business enterprise, directly or indirectly, under any circumstance other
than at the direction and for the benefit of the Company, (i) solicit for
employment or employ any person who was employed by the Company or any of its
subsidiaries or affiliates during Employee's employment with the Company, or
(ii) call on, solicit, or take away any person or entity who or which was a
customer or the Company or any of its subsidiaries or affiliates during
Employee's employment with the Company.
(e) It is expressly agreed by Employee that the nature and scope
of each of the provisions set forth above in this Paragraph 11 are reasonable
and necessary. If, for any reason, any aspect of the above provisions as it
applies to Employee is determined by a court of competent jurisdiction to be
unreasonable or unenforceable, the provisions shall only be modified to the
minimum extent required to make the provisions reasonable and/or enforceable, as
the case may be. Employee acknowledges and agrees that his services are of
unique character and expressly grants to the Company or any subsidiary or
affiliate of the Company or any successor of any of them,
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<PAGE>
the right to enforce the above provisions through the use of all remedies
available at law or in equity, including, but not limited to, injunctive relief.
(f) This Paragraph 11 and Paragraphs 12 and 13 hereof (and
Paragraphs 14 through 19 hereof as they may apply to such Paragraphs) shall
survive the expiration or termination of this Agreement for any reason.
12. COMPANY PROPERTY. (a) Any patents, inventions, discoveries,
applications or processes designed, devised, planned, applied, created,
discovered or invented by Employee in the course of Employee's employment under
this Agreement and which pertain to any aspect of the Company's or its
subsidiaries' or affiliates' business shall be the sole and absolute property of
the Company, and Employee shall promptly report the same to the Company and
promptly execute any and all documents that may from time to time reasonably be
requested by the Company to assure the Company the full and complete ownership
thereof.
(b) All records, files, lists, including computer generated
lists, drawings, documents, equipment and similar items relating to the
Company's business which Employee shall prepare or receive from the Company
shall remain the Company's sole and exclusive property. Upon termination of this
Agreement, Employee shall promptly return to the Company all property of the
Company in his possession. Employee further represents that he will not copy or
cause to be copied, print out or cause to be printed out any software, documents
or other materials originating with or belonging to the Company. Employee
additionally represents that, upon termination of his employment with the
Company, he will not retain in his possession any such software, documents or
other materials.
13. EQUITABLE RELIEF. It is mutually understood and agreed that
Employee's services are special, unique, unusual, extraordinary and of an
intellectual character giving them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in an action at law.
Accordingly, in the event of any breach of this Agreement by Employee,
including, but not limited to, the breach of any of the provisions of Paragraphs
11 or 12 hereof, the Company shall be entitled to equitable relief by way of
injunction or otherwise in addition to any damages which the Company may be
entitled to recover. In addition, the Company shall be entitled to reimbursement
from Employee, upon request, of any and all reasonable attorneys' fees and
expenses incurred by it in enforcing any term or provision of this Agreement.
14. CONSENT TO NEW YORK JURISDICTION AND VENUE. The Employee hereby
consents and agrees that the Supreme Court of the State of New York for the
County of New York and the United States District Court for the Southern
District of New York each shall have personal jurisdiction and proper venue with
respect to any dispute between the Employee and the Company. In any dispute with
the Company, the Employee will not raise, and hereby expressly waives, any
objection or defense to any such jurisdiction as an inconvenient forum.
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<PAGE>
15. NOTICE. Except as otherwise expressly provided, any notice,
request, demand or other communication permitted or required to be given under
this Agreement shall be in writing, shall be sent by one of the following means
to the Employee at his address set forth on the first page of this Agreement and
to the Company at its address set forth on the first page of this Agreement,
Attention: Jeffrey Jagid, with a copy to Parker Chapin Flattau & Klimpl, LLP,
1211 Avenue of the Americas, New York, New York 10036, Attention: Henry I.
Rothman, Esq. (or to such other address as shall be designated hereunder by
notice to the other parties and persons receiving copies, effective upon actual
receipt), and shall be deemed conclusively to have been given: (a) on the first
business day following the day timely deposited with Federal Express (or other
equivalent national overnight courier) or United States Express Mail, with the
cost of delivery prepaid or for the account of the sender; (b) on the fifth
business day following the day duly sent by certified or registered United
States mail, postage prepaid and return receipt requested; or (c) when otherwise
actually received by the addressee on a business day (or on the next business
day if received after the close of normal business hours or on any non-business
day).
16. INTERPRETATION; HEADINGS. The parties acknowledge and agree that
the terms and provisions of this Agreement have been negotiated, shall be
construed fairly as to all parties hereto, and shall not be construed in favor
of or against any party. The section headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
17. SUCCESSORS AND ASSIGNS; ASSIGNMENT; INTENDED BENEFICIARIES.
Neither this Agreement, nor any of Employee's rights, powers, duties or
obligations hereunder, may be assigned by Employee. This Agreement shall be
binding upon and inure to the benefit of Employee and his heirs and legal
representatives and the Company and its successors. Successors of the Company
shall include, without limitation, any corporation or corporations acquiring,
directly or indirectly, all or substantially all of the assets of the Company,
whether by merger, consolidation, purchase, lease or otherwise, and such
successor shall thereafter be deemed "the Company" for the purpose hereof.
18. NO WAIVER BY ACTION. Any waiver or consent from the Company
respecting any term or provision of this Agreement or any other aspect of the
Employee's conduct or employment shall be effective only in the specific
instance and for the specific purpose for which given and shall not be deemed,
regardless of frequency given, to be a further or continuing waiver or consent.
The failure or delay of the Company at any time or times to require performance
of, or to exercise any of its powers, rights or remedies with respect to, any
term or provision of this Agreement or any other aspect of the Employee's
conduct or employment in no manner (except as otherwise expressly provided
herein) shall affect the Company's right at a later time to enforce any such
term or provision.
19. COUNTERPARTS; NEW YORK GOVERNING LAW; AMENDMENTS; ENTIRE
AGREEMENT. This Agreement may be executed in two counterpart copies, each of
which may be executed by one of the parties hereto, but all of which, when taken
together, shall constitute a single agreement
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<PAGE>
binding upon all of the parties hereto. This Agreement and all other aspects of
the Employee's employment shall be governed by and construed in accordance with
the applicable laws pertaining in the State of New York (other than those that
would defer to the substantive laws of another juris diction). Each and every
modification and amendment of this Agreement shall be in writing and signed by
the parties hereto, and any waiver of, or consent to any departure from, any
term or provision of this Agreement shall be in writing and signed by each
affected party hereto. This Agreement contains the entire agreement of the
parties and supersedes all prior representations, agreements and understandings,
oral or otherwise, between the parties with respect to the matters contained
herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
I.D. SYSTEMS, INC.
By: /s/ Kenneth S. Ehrman
--------------------------------
Name: Kenneth S. Ehrman
Title: President
/s/ Michael L. Ehrman
-----------------------------------
MICHAEL L. EHRMAN
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<PAGE>
<PAGE>
Exhibit 10.9
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT dated as of _______ ___, 1999,
between I.D. SYSTEMS, INC., a Delaware corporation with its principal office
located at 90 WILLIAM STREET, SUITE 402, NEW YORK, NEW YORK 10038 (the
"CORPORATION"), and [ ], an [officer and/or director] of the Corporation
residing at _________________________ (the "INDEMNITEE").
W I T N E S S E T H:
WHEREAS, the Corporation seeks to attract and retain the most
capable persons available to serve as its directors and officers; and
WHEREAS, such persons require substantial protection against
personal liability arising out of their faithful service to the Corporation; and
WHEREAS, the Corporation and the Indemnitee believe it desirable
to enter into agreements to reflect indemnification and advancement of expenses
arrangements; and
WHEREAS, in recognition of the Corporation's desire to retain the
services of the Indemnitee and in furtherance of the Corporation's policy and in
accordance with Article Tenth of the Corporation's By-laws, the Corporation
desires to provide the Indemnitee with the right to indemnification and
advancement of expenses and the Indemnitee desires to receive such right, all
upon the terms and subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing premises, the
Indemnitee's continued service to the Corporation and the mutual covenants
contained herein, the parties hereby agree as follows:
1. CERTAIN TERMS DEFINED. As used in this Agreement, the
following terms shall have the following meanings:
(a) The term "ACTION" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, and including one by or in the right of the Corporation or by or
in the right of any other Entity which the Indemnitee served in any capacity at
the request of the Corporation.
(b) The term "AGREEMENT" shall mean this Indemnification
Agreement, as the same may be amended from time to time.
<PAGE>
(c) The term "BOARD" shall mean the Board of Directors of the
Corporation.
(d) The term "ENTITY" shall mean any corporation of any type
or kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise.
2. RIGHT TO INDEMNIFICATION; LIMITATIONS. (a) Subject to the
terms set forth in this Agreement, the Corporation shall indemnify the
Indemnitee if the Indemnitee was or is a party or is threatened to be made a
party to any Action by reason of the fact that the Indemnitee (or the
Indemnitee's testator or intestate) is or was a director or officer of the
Corporation, or served another Entity in any capacity, against all expenses and
liabilities (including attorney's fees, judgments, fines, excise taxes,
penalties and amounts payable in settlements) reasonably incurred by or imposed
upon such person in connection with such Action.
(b) The Indemnitee shall be entitled to indemnification under
this Section 2 only to the extent that (i) with respect to any and all Actions,
the Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in the best interests of the Corporation, (ii) to the extent that
such Action relates to service with respect to an employee benefit plan, the
Indemnitee acted in the best interests of the participants or beneficiaries of
such employee benefit plan, and (iii) as to any matter disposed of by a
compromise payment by the Indemnitee, pursuant to a consent decree or otherwise,
the payment and indemnification thereof have been approved by the Corporation,
which approval shall not unreasonably be withheld, or by a court of competent
jurisdiction.
(c) Notwithstanding Sections 2(a) and (b), above, to the extent
required by law, no indemnification shall be made in respect of any Action as to
which the Indemnitee shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such Action was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the Action, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
3. ADVANCES OF EXPENSES. (a) At the written request of the
Indemnitee, the Corporation will advance to the Indemnitee the expenses
(including attorneys' fees) incurred by the Indemnitee in defending any Action
in advance of the final disposition of such Action.
(b) The Indemnitee hereby agrees and undertakes to repay such
advanced amounts (or appropriate portions thereof) as to which it ultimately is
determined that the Indemnitee was not entitled, which undertaking may be
accepted without regard to the financial ability of such person to make
repayment; PROVIDED THAT this undertaking shall be effective only if and to the
extent that, by law, it must be enforced as a condition to the receipt by the
Indemnitee of advanced expenses under this Section.
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<PAGE>
4. PAYMENT BY CORPORATION. The Corporation shall pay the
indemnification requested under Section 2 and advance the expenses requested
under Section 3 promptly following receipt by the Corporation of the
Indemnitee's written request therefor and, in any event, no later than thirty
(30) days after such receipt (in the case of requested indemnification) or
fifteen (15) days after such receipt (in the case of requested advanced
expenses).
5. ENFORCEMENT. (a) The right of the Indemnitee to
indemnification and advancement of expenses provided by this Agreement shall be
enforceable by the Indemnitee in any court of competent jurisdiction. In such an
enforcement action, the burden shall be on the Corporation to prove that the
indemnification and advancement of expenses being sought are not appropriate.
Neither the failure of the Corporation to determine whether indemnification or
the advancement of expenses is proper in the circumstances nor an actual
determination by the Corporation thereon adverse to the Indemnitee shall
constitute a defense to the action or create a presumption that the Indemnitee
is not so entitled.
(b) Without limiting the scope of indemnification to which the
Indemnitee is entitled under this Agreement, (i) if the Indemnitee has been
successful on the merits or otherwise in the defense of an Action, the
Indemnitee shall be entitled to indemnification as authorized in Section 2, and
(ii) the termination of any Action by judgment, order, settlement, conviction or
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Indemnitee has not met the standard of conduct required for
indemnification under this Agreement.
(c) The Indemnitee's reasonable expenses incurred in connection
with successfully establishing the Indemnitee's right to indemnification or
advancement or expenses, in whole or in part, in any such proceeding under this
section also shall be indemnified by the Corporation.
6. NON-EXCLUSIVITY. Nothing contained in this Agreement shall
limit the right to indemnification and advancement of expenses to which the
Indemnitee would be entitled by law in the absence of this Agreement, or shall
be deemed exclusive of any other rights to which the Indemnitee in seeking
indemnification or advancement of expenses may have or hereafter be entitled
under any law, provision of the Certificate of Incorporation, By-law, agreement
approved by or resolution of disinterested members of the Board, resolution of
Shareholders of the Corporation or otherwise.
7. SUBROGATION. (a) The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise actually received payment
(under any insurance policy, By-law or otherwise) of the amounts otherwise
subject to indemnification or expense advance under this Agreement.
(b) In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee other than from the Corporation, and the
Indemnitee shall execute all papers required and shall do everything that
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<PAGE>
may be necessary to secure such rights, including the execution of such
documents necessary to enable the Corporation effectively to bring suit to
enforce such rights.
8. NOTICE OF CLAIM. As a condition precedent to the right to be
indemnified under this Agreement, the Indemnitee shall give the Corporation
written notice as soon as practicable of any claim made against the Indemnitee
for which indemnification or expense advances will or could be sought under this
Agreement. In addition, the Indemnitee shall give the Corporation such
information and cooperation as the Corporation reasonably may require.
9. SEVERABILITY. If this Agreement or any portion hereof shall
be invalidated or held unenforceable on any ground by any court of competent
jurisdiction, the Corporation nevertheless shall indemnify the Indemnitee to the
fullest extent permitted by any applicable portion of this Agreement that shall
not have been so invalidated or held unenforceable.
10. CONTINUITY OF RIGHTS. The right of the Indemnitee to
indemnification and advancement of expenses under this Agreement shall (a)
continue after the Indemnitee has ceased to serve in a capacity which would
entitle the Indemnitee to indemnification or advancement of expenses pursuant to
this Agreement with respect to acts or omissions occurring prior to such
cessation, (b) inure to the benefit of the heirs, executors and administrators
of the Indemnitee, (c) apply with respect to acts or omissions occurring prior
to the execution and delivery of this Agreement to the fullest extent permitted
by law, and (d) survive any restrictive amendment or termination of this
Agreement with respect to events occurring prior thereto.
11. PROCEEDINGS INITIATED BY INDEMNITEE. Other than to the
extent provided in Section 5(c), above, the Indemnitee shall not be entitled to
indemnification or advancement of expenses under this Agreement with respect to
any Action initiated by the Indemnitee, but shall be entitled to indemnification
and advancement of expenses with respect to any counterclaim or third-party
claim in any such Action.
12. BINDING EFFECT. This Agreement shall be binding upon all
successors and assigns of the Corporation (including any transferee of all or
substantially all of its assets and any successor by merger or operation of law)
and shall inure to the benefit of the heirs, personal representatives,
successors, representatives and estate of the Indemnitee.
13. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York
applicable to contracts made and to be performed in the State of New York,
without giving effect to the principles of conflicts of laws.
14. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction hereof.
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<PAGE>
15. NOTICES. (a) Any notice, request or other communication
hereunder to or on behalf of the Corporation or the Indemnitee shall be in
writing and shall be delivered to the other party hereto at the address shown on
the first page hereof (in the case of the Corporation, addressed to the
attention of the Board, with a copy delivered to Parker Chapin Flattau & Klimpl,
LLP, 1211 Avenue of the Americas, New York, New York 10036, addressed to Henry
I. Rothman, Esq.). Any such notice, request or other communication shall be
deemed delivered one business day after sent by Federal Express, Express Mail or
similar overnight delivery service or, if sent otherwise, then upon the receipt
thereof at that address.
(b) Either address referred to in the preceding subsection may
be changed from time to time in the manner specified in the preceding
subsection, and thereafter notices, requests and other communications shall be
delivered to the most recent address so furnished.
16. COUNTERPARTS. This Agreement may be executed in any number
of counterparts. Each counterpart of an agreement so executed shall be deemed an
original, but all such counterparts shall together constitute but one and the
same instrument. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
I. D. SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
----------------------------------------
[NAME OF INDIVIDUAL]
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Exhibit 10.10
1999 DIRECTOR OPTION PLAN
OF
I.D. SYSTEMS, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan") is
designed to provide an incentive to non-employee directors of I.D. Systems,
Inc., a Delaware corporation (the "Company"), and its present and future
subsidiary corporations, as defined in Paragraph 18 ("Subsidiaries"), and to
offer an additional inducement in obtaining the services of such individuals.
The Plan provides for the grant of nonqualified stock options ("NQSOs") to
non-employee directors of the Company or any of its subsidiaries.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.01 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 300,000 (taking into account a 1.25 stock split to be
effected prior to or contemporaneous with the Company's initial public offering
("IPO")). Such shares of Common Stock may, in the discretion of the Committee
(as defined in Paragraph 3), consist either in whole or in part of authorized
but unissued shares of Common Stock or shares of Common Stock held in the
treasury of the Company. The Company shall at all times during the term of the
Plan reserve and keep available such number of shares of Common Stock as will be
sufficient to satisfy the requirements of the Plan. Subject to the provisions of
Paragraph 13, any shares of Common Stock subject to an option which for any
reason expires, is cancelled, is terminated unexercised or which ceases for any
reason to be exercisable shall again become available for the granting of
options under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Company's Board of Directors which, to the extent that it may determine,
may delegate its powers with respect to the administration of the Plan to a
committee of the Board of Directors of the Company (the "Committee") consisting
of not less than two directors, each of whom shall be a "Non-Employee Director"
within the meaning of Rule 16b-3 (or any successor rule or regulation)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). References in the Plan to determinations or actions by the Committee
shall be deemed to include determinations and actions by the Board of Directors.
Subject to the express provisions of the Plan, the Committee shall
have the authority, in its sole discretion, with respect to Outside Director
Options (as defined in Paragraph 18): to construe the respective contracts
referred to in Paragraph 11 (the "Contract") and the Plan; to determine the
terms and conditions of the Outside Director Options; to determine the amount,
if any, necessary to satisfy the Company's obligation to withhold taxes; with
the consent of the optionee, to cancel or modify an option, provided such option
as modified would be permitted to be granted on such date under the terms of the
Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; and to make all other
<PAGE>
determinations necessary or advisable for administering the Plan. The
determinations of the Committee on the matters referred to in this Paragraph 3
shall be conclusive.
No member or former member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
option granted hereunder.
4. ELIGIBILITY; GRANTS. On the earlier of (i) the date the IPO
is completed, and (ii) the date each member of the Board of Directors who is not
on such date an employee of the Company or any of its Subsidiaries is first
elected as a member of the Board of Directors, each such member shall be granted
an Outside Director Option to purchase 15,000 shares of Common Stock. In
addition, on the first day of each fiscal quarter thereafter, each member of the
Board of Directors who is not an employee of the Company or any of its
Subsidiaries and who has served on the Board of Directors for at least six
months shall be granted an additional Outside Director Option to purchase 2,000
shares of Common Stock. In the event the remaining shares available for grant
under the Plan are not sufficient to grant the Outside Director Options to such
non-employee directors in any year, the number of shares subject to each Outside
Director Option for such year shall be reduced proportionately. The Committee
shall have no discretion with respect to the selection of directors to receive
Outside Director Options or the amount, the price or the timing with respect
thereto. A director who is not an employee of the Company or any of its
Subsidiaries shall not be entitled to receive any options other than Outside
Director Options as provided herein.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each Outside Director Option shall be equal to the fair market value
of the Common Stock subject to such option on the date of grant.
The fair market value of the Common Stock on any day shall be (a) if
the principal market for the Common Stock is a national securities exchange, the
average of the highest and lowest sales prices of the Common Stock on such day
as reported by such exchange or on a composite tape reflecting transactions on
such exchange, (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is quoted on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"), and
(i) if actual sales price information is available with respect to the Common
Stock, the average of the highest and lowest sales prices of the Common Stock on
such day on NASDAQ, or (ii) if such information is not available, the average of
the highest bid and lowest asked prices for the Common Stock on such day on
NASDAQ, or (c) if the principal market for the Common Stock is not a national
securities exchange and the Common Stock is not quoted on NASDAQ, the average of
the highest bid and lowest asked prices for the Common Stock on such day as
reported on the NASDAQ OTC Bulletin Board Service or by National Quotation
Bureau, Incorporated or a comparable service; PROVIDED, HOWEVER, that if clauses
(a), (b) and (c) of this Paragraph are all inapplicable, or if no trades have
been made or no quotes are available for such day, the fair market value of the
Common Stock shall be determined by the Committee by any method consistent with
applicable regulations adopted by the
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Treasury Department relating to stock options. The determination of the
Committee shall be conclusive in determining the fair market value of the stock.
6. TERM. Each Outside Director Option shall have a term of 10
years commencing on the date of grant. Options shall be subject to earlier
termination as hereinafter provided.
7. EXERCISE. An option (or any part or installment thereof), to
the extent then exercisable, shall be exercised by giving written notice to the
Company at its principal office (at present 90 William Street, Suite 402, New
York, New York 10038, Attn: Jeffrey M. Jagid, Chief Operating Officer,
specifying the number of shares of Common Stock as to which such option is being
exercised and accompanied by payment in full of the aggregate exercise price
therefor (or the amount due on exercise if the Contract permits installment
payments) (a) in cash or by certified check, or (b) with the consent of the
Committee (in the Contract or otherwise), with shares of Common Stock having
been held for at least six months and having an aggregate fair market value, on
the date of exercise, equal to the aggregate exercise price of all options being
exercised, or with any combination of cash, certified check or shares of Common
Stock.
A person entitled to receive Common Stock upon the exercise of an
option shall not have the rights of a stockholder with respect to such shares of
Common Stock until the date of issuance of a stock certificate to him for such
shares; PROVIDED, HOWEVER, that until such stock certificate is issued, any
option holder using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be purchased or
issued under the Plan.
8. TERMINATION OF RELATIONSHIP WITH COMPANY. Any holder of an
Outside Director Option whose status as a director of the Company, has
terminated for any reason other than his or her death or Disability (as defined
in Paragraph 18) may exercise such option, to the extent exercisable on the date
of such termination, at any time within three months after the date of
termination, but not thereafter and in no event after the date the option would
otherwise have expired; provided, however, that if his or her status as a
director shall be terminated either (a) for cause, or (b) without the consent of
the Company, said option shall terminate immediately.
Nothing in the Plan or in any option granted under the Plan shall
confer on any individual any right to continue as a director of the Company, or
interfere in any way with the right of the Stockholders to terminate the
director's relationship at any time for any reason whatsoever without liability
to the Stockholders, the Company, its Parent or any of its Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. Any optionee whose
status as a director has terminated by reason of Disability may exercise his or
her Outside Director Options, to the
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extent they are exercisable upon the effective date of such termination, at any
time within one year after such date, but not thereafter and in no event after
the date the option would otherwise have expired.
If an optionee dies (a) while he or she is a director of the
Company, (b) within three months after the termination of such relationship
(unless such termination was for cause or without the consent of the Company) or
(c) within one year following the termination of such relationship by reason of
Disability, the Outside Director Options, may be exercised, to the extent
exercisable on the date of his or her death, by his or her executor,
administrator or other person at the time entitled by law to the rights under
such option, at any time within one year after death, but not thereafter and in
no event after the date the option would otherwise have expired.
10. COMPLIANCE WITH SECURITIES LAWS. The Committee may require,
in its discretion, among other things, as a condition to the exercise of any
option that either (a) a Registration Statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock to be issued upon such exercise shall be effective and current at the time
of exercise, or (b) there is an exemption from registration under the Securities
Act for the issuance of shares of Common Stock upon such exercise. Nothing
herein shall be construed as requiring the Company to register shares subject to
any option under the Securities Act.
The Committee may require the optionee to execute and deliver to the
Company his or her representation and warranty, in form and substance
satisfactory to it, that the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the optionee for his or her own
account, for investment only and not with a view to the resale or distribution
thereof. In addition, the Committee may require the optionee to represent and
warrant in writing that any subsequent resale or distribution of shares of
Common Stock by such optionee will be made only pursuant to (i) a Registration
Statement under the Securities Act which is effective and current with respect
to the shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall, at the request of the Committee and prior to any offer of
sale or sale of such shares of Common Stock, provide the Company with a
favorable written opinion of counsel, in form and substance satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms and conditions not inconsistent herewith
as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding
any other provisions of the Plan:
(a) a stock dividend, recapitalization, merger or
consolidation in which the Company is the surviving corporation, or a spin-off,
split-up, combination or exchange of shares or the like
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which results in a change in the number or kind of shares of Common Stock which
is outstanding immediately prior to such event, the Committee shall
appropriately adjust the aggregate number and kind of shares subject to the
Plan, the aggregate number and kind of shares subject to each outstanding option
and the exercise price thereof. Such adjustments shall be conclusive and binding
on all parties and may provide for the elimination of fractional shares which
might otherwise be subject to options without payment therefor.
(b) liquidation or dissolution of the Company, or a
merger to which the Company is a party whether or not it is the surviving
corporation or a consolidation or a sale by the Company of all or substantially
all of its assets, then, except as set forth below, the options granted
hereunder which are outstanding or unvested as of the date of such event, shall
continue to be outstanding and the optionee shall be entitled to receive an
option in the surviving corporation for the same number of shares as he would
have been entitled to receive if he had exercised the options granted hereunder
immediately prior to the transaction and actually owned the shares of common
stock subject to such option. The exercise price of the option in the surviving
corporation shall be such that the aggregate consideration for the shares of
stock subject to the option in the surviving corporation shall be equal to the
aggregate consideration payable with respect to the option granted under the
Plan.
Notwithstanding the foregoing, the Company shall have the right, by
written notice, provided to an optionee sent no later than 15 days prior to the
proposed liquidation, dissolution, merger or other transaction, to advise the
optionee that upon consummation of the transaction all options granted to any
optionee under the Plan shall terminate and be void, in which event, the
optionee shall have right to exercise all options then currently exercisable in
accordance with the terms of the applicable option Contract within 10 days after
the date of the notice from the Company.
Upon a Change of Control of the Company (as defined below), each
option shall become immediately exercisable with respect to all shares of Common
Stock subject thereto, unless the provisions of paragraphs 12(a) or (b) are
operative. For purposes hereof, a "Change in Control" shall be deemed to have
occurred if: (i) any "person" or "group" (as such terms are used in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Act")), except for an employee stock ownership trust (or any of the trustees
thereof) or any of the executive officers as of the date of Stockholder approval
of the Plan becomes a "beneficial owner" (as such term is used in Rule 13d-3
promulgated under the Act), after the date hereof, directly or indirectly, of
securities of the Company representing 20% or more of the combined voting power
of the Company's then outstanding securities; (ii) a change in "control" of the
Company (as the term "control" is defined in Rule 12b-2 or any successor rule
promulgated under the Act) shall have occurred; (iii) the majority of the Board
of Directors, as such entire Board of Directors is composed at the date of this
Agreement, no longer serve as directors of the Company, except that there shall
not be counted toward such majority who no longer serve as directors any
director who ceased to serve either prior to the date of a Change in Control,
for any reason, or at any other time due to his death, disability or termination
for cause; (iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or
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substantially all of the Company's assets; or (v) the stockholders of the
Company approve a merger or consolidation of the Company with any other company,
other than a merger or consolidation which would result in the combined voting
power of the Company's voting securities outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than 70% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was adopted
by the Board of Directors of the Company on ______ 1999. No option may be
granted under the Plan after __________ 2009. The Board of Directors, without
further approval of the Company's stockholders, may at any time and from time to
time suspend or terminate the Plan, in whole or in part, or amend it from time
to time in such respects as it may deem advisable, including without limitation,
to comply with applicable requirements of the Securities Act and the Exchange
Act, or to conform to any change in applicable law or to regulations or rulings
of administrative agencies; provided, however, that no amendment shall be
effective without the requisite prior or subsequent stockholder approval which
would (a) except as contemplated in Paragraph 12, increase the maximum number of
shares of Common Stock for which options may be granted under the Plan, (b)
materially increase the benefits to participants under the Plan or (c) change
the eligibility requirements for individuals entitled to receive options
hereunder. No termination, suspension or amendment of the Plan shall, without
the consent of the holder of an existing option affected thereby, adversely
affect his rights under such option. The power of the Committee to construe and
administer any options granted under the Plan prior to the termination or
suspension of the Plan nevertheless shall continue after such termination or
during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under the
Plan shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the holder
thereof, only by the holder or his or her legal representatives. Except to the
extent provided above, options may not be assigned, transferred, pledged,
hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
15. WITHHOLDING TAXES. The Company may withhold cash and/or
shares of Common Stock to be issued to the optionee having an aggregate fair
market value equal to the amount which it determines is necessary to satisfy its
obligation to withhold Federal, state and local income taxes or other taxes
incurred by reason of the grant or exercise of an option, its disposition, or
the disposition of the underlying shares of Common Stock. Alternatively, the
Company may require the holder to pay to the Company such amount, in cash,
promptly upon demand. The Company shall not be required to issue any shares of
Common Stock pursuant to any such option until all required payments have been
made. Fair market value of the shares of Common Stock shall be determined in
accordance with Paragraph 5.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option
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under the Plan and may issue such "stop transfer" instructions to its transfer
agent in respect of such shares as it determines, in its discretion, to be
necessary or appropriate to (a) prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act or (b)
implement the provisions of the Plan or any agreement between the Company and
the optionee with respect to such shares of Common Stock.
17. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Committee may, without further approval by the stockholders, substitute new
options for prior options of a Constituent Corporation (as defined in Paragraph
18) or assume the prior options of such Constituent Corporation.
18. DEFINITIONS.
a. Code. The term "Code" shall mean the Internal Revenue
Code of 1986, as amended.
b. Subsidiary. The term "Subsidiary" shall have the same
definition as "subsidiary corporation" in Section 424(f) of the Code.
c. Parent. The term "Parent" shall have the same
definition as "parent corporation" in Section 424(e) of the Code.
d. Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, its
Parent or any Subsidiary in a transaction to which Section 424(a) of the Code
applies (or would apply if the option assumed or substituted were an "incentive
stock option" (within the meaning of Section 422 of the Code)), or any Parent or
any Subsidiary of such corporation.
e. Disability. The term "Disability" shall mean a
permanent and total disability within the meaning of Section 22(e)(3) of the
Code.
f. Outside Director Option. The term "Outside Director
Option" shall mean a NQSO granted pursuant to the Plan to a person who, at the
time of grant, is a director of the Company but is not an employee of the
Company or any of its Subsidiaries.
19. STOCKHOLDER APPROVAL. The Plan shall be subject to approval
by the written consent of the majority of the stockholders. No options granted
hereunder may be exercised prior to such approval, provided that the date of
grant of any options granted hereunder shall be determined as if the Plan had
not been subject to such approval. Notwithstanding the foregoing, if the Plan is
not approved by a vote of the stockholders of the Company on or before May 1,
2000, the Plan and any options granted hereunder shall terminate.
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Exhibit 10.11
FEC Contract No. 99-0764
MASTER EQUIPMENT PURCHASE AGREEMENT
THIS MASTER EQUIPMENT PURCHASE AGREEMENT, made the 19th day of April,
1999, between FEDERAL EXPRESS CORPORATION ("Federal"), and I.D. SYSTEMS, INC.
("Seller").
RECITALS
1. Federal desires to purchase certain equipment and services for use in
its business.
2. Seller is ready, willing and able to sell such equipment and services
to Federal in accordance with the terms and subject to the conditions of this
Agreement.
FOR AND IN CONSIDERATION of the mutual covenants contained in this
Agreement, Federal and Seller (the "parties") agree as follows:
ARTICLE 1
DEFINITIONS
Primary Definitions. In addition to words and terms elsewhere defined in
this Agreement, the following words and terms as used in this Agreement shall
have the following meanings unless some other meaning is apparent from the
context in which the words and terms are used:
Delivery. The following concurrent events performed in accordance with the
Delivery procedure described in Section 3.03: (i) tender of the Equipment for
delivery; (ii) inspection and testing of the Equipment by Federal or its
designated agent, and acceptance of the Equipment by Federal; (iii) sale of the
Equipment; (iv) payment by Federal of monies due upon Delivery of the Equipment;
and (v) completion of the events set forth in Section 3.03.
Equipment. The items and quantities of personal property and all component
parts and systems described in Exhibit A.
Equipment Delivery Schedule. The schedule for delivery of the Equipment by
Seller to Federal described in applicable Purchase Order.
Equipment Purchase Price. The purchase price for the Equipment set forth
in Section 2.02 and in Exhibit A.
Equipment Bill of Sale. A bill of sale in the form of Exhibit C conveying
from Seller to Federal title to the Equipment.
Excusable Delay. Any delay in Seller's performance occasioned by causes
beyond its reasonable control and not occasioned by its intentional acts, fault
or negligence, and including acts of God or public enemies, industrial or civil
disturbances, orders of any governmental or military entity having authority to
act, or failure of suppliers for one of the foregoing reasons to provide parts
and components to Seller timely.
Purchase Order. A purchase order issued by Federal to Seller, authorizing
the purchase of the Equipment, Maintenance, and training, and specifying the
quantity, the Delivery Schedule, and the Purchase Price of the Equipment to be
purchased. In the event of a conflict between the terms of a Purchase Order and
the terms of this Agreement, the terms of this Agreement shall control.
Specification. The technical and operational specifications for the
Equipment attached as Exhibit E.
Warranties. The warranties made by Seller to Federal in Article 4.
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2
ARTICLE 2
PURCHASE OF EQUIPMENT
Section 2.01. Purchase of Equipment. Seller agrees to sell the Equipment
to Federal and Federal agrees to purchase the Equipment from Seller in
accordance with the terms and conditions of this Agreement. Federal may order
Equipment by release of a purchase order substantially in the form of Exhibit B.
Section 2.02. Price and Payment. (a) Federal shall pay to Seller for the
Equipment the Equipment Purchase Price set forth in Exhibit A in accordance with
the payment procedure described in Exhibit D. Unless otherwise provided, the
Equipment Purchase Price includes the cost of delivering the Equipment to
Federal.
(b) The invoice shall be due and payable within thirty (30) days of
Federal's acceptance of the Equipment following inspection and
testing of the Equipment.
(i) Upon receipt and prior to acceptance of any Equipment, Federal
shall have the right for a period not to exceed fifteen (15)
calendar days to inspect and inventory the Equipment or to
designate a third party to inspect and inventory the
Equipment.
(ii) If upon inspection the Equipment does not conform to the
Specification, Federal shall so notify Seller, and Seller
shall then have a cure period of twenty (20) calendar days to
remedy the cause of non-conformity and resubmit the Equipment
to Federal for further inspection. If at the end of such
further inspection the Equipment still does not conform to the
requirements of the Specification, Federal may, at its option,
either:
(A) Reject the Equipment, in which case Seller shall
promptly remove the Equipment from Federal's facility
and refund to Federal any monies previously paid by
Federal to Seller for the removed Equipment; or
(B) Conditionally accept the Equipment, by noting such items
of nonconformity on the Equipment Acceptance Receipt,
and negotiate for a reduction in the Equipment Purchase
Price consistent with the degree of non-conformity. If
the reduction is not agreed upon by the parties within
ten calendar days following Federal's election to
conditionally accept the Equipment, Federal may reject
the Equipment as provided in Section 2.02(b)(ii)(A), but
Federal's rejection of the Equipment and receipt of
monies previously paid shall not be an election of
remedies.
(c) The prices set forth in Exhibit A are in effect during the Term of
this Agreement.
Section 2.03. Term. The term of this Agreement (the "Term") shall commence
upon the date of execution of this Agreement by both parties and shall expire
not later than May 31, 2000 (the "Termination Date"), unless earlier terminated
as provided in this Agreement.
ARTICLE 3
DELIVERY, TITLE, RISK OF LOSS
Section 3.01. Delivery. Seller shall deliver the Equipment to Federal in
accordance with Section 3.03 and the applicable Purchase Order. Federal shall
have no obligation to purchase any Equipment unless delivered to Federal in
accordance with the Equipment Delivery Schedule.
Section 3.02. Place of Delivery. The Equipment shall be delivered to
Federal at the location(s) described in the applicable Purchase Order.
Section 3.03. Delivery Procedure. Upon delivery of Equipment to the
location(s) and in the manner designated in the applicable Purchase Order and
following inspection, testing and Federal's acceptance of the Equipment in
accordance with Article 6:
(i) Seller shall execute and deliver to Federal an Equipment Bill of
Sale; and
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3
(ii) Federal shall pay to Seller the Equipment Purchase Price for the
accepted Equipment in accordance with Exhibit D.
Section 3.04. Title and Risk of Loss. Risk of loss of, damage to, or
destruction of any Equipment shall transfer from Seller to Federal upon Delivery
of the Equipment to Federal in accordance with Sections 3.01, 3.02 and 3.03.
Tide to the Equipment shall transfer to Federal upon Federal's acceptance of
such Equipment in accordance with Article 6, and payment of the Equipment
Purchase Price in accordance with Section 2.02.
ARTICLE 4
SELLER'S WARRANTIES
Section 4.01. Warranties. Seller warrants to Federal that:
(a) At Delivery, Seller shall have (i) full legal and beneficial title to
the Equipment, free and clear of any and all security interests, liens, claims,
charges or encumbrances, and (ii) full power and lawful authority to sell the
Equipment to Federal;
(b) At Delivery, the Equipment shall in all respects conform to the
Specification and the Equipment shall be free from defects in design, material
or workmanship for a period of one year from Delivery; and that if the Equipment
or any part of the Equipment proves defective within such period Seller will
repair the defect or replace the Equipment or defective part at its sole expense
with Equipment or parts of equal or better quality;
(c) Seller will comply with any additional warranties set forth in the
Specification; and
(d) Seller represents and warrants that the Equipment is "Millennium
Compliant" (hereinafter defined). This warranty shall be perpetual
and survive any other expiration of warranty period of the
termination of this Agreement. (i) For the purposes of this
Agreement, "Millennium Compliant" means:
(A) the functions, calculations and other computing processes of
the Equipment (collectively, the "Processes") perform in a
consistent manner regardless of the date in time on which the
Processes are actually performed and regardless of the date
input to the Equipment, whether before, on or after January 1,
2000 and whether or not the dates are affected by leap years
(collectively, the "Millennial Dates");
(B) the Equipment will function without interruptions, errors or
omissions caused by the date in time on which the Processes
are actually performed or by the Millennial Dates input to the
Equipment; and
(C) if the Equipment stores and displays date information, it will
be presented in ways that are unambiguous as to the
determination of the century in a defined, predetermined, and
appropriate manner.
(ii) Seller represents and warrants that the Equipment has been tested by
Seller to determine that such Equipment is Millennium Compliant. Upon Federal's
written request, Seller shall deliver to Federal documentation on the method of
date manipulation, format of date elements, changes affecting previous coding
practices, examples of current coding practices, test plans and the results of
such tests with respect to the Equipment, as well as any other related
information reasonably requested by Federal. Upon Federal's written request,
Seller agrees to participate in additional tests of the Equipment, at no charge
to Federal, to determine Millennium Compliance. Seller shall notify Federal
immediately of the results of any test or any claim or other information that
indicates that any of the Equipment is not Millennium Compliant.
(iii) In the event that any Equipment is not in conformity to the above
warranties, Seller shall, within thirty (30) days after notification or
discovery thereof and at no expense to Federal, either (A) remedy such
non-conformity or replace such non-conforming Equipment with equivalent
conforming Equipment; or (B) if such remedy is impossible or commercially
impractical, refund to Federal all fees paid by Federal for the nonconforming
Equipment, plus the unused portion of any maintenance fees paid by Federal for
such non-conforming Equipment.
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4
Section 4.02. Assignment of Warranties. Seller will assign to Federal at
Delivery all assignable warranties, service life policies and patent indemnities
of manufacturers or suppliers of components of the Equipment other than Seller.
At Federal's request, Seller shall give Federal reasonable assistance in
enforcing Federal's rights arising under such warranties, service life policies
and patent indemnities. If required under such warranties, service life policies
or patent indemnities, Seller shall give notice to any such manufacturers or
suppliers of their assignment by Seller to Federal.
ARTICLE 5
QUALITY ASSURANCE
Section 5.01. Quality Assurance. (a) At Federal's Option, Seller shall
develop with Federal a Quality Program (the "Program") that assures that the
Equipment conforms to all specifications set forth in the Program and Exhibit E.
(b) The Program may include, but shall not be limited to, functional
parameters, surveys, audits, in-progress monitoring, correction procedures,
audit trials, written work station procedures and signoffs, test plans,
communication paths, information exchange and remedies for nonconformance.
(c) The Program will be instituted thirty (30) days from Federal's notice
to Seller exercising its option to institute the Program and within such thirty
(30) day period Seller and Federal will each designate a Program Representative.
ARTICLE 6
SERVICES AND OTHER PRODUCTS
Section 6.01. Maintenance Services. (a) During the Warranty Period and any
subsequent Maintenance Services period, Company shall provide to Federal the
Maintenance Services described in Exhibit E attached hereto, and shall correct
and repair any failure, malfunction, defect or nonconformity in any Equipment
provided hereunder, following notification (as specified below and in Exhibit E)
by Federal to Seller of any failure, malfunction, defect or nonconformity which
prevents the Equipment from performing in accordance with the warranties,
Documentation, specifications and other materials provided to Federal hereunder.
(b) In addition to the Maintenance Services described in Exhibit E,
Company shall provide emergency remedial maintenance for those Equipment
failures, malfunctions, defects or nonconformities which impair Federal from
normal processing or problems which impact the communications of the Equipment.
Federal shall notify Seller verbally and in writing when such an occurrence
arises.
(c) If Federal should agree to purchase Maintenance Services
subsequent to the Warranty Period, payment will be due within thirty (30) days
following the beginning of the applicable annual Maintenance Services period.
The fee for the first annual chargeable Maintenance Services period is set forth
in Exhibit A and shall be designated in the Purchase Order. The fee for any
subsequent annual Maintenance Services period shall not be increased by more
than the CPI over the previous chargeable annual Maintenance Services period.
Federal shall not be required to purchase or renew any Maintenance Services at
any time and failure to obtain or renew any Maintenance Services shall not
affect the licenses of the Equipment. Federal shall have the right to order or
renew Maintenance Services under the same terms and conditions at any time
throughout the Term of this Agreement.
(d) The annual services period for any initial or renewal order of
Maintenance Services placed by Federal shall commence as of the date set forth
in Federal's Purchase Order therefor. The fees for any Maintenance Services for
any services period of less than a full fiscal year shall be prorated for such
period.
Section 6.02. Documentation. Federal may at its option order, and Company
shall thereupon provide, additional copies of Documentation (in hard copy or in
CD-ROM format when commercially available).
ARTICLE 7
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5
PERMITS, LICENSES, LAWS & REGULATIONS
Section 7.01. Seller's Responsibilities. Seller shall be responsible for
familiarizing itself and complying with all laws, ordinances, rules, regulations
and orders of any public authority having jurisdiction over the Equipment.
Seller shall be liable for and shall indemnify and hold harmless Federal against
any resulting fines, penalties, judgments or damages, including reasonable
attorneys' fees, arising out of Seller's failure to comply with any such laws,
ordinances, rules, regulations or orders.
ARTICLE 8
TAXES
Section 8.01. Payment of Taxes by Federal. (a) All taxes, excises, duties
and assessments whatsoever (except taxes levied or assessed against Seller based
upon gross receipts or net income or taxes imposed upon the privilege of doing
business or exercising a franchise) arising out of the sale and delivery of the
Equipment to Federal (the "Taxes") shall be the responsibility of Federal. Such
Taxes, if any, shall be added to the Equipment Purchase Price as a separate item
and shall be identified on Exhibit A.
(b) Seller shall invoice Federal for the sales or use Taxes it is
responsible for collecting and paying on the sale of Equipment by separately
stating the amount and percent of such Taxes in each invoice presented to
Federal for payment (or the final invoice, if agreed to by Federal and Seller).
Federal shall pay such Taxes to Seller in accordance with the payment procedures
set out in Exhibit B, unless (i) the validity or application of the Taxes is
contested by Federal in good faith, or (ii) Federal is permitted to make a
direct payment of the Taxes to the taxing authority, and Federal notifies Seller
of its intention to do so.
(c) Seller shall, upon Federal's written request and at its expense,
assist Federal in contesting the validity or application of any Taxes. Seller
agrees that if it receives a refund of all or part of any Taxes (including
interest and penalties) previously paid by Federal, it shall promptly remit the
refund to Federal.
ARTICLE 9
EXCUSABLE DELAY, CANCELLATION
Section 9.01. Delay by Seller. Seller shall not be responsible to Federal
for any Excusable Delay in the performance of its duties under this Agreement.
Section 9.02. Notice of Excusable Delay. Seller shall promptly notify
Federal when an Excusable Delay has occurred or is likely to occur, in each case
specifying to the extent practicable the estimated duration of such Excusable
Delay.
Section 9.03. Cancellation. If any Excusable Delay shall result in a delay
of more than fifteen (15) business days in delivery of any of the Equipment or
Maintenance Services, Federal may partially or completely cancel this Agreement
by notice to Seller without penalty, and Seller shall promptly refund to Federal
monies previously paid by Federal to Seller for cancelled Equipment or
Maintenance Services.
ARTICLE 10
DEFAULT, REMEDIES
Section 10.01. Events of Default. (a) If any one or more of the following
Events of Default shall happen, then this Agreement may be terminated in whole
or in part at the option of the party not in default although such termination
shall not be deemed an election of remedies:
(i) If either party shall fail in the due and punctual payment of any
sum due to the other, which failure shall not be cured within five
business days after receipt of notice that such payment is late;
(ii) If either party shall fail in the performance of any of its
obligations contained in this Agreement, which failure shall not be
cured within ten business days after receipt of notice from the
other party;
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6
(iii) If either party shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, composition,
readjustment, liquidation or similar relief for itself under any
present or fixture statutes, law or regulation of the United States,
or shall seek or consent to or acquiesce in the appointment of any
master, or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due; or
(iv) If a petition shall be filed against either party seeking any
reorganization, composition, readjustment, liquidation or similar
relief under any present or future statute, law or regulation of the
United States and such petition shall remain undismissed or unstayed
for an aggregate of 60 days (whether or not consecutive), or if any
trustee, receiver or liquidator of either party is appointed, which
appointment shall remain unvacated or unstayed for an aggregate of
sixty (60) days (whether or not consecutive).
Section 10.02. Remedies. (a) Upon the occurrence of an Event of Default by
Seller, Federal shall have all the rights and remedies available to Federal
under this Agreement and the laws of Tennessee.
(b) Upon the occurrence of an Event of Default by Federal, Seller shall
have all of the rights and remedies available to a Seller under this Agreement
and the laws of Tennessee.
ARTICLE 11
INDEMNIFICATIONS
Section 11.01. General Indemnification. The Seller agrees to indemnify,
defend and hold harmless Federal, its directors, officers, agents and employees
from any and all liabilities, damages, losses, expenses, demands, claims, suits
or judgments, including reasonable attorneys' fees and expenses, for the death
of or bodily injury to any person and for the loss of, damage to or destruction
of any property in any manner arising out of the negligent or intentional acts
or omissions of the Seller, its agents, employees or any person for whose acts
or omissions the Seller, its agents, employees or subcontractors may be
responsible.
Section 11.02. Royalties and Patents. The Seller shall pay all royalties
and license fees in any way relating to the Equipment, shall defend all suits or
claims for infringement of any proprietary rights arising from the Equipment,
and shall indemnify, defend and hold harmless Federal from loss on account of
any such suit or claim.
Section 11.03. Patent Indemnification. (a) Seller shall indemnify, defend
and hold harmless Federal, its directors, officers, employees and agents, from
and against any claim that the Equipment or any portion of it (including, if
applicable, any software) or the use, lease or sale of any item delivered or to
be infringes any United States or foreign patent, including process, copyright
or other proprietary right. Seller shall pay any royalties and other costs
related to the settlement of such claim and the cost in damages, including
attorney's fees, finally awarded as a result of any suit based on such claim.
Federal shall promptly notify Seller of any such claim and shall give Seller
such assistance and information as is available to Federal for the defense of
such claim, and Federal will not settle or compromise any such claim without
Seller's prior written consent. Any assistance or information which is furnished
by Federal at the request of Seller shall be at Seller's expense.
Notwithstanding, Seller will not consent to any injunction, decree, judgment or
settlement which would have the effect of preventing Federal's use of any
Equipment without Federal's prior written consent.
(b) If the use of any Equipment delivered under this Agreement is enjoined
as a result of a suit based on any claim of infringement of a United States or
foreign patent, copyright or other proprietary right, Seller shall, at its
option, but in no event later than thirty (30) days after Federal's use of the
Equipment is so enjoined, (i) negotiate a license or other agreement with the
claimant so that the Equipment is no longer subject to such injunction, (ii)
modify the Equipment so that it becomes non-infringing, provided such
modification can be accomplished without materially affecting the performance of
the Equipment, (iii) replace the Equipment with non-infringing Equipment of
equal or better performance and quality, subject to the prior approval of
Federal or (iv) repurchase the Equipment for the Equipment Purchase Price paid
by Federal under this Agreement.
<PAGE>
7
ARTICLE 12
COMPLIANCE WITH LAWS
Section 12.01. Compliance with Laws. (a) To the extent applicable to the
Seller, it agrees to comply with the affirmative action requirements applicable
to contracts with government contractors as set forth in Title 41 of the Code of
Federal Regulations and incorporated into this Agreement by reference.
(b) Seller agrees to comply with all rules, orders, laws and regulations
of any federal, state, or local agency or governmental authority governing the
sale or delivery of the Equipment by Seller under this Agreement.
(c) The Seller agrees to indemnify, defend and hold harmless Federal, its
officers, directors and employees from and against any and all claims, losses,
demands, actions, administrative proceedings, liabilities and judgments,
including reasonable attorneys' fees and expenses, arising from the Seller's or
the subcontractor's failure to comply with the provisions of this Section.
ARTICLE 13
DISCLOSURE OF INFORMATION
Section 13.01. Disclosure of Information. Seller acknowledges that certain
of Federal's valuable, confidential and proprietary information may come into
Seller's possession. Accordingly, Seller agrees to hold all information it
obtains from or about Federal in strictest confidence, not to use such
information other than for the performance of this Agreement, and to cause any
of its employees to whom such information is transmitted to be bound to the same
obligation of confidentiality to which Seller is bound. Seller shall not
communicate such confidential and proprietary information without Federal's
prior written consent. In the event of any violation of this Section, Federal
shall be entitled to preliminary and permanent injunctive relief as well as an
equitable accounting of all profits or benefits arising out of such violation,
which remedy shall be in addition to any other rights for remedies to which
Federal may be entitled. The rights and obligations of the parties regarding
disclosure of Information shall be in accordance with the Mutual Non-Disclosure
Agreement between Federal and Seller dated September 16, 1998.
ARTICLE 14
TERMINATION
Section 14.01. Termination. The Agreement may be terminated by either
party at will, with or without cause, upon not less than thirty (30) days prior
written notice given to the other party.
ARTICLE 15
MISCELLANEOUS
Section 15.01. Assignment. This Assignment shall inure to the benefit of
and be binding upon each of the parties and their respective successors and
assigns, but neither the rights nor the duties of either party under this
Agreement may be voluntarily assigned or delegated without the prior written
consent of the other party, except that Federal may assign all or any part of
its rights and delegate its duties under this Agreement to a wholly-owned
subsidiary, affiliate, or parent company.
Section 15.02. Section Headings and Captions. All section headings and
captions used in this Agreement are for convenience of reference and shall not
affect the interpretation of this Agreement.
Section 15.03. Exhibits. All Exhibits described in this Agreement shall be
deemed to be incorporated in and made a part of this Agreement, except that if
there is any inconsistency between this Agreement and the provisions of any
Exhibit the provisions of this Agreement shall control. Terms used in an Exhibit
and also used in this Agreement shall have the same meaning in the Exhibit as in
this Agreement.
Section 15.04. Applicable Law. This Agreement shall be deemed entered into
with and shall be governed by and interpreted in accordance with the laws of
Tennessee, and the parties submit to the jurisdiction of any appropriate court
within Tennessee for adjudication of disputes arising from this Agreement.
<PAGE>
8
Section 15.05. Amendments. Except as otherwise provided, this Agreement
shall not be modified except by written agreement signed on behalf of Federal
and the Seller by their respective authorized officers.
Section 15.06. Entire Agreement. This Agreement supersedes all prior
understandings, representations, negotiations and correspondence between the
parties, constitutes the entire agreement between them with respect to the
matters described, and shall not be modified or affected by any coarse of
dealing, course of performance or usage of trade.
Section 15.07. Legality of Provisions. If any provision of this Agreement
is held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired.
Section 15.08. No Waiver. The failure of either party at any time to
require performance by the other of any provision of this Agreement shall in no
way affect that party's right to enforce such provision, nor shall the waiver by
either party of any breach of any provision of this Agreement be taken or held
to be a waiver of any further breach of the same provision or any other
provision.
Section 15.09. Survival of Terms. The provisions of this Agreement which
by their nature extend beyond the expiration or earlier termination of this
Agreement shall survive and remain in effect until all obligations are
satisfied. Specifically, all of the Seller's obligations to indemnify Federal
shall survive this Agreement.
Section 15.10. Public Release of Information. The Seller shall in each
instance obtain the prior written approval of Federal concerning exact text and
timing of news releases, articles, brochures, advertisements, prepared speeches
or any other information releases concerning this Agreement.
Section 15.11. Change Of Control. In addition to such other rights as
Federal may have, Federal shall have the right to immediately terminate this
Agreement upon any change (i) in the ownership or voting control of fifty-one
percent (51%) or more of the capital stock or assets of Seller, if a
corporation, or (ii) in the ownership of Seller or its assets, if not a
corporation. Seller shall notify Federal in writing at least thirty (30) days
before any such change in control of the capital stock, business, or assets of
Seller.
Section 15.12. Financial Information. Seller agrees to provide to Federal,
within one hundred twenty (120) days after the end of each fiscal year of
Seller, a financial statement, prepared in accordance with generally accepted
accounting principles. In addition, Seller agrees to provide to Federal, from
time to time, any other financial information as Federal may reasonably request.
Section 15.13. Insurance. Contractor shall maintain and furnish to Federal
certificates evidencing the types of insurance coverage and endorsements. Such
insurance shall be written by insurance companies licensed to do business in the
state where the Maintenance Service is performed, shall be in form and substance
satisfactory to Federal, and shall provide that insurance will not be subject to
cancellation, termination, or change except after thirty (30) days written
notice to Federal.
Section 15.14. Safety, Order, and Security. Seller shall enforce strict
discipline and good order among its employees and subcontractors' employees, and
shall take all necessary precautions in the performance of the Work to insure
the safety of all persons and property. Seller will comply with all security
rules made by Federal and, at Federal's request and subject to applicable laws,
will cooperate with Federal in the investigation of any of Seller's employees
suspected of theft or other wrongdoing with respect to Federal and its property.
Section 15.15. Standard of Performance. Seller agrees that the Work will
be performed by qualified, careful, and efficient employees. Seller warrants
that all Maintenance Services furnished under this Agreement is of high quality
and workmanship. Seller shall replace or re-perform, as deemed necessary by
Federal, any of the Maintenance Service that is found lacking or defective, in
the opinion of Federal, without additional cost to Federal.
Section 15.16. Further Assurances. Each party agrees to take such actions,
provide such documents, and do such things as may reasonably be requested to
assure the performance of the other party's obligations under this Agreement.
<PAGE>
9
Section 15.17. Counterparts. This Agreement may be executed in any number
of counterparts and each fully executed counterpart shall be deemed an original.
Section 15.18. Notices. All notices, approvals, requests, consents and
other communications given pursuant to this Agreement shall be in writing and
shall be deemed effective when received if hand-delivered, sent by telex, sent
by Federal Express service or sent by United States certified or registered
mail, addressed as follows:
If to the Seller: I.D. Systems, Inc.
90 William Street
Suite 402
New York, New York 10038
If to Federal: Federal Express Corporation
3101 Tchulahoma
Memphis, Tennessee 38118
Attn.: Curt Heaslet
with a copy to: Federal Express Corporation
30 FedEx Parkway
1st Floor, Vertical
Collierville, Tennessee 38017
Attn: Managing Director
Legal Technology Transactions
Section 15.19. Validity of Agreement. This Agreement shall not be valid
nor binding upon Federal unless it shall have been executed by an officer of
Federal in writing.
TN WITNESS WHEREOF, the parties have signed this Agreement on the date
first above written.
I.D. SYSTEMS, INC. FEDERAL EXPRESS CORPORATION
By: Kenneth Ehrman By: Amy Langston
---------------------------- -----------------------------
Title: President Title: Vice President
------------------------- --------------------------
("Seller") ("Federal")
Approved
Legal Department
[ILLEGIBLE] L4/14199
--------------------
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the inclusion in this Amendment No. 1 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 3, 1999
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