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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12(G) OF THE SECURITIES ACT OF 1934
VASCO CORP.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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DELAWARE 36-3741208
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1919 S. HIGHLAND AVE., SUITE 118-C, 60148
LOMBARD, IL 60148 (Zip Code)
(Address of Principal Executive
Offices)
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(708) 495-0755
(Issuer's Telephone Number)
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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COMMON NASDAQ
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SECURITIES TO BE REGISTERED UNDER SECTION 12(G) OF THE ACT:
NONE
(Title of Class)
REVENUES FOR THE REGISTRANT'S YEAR ENDED DECEMBER 31, 1995 WERE $3,800,133.
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE
REGISTRANT ON APRIL 15, 1996, BASED ON THE CLOSING PRICE INDICATED BY THE NASD
ELECTRONIC BULLETIN BOARD SYSTEM ON THAT DATE, WAS $24,465,516.
THE NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF APRIL
15, 1996 WAS 15,793,575.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND AND HISTORY
VASCO Corp. ("old VASCO") was formed by the Company's current President and
Chief Executive Officer, T. Kendall Hunt, in Delaware on May 22, 1984. On
September 5, 1986 old VASCO was merged into Ridge Point Enterprises, Inc.
("Ridge Point"), a non-operating public company incorporated in Utah. Ridge
Point's name was subsequently changed to VASCO Corp. ("VASCO Utah").
On August 16, 1990 VASCO Corp. was reincorporated in Delaware by merging
VASCO Utah into a newly formed VASCO Delaware. VASCO Utah was subsequently
dissolved. Since the reincorporation in 1990 the legal entity has been VASCO
Corp., a Delaware corporation ("VASCO" or the "Company").
VASCO was originally conceived to provide end-user training programs, job
productivity aids, development tools and documentation services to Fortune 1000
companies, government agencies, software and hardware manufacturers, and
companies in the computer retail industry. The Company designed, sold and
supported software for business oriented training uses on a variety of personal
computers ("PCs") and minicomputers for management, professional and clerical
employees collectively called "end-users". It also provided consulting and
training to those clients which needed to implement specific new software and
hardware applications. The Company's strategic plan also contemplated the
acquisition of other small companies that would broaden, enhance or diversify
its product lines and/or services.
The Company's business has evolved over time. For several years now the
focus has been on the improvement of productivity and profitability of its
clients through consulting and training, enhanced by the application of
technology. For the most part, this encompasses strategic computer automation
projects, including sales force and field personnel automation, which can have a
major impact on the profitability and competitiveness of the Company's Fortune
1000 customer base. This aspect of the Company's business is marketed as VASCO
Performance Systems ("VPS").
In November of 1989, the Company acquired an 88% ownership interest in
ThumbScan, Inc. ("ThumbScan"). ThumbScan's business was conceived to develop a
biometric fingerprint reader for the purpose of providing extended user
authentication ("EUA") for access to information that resided on stand-alone PCs
and PCs connected to mainframe computers and minicomputers. The purchase of
ThumbScan was predicated on its patents and other products and technologies,
particularly its extended user authentication device, that could be made
available at a more attractive price point to security conscious companies in
the same markets already served and targeted by VASCO.
In December of 1991 the Company acquired an additional 6% interest in
ThumbScan and in December of 1993 acquired the remaining 6%. ThumbScan was
subsequently renamed VASCO Data Security, Inc. ("VDSI"). VDSI remains a wholly
owned subsidiary of VASCO Corp., and is incorporated in Delaware.
VDSI designs, manufactures and markets a family of patented computer
security hardware and software products through direct sales, distributors,
re-sellers and OEM markets. A recent strategy has been to broaden the
distribution channels through a growing number of strategic joint marketing
partnerships with other computer and network security companies. VDSI offers a
broad line of computer security hardware and software products, designed to
manage and protect access to a wide range of computer-based information
resources. VDSI has positioned itself to market a new generation of fully
integrated computer security hardware and software systems worldwide, including
those designed to provide security to end-users on the rapidly growing public
network known as the Internet/World Wide Web.
Prior to 1995 VPS represented the majority of the Company's business.
However, there has been a gradual shift in the company's business to the point
that VDSI accounted for the majority of consolidated revenues for the year ended
December 31, 1995. Virtually all of the Company's 1995 growth was attributable
to VDSI (See "Management's Discussion and Analysis"). Management expects VPS to
be a modest contributor to future earnings, and believes that VDSI represents
the Company's most significant growth
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opportunity. Consequently, the majority of management's time and energy, as well
as the current and future capital resources of the Company, will be committed to
VDSI.
On March 15, 1996 the Company, through VASCO Data Security Europe SA/NV, a
newly formed subsidiary, acquired a 15% interest in Lintel Security SA/NV
("Lintel"). The Company has agreed to acquire an additional 36% interest on July
1, 1996, resulting in 51% ownership. The Company is required to acquire the
remaining 49% of Lintel subject to the occurrence of certain events and
criteria, including profitability and certain product sales volumes achieved
through December 31, 2001. Lintel, based in Brussels Belgium, is a developer of
security technologies for PCs, computer networks and telecommunications systems,
using cryptographic algorithms such as DES and RSA.
THE COMPUTER AND NETWORK SECURITY INDUSTRY
In the days when mainframe, mid-range and various minicomputers ruled the
world of computing, the majority of corporations thought of security in terms of
preventing access to a physical area within a building, since their vital and/or
proprietary information assets tended to be contained in the Data Processing
Center ("DP Center"). Over time corporations have become more concerned about
protecting these information assets and increasingly sophisticated security
hardware and software for these computers has been developed.
As the industry has evolved the DP Center has become either a casualty of
"progress", or just one of many locations that those responsible for security
are now concerned with. In reality, there remain relatively few computing
environments that consist of only "dumb" terminals connected to mainframe
computers.
With the advent of PCs, Wide Area Networks ("WANs") and Local Area Networks
("LANs") the issue of data security has become extremely dynamic. The concern is
no longer centralized at the DP Center, or even on a corporation's premises, but
deals with the proprietary or sensitive data resident on distributed networks
and a growing number of remote and portable computing resources made accessible
to the masses by rapid changes in technology, fueled by falling prices.
It is generally impossible to know where remote computing resources are
from time to time and whether they are operating in a stand-alone mode or are
connected to any number of internal or external networks. The reality is that
very few individuals and employees of thousands of small and large businesses
are aware of, or understand, the dynamics and attendant security risks.
Corporate Installation Security Officers ("ISOs") are scrambling to protect
their organization's increasingly far-flung computer resident data from theft,
compromise, or destruction. The recognition of the need to secure data across
the entire organization can often be seen in the change of title from ISO to
Network Security Officer ("NSO") in a growing number of companies.
As NSOs have focused on securing their burgeoning private enterprise
systems they have felt the enormous administrative burden of implementing and
maintaining a cohesive security policy across multiple platforms. The challenge
to keep up becomes increasingly difficult and complex as technology advances
continue at an accelerated pace.
Many data security vendors are proposing solutions by providing
enterprise-wide security solutions. The list of newcomers to the enterprise
security market continues to grow as the issues become better understood and the
risks continue to escalate with the continued growth of network and on-line
computing aided by the continual introduction of better, faster and more
affordable communication devices. While some vendor's initiatives have addressed
the security needs of large private internal networks, NSOs and software vendors
have had to cope with the relatively recent development of public networks, in
particular the Internet and its World Wide Web ("WWW").
Most proprietary on-line services, or networks, such as CompuServe,
Prodigy, and America Online ("AOL"), as well as the Internet, use an advanced
standardized communication protocol known as TCP/IP, which allow for packets of
information (data and commands) to be exchanged between two parties across an
incomprehensibly vast network. The power of this standardized protocol, which
allows for two way communication across multiple platforms, also creates the
opportunity for compromise or theft of a users
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private data by unscrupulous hackers or "hunters". Furthermore, the proprietary
public networks may provide "trusted" services, but the user is no longer in
control of his or her PC once they are connected. While connected to a public
network, all existing open connections to the private network are available for
interrogation.
The reality is that these well known providers routinely interrogate the
hard disks of their customers and sometimes download data and/or artwork. When
connected to a public network such as CompuServe, Prodigy or AOL, the provider
has access to the entire hard drive and, if the user has LAN access, the mapped
LAN drives are also theoretically viewable, providing direct access to the
private network.
Some organizations are increasing the odds of potential problem sources as
they continue to deploy mobile computing resources, such as laptops with modems.
A company's intent is generally to allow the employee to connect to a network,
usually the company's own private network. In reality however, NSOs simply
cannot control how the computing resource is used, and it is unrealistic to
think that corporations will remove the ability to communicate from the current
corporate computing environment.
Environments such as the Internet are viewed by NSOs as the epitome of
"distrusted" networks. The Internet is a morass of thousands of network servers
and millions of connected PCs. It has no "owner" and, consequently, no person,
persons or entity that is held responsible for the integrity of this latest boon
to communication, information sharing and commerce. The established proprietary
public networks, and especially the Internet, is the arena where new computer
access security problems are invented and discovered each day. This is the
"danger zone", the intricate web that conjures up the NSO's worst nightmares.
This ease of access to this sometimes seemingly futuristic "danger zone"
has two profound effects. First, and most obvious to NSOs, is the ease by which
private networks can be connected to public networks. This problem is
exacerbated in many organizations where, due to the volume of demand, users are
unwittingly assisted in making these connections and/or sloppy network
configuration practices or poor network management and security policies exist.
Second, and more far reaching, is the extreme vulnerability of the casual home
PC user to these security threats. These users typically have little knowledge
of, or practice even rudimentary computer security techniques.
NSOs may be losing the battle to control security across their private
networks as centralized enterprise-wide security implementation becomes
exponentially more difficult to create and maintain. Worse yet, the sometimes
marginal security access controls being put in place by companies today have
been prone to attack by those companies' own employees tomorrow. All employee
users of the Internet and other public networks can now be considered potential
threats by their employers.
The vulnerability of the casual PC user is a far more serious problem that
has yet to be readily understood, let alone addressed. The very communication
technology (TCP/IP) that makes access to the Internet possible for virtually
everyone also opens up millions of hard drives for those lacking integrity to
access. Casual users can quickly comprehend the security issues in the "danger
zone" once their hard drive is accessed and personal financial data or other
sensitive information is copied or otherwise compromised.
Home PC users are also at a severe disadvantage to their corporate
counterparts. Corporate users are encouraged to rely on their NSOs and the
existing security infrastructure to protect the sensitive data on corporate
servers and networks as well as that resident on home and mobile computing
resources. The vast majority of home PC users simply are not aware of the
dangers or do not know where to begin.
Some NSOs and security product vendors have what VASCO/VDSI management
believe may be a mistaken faith in firewalls to furnish access security
protection between the corporation's private network and the public network or
"danger zone." A firewall filters inbound and outbound network traffic and
provides insulation from the public networks. Unfortunately, this is
inadvertently circumvented when the user makes a direct connection of a PC to
the Internet or other public network by way of a conventional phone line.
NSO's are constantly responding to challenges by hackers and "hunters" who
are often intelligent, creative and intent on advancing technology through
defeating the latest security measures. NSOs must also
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contend with the increasingly mischievous and criminal element and sometimes the
same tools designed to benefit the NSO inadvertently aid those parties.
Security Administrator Tool for Analyzing Networks ("SATAN") is an example
of a new generation of automated security "tools". SATAN is a public-domain
software package available free to all users of the Internet. Its primary goal
is to test the security of systems connected to the Internet by probing systems
to see if there is exposure. In the hands of the NSO it is an excellent tool to
see if the private network installation is secure. In the wrong hands it
provides an automated tool to "attack" the information resident on any computer
connected to a public network.
Most users of public networks, especially those using the Internet, don't
understand or believe that automated, highly sophisticated "hunters" are
actively seeking to exploit network connectivity. Automated tools can access and
interrogate systems with very little effort. As corporate NSOs implement
effective firewall systems, or other security measures, the "hunters" will turn
to the more vulnerable PC users who connect directly to the public networks by
modem.
The Company believes the private sector, representing millions of computers
and growing by leaps and bounds, is currently more exposed and vulnerable than
the corporate sector. However, corporations must now view each and every PC with
communication ability as a conduit that can connect their private network to any
and all public networks, trusted or otherwise.
COMPANY STRATEGY
VASCO is comprised of VASCO Performance Systems ("VPS") and VASCO Data
Security, Inc., ("VDSI") a wholly owned subsidiary of VASCO Corp. VPS represents
what can be thought of as the consulting division of the Company; it delivers
high level training and integration services and professional advice. VDSI can
be thought of as the security products division; it is involved in the research
and development, manufacture and distribution of leading edge devices designed
around PC and network end-user security needs. The recent 15% investment in
Lintel Security, which the Company ultimately expects will be a wholly owned
subsidiary, can be viewed as an extension of VDSI. Management believes that any
significant growth in revenues or profits will be generated by VDSI.
From a novice's point of view, VDSI is in the "Who?" business. The computer
security industry is becoming more competitive, with new companies joining the
fray each month. There are firewalls, network security, single sign-on,
mainframe and PC security software companies. There are also companies that
provide encryption, private/public key, electronic signature, and other schemes
to "scramble" the identification of the sender and the information being sent.
However, given time, these schemes can be defeated by a hacker, "sniffing" and
"trapping" the data, using widely available computing power and decoding
techniques to reveal the information.
VDSI's main focus and strategy is to provide superior, and whenever
possible, patented hardware devices which authenticate "who" users are before
letting them gain access to a computing environment. Since these products are
portable and use the time of day as a part of their solution, the possibility of
"defeating" them is significantly more difficult than other methods. These
devices are known as Extended User Authentication devices or, in industry
parlance; EAUs, tokens, or access control devices.
Generally speaking, it is VDSI's strategy to develop products which
compliment, or can be integrated into, many different applications, from general
security software described above, to client applications such as corporate and
home banking. As a general rule, most vendors in the computer and network
security industry, including some competitors, can be considered potential
customers.
SECURITY PRODUCTS
Through the end of 1995, the Company had shipped over 300,000 access
control devices to users around the world, and is now positioned to market a new
generation of fully integrated computer security hardware and software systems.
Versions and/or upgrades of the following products are being developed and are
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expected to meet various U.S. and international standards, such as DES and ANSI
X9.9, that have varying levels of security and, if successfully developed, will
address different user needs and markets.
ACCESS KEY II -- VASCO's Access Key II is the Company's premier product.
Access Key II is a second-generation professional-level solution for password
protection and access control whose underlying technology, like that of the
entire product line, is protected by several worldwide patents. Access Key II is
a rugged, high quality hand-held hardware device that fits, for instance, on a
key chain and has an LCD display and numeric keypad. The device can be used in
addition to existing software passwords for greater security, or in place of
them for greater ease of use.
Access Key II can solve the problems of remembering or losing passwords
(which are usually simplistic and can be easily broken) and the Post-It(R) Note
syndrome -- passwords written down and displayed for others to see. By replacing
software-based passwords, the weakest link in most data security systems, the
Access Key II has strong appeal. It can be used with most security systems, is
platform independent and integrates directly with native security software.
Access Key II is a six-character PIN (Personal Identification Number)
protected optical challenge and response-based password generator that features
patented proprietary algorithms. Access Key II displays a unique password each
time it is used. When users log on to a computer or program with their user ID,
the software program issues a challenge in the form of a flashing bar pattern on
the screen. The user holds the key up to the flashing pattern on the screen and
the Access Key II optics read and interpret the pattern and then displays a
unique, or one-time, password on its LCD. This password is then entered by the
user via the keyboard and, assuming a match exists, access to the computer or
program is granted.
Break-in attempts are tracked by a software administration system. After
five invalid attempts, the key will be locked out for a period of two hours and
each incorrect PIN entry thereafter results in an additional two hour lock out.
Useless to others if lost or stolen, Access Key II is easily replaceable and has
a five-year battery life.
Access Key II can be programmed by VDSI or its authorized dealers. However,
for maximum security and ease of administration, the Access Management System
("AMS"), which attaches to the PC via the parallel port, allows corporate
security administrators to program new keys. The AMS is a PC-based system that
maintains an Access Key database for company-wide key administration. For added
security, each AMS has an unique code to prevent others with a VASCO AMS from
creating duplicate keys.
Access Key II was released domestically in the third quarter of 1994 after
a highly successful introduction in Europe earlier in the year. The predecessor
product was Access Key which was introduced in 1987. The Access Key and Access
Key II devices continue to be successfully employed by industry, government and
financial institutions around the world. Its applications cover security for
public network access, remote access to corporate databases, electronic funds
transfer, home banking and home shopping, and for single sign-on applications.
PROGUARD -- The ProGuard product addresses the special data security needs
of mobile computing. This product is a professional access control, data
security and virus protection hardware/software system for desktop and portable
PCs. This product encrypts data transmitted on public networks and decrypts it
for users authenticated by an Access Key II.
HACKERGUARD -- HackerGuard is used to secure computer resident data,
specifically when users are connected to a public network. Hackers or "hunters",
which use advanced telecommunications protocols such as TCP/IP to review, copy
and/or compromise private information on a user's PC, are prohibited from doing
so when HackerGuard is installed. HackerGuard, which creates a form of personal
"firewall security", is specifically designed for ease of use by Internet users.
With the projected growth of network services, particularly the Internet/World
Wide Web, management believes that there are a significant number of potential
markets and end-users for this and successor products.
INTERNATIONAL SMARTCARD READER -- The International SmartCard Reader is the
newest addition to VASCO's family of extended user authentication devices. This
card reader system was designed with the
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flexibility to interface popular processor-based smart cards with PC systems and
to provide a simple upgrade path to various smart cards as security requirements
change.
The system can be used to authenticate users as they sign on to public or
private networks, and is ideal for use on PCs which support multiple users, such
as university environments. The system is capable of supporting a variety of
domestic and international smart cards, which are credit card-sized devices
implanted with either computer memory chips or computer processors. These cards
have a variety of applications in addition to security, including financial
debit/credit transactions, electronic fund transfers, and commuter access to
mass-transit systems to name a few. The Company does not intend to pursue
markets outside of security applications until adequate resources justify doing
so.
The smart card reader market is extremely competitive. Competitor systems
are larger than the Company's reader, which is the size of a deck of cards, but
are generally priced lower. The Company's readers are open-platform in nature,
allowing them to be used with a variety of smart cards. Most competitor products
are proprietary and can be used only with the cards produced by the same vendor.
AMS TOOLKIT -- The Access Management System ("AMS") Toolkit is a set of
tools that enable software application designers to integrate the Access Key II
and the International SmartCard Reader into any application requiring user
authentication. The AMS Toolkit is supplied to all of the VDSI Strategic
Partners in order to integrate the Company's products into their own product
offerings. The Toolkit is simple to use and contains programs that are written
in the C programming language, thereby enabling the Toolkit to be used in
virtually all operating system environments i.e., MVS, VMS, UNIX, Windows,
NetWare, DOS, etc.
BIOMETRIC SECURITY DEVICES -- VASCO's subsidiary, VDSI, was formerly known
as Thumbscan. Thumbscan's original mission was to develop a biometric
fingerprint reader to provide extended user authentication for access to
computer information on stand-alone and networked PCs. VASCO foresaw an
opportunity to capitalize on the technology underlying the extensive research
and development undertaken by Thumbscan over several years. Thumbscan was
renamed VASCO Data Security Inc., when it became a wholly owned subsidiary of
VASCO, in 1993.
The Company believes that, though not currently on the market, thumbprint
readers may yet prove to be the ultimate in security systems. Until recently, a
thumbprint reader was not considered economically feasible. However, management
is optimistic that, within a few years, these devices may be made available at a
price point that will create a viable market.
CONSULTING SERVICES
VASCO Performance Systems ("VPS") provides consulting, custom training and
documentation services for computer applications and systems to primarily
Fortune 1000 customers who need to implement and integrate specific new software
and hardware applications as a means of improving profitability through
increased productivity. The delivery of these services is provided through
various media including audio, video, Computer Based Training ("CBT"),
Interactive Video Disk ("IVD") and all forms of paper and electronic (on-line)
documentation including reference manuals, self study manuals and other forms of
traditional and leading edge communication.
Some of the training and/or communication methodologies used have been
copyrighted, such as Content Free Microteaching, Instructor Selection Test and
Train-the-Trainer courses and systems. Specific capabilities include -- Field
Personnel Automation Consulting and Audits, Process Analysis and Reengineering
Consulting, Customer "Perceived Value" Surveys, RFI/RFP Consulting,
Implementation Consulting and Total Training Support Solutions including
instructional design and training delivery.
VPS has moved into the Internet consulting arena as companies look for new
ways to market products and to communicate within their own organizations and
with customers and suppliers. This medium is also being explored as a means to
implement Field Personnel Automation and CBT. The Company sees an increasing
demand for on-line documentation, CBT and multi-media training. This increasing
demand is
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driven by client desire to develop more proficient and efficient employees as
design and development costs come down and computer platforms for development
and delivery become more powerful and less expensive.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company relies on patent, trademark, copyright and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
its proprietary rights. In particular, the Company holds a number of patents in
the United States and one in several European countries, which cover certain
aspects of its technology. Management believes these patents to be valuable
property rights and relies on the strength of its patents and the law of trade
secrets to protect these rights. To the extent that the Company believes its
patents are being infringed upon it intends to vigorously assert its patent
protection rights, including but not limited to, all available legal remedies.
While it is believed that these patents are material to the future success
of the Company, there can be no assurance that current or future patents will
provide the competitive advantage that management envisions. It may also be
possible for others to develop products with similar functionality that will not
constitute legal infringement of these rights. Furthermore, to the extent that
the Company believes that its proprietary rights are being violated, and
regardless of its desire to do so, it may not have adequate financial resources
to engage in litigation against the party or parties who may infringe on its
proprietary technology, copyrights or methodologies.
As indicated previously, in addition to the United States, the Company also
holds a patent covering several European countries that it believes to be
valuable and enforceable. However, the Company may be subjected to more risk if
and when it ventures beyond its current international markets to countries where
intellectual property laws are not as well developed and/or are poorly enforced.
Therefore, the assumed degree of legal protection of the Company's rights in
such countries should be assessed with this in mind.
RESEARCH AND DEVELOPMENT
The nature of the Company's business, and the rapid pace of change in the
computer industry in general, demand an ongoing commitment to product
enhancement, new technology development and related new product introductions.
In this regard the Company actively conducts research and development ("R&D")
activity on several fronts. The Company employs two full time engineers who are
directed by two senior engineering managers and retains six engineers on a
contract basis. The Company also has development contracts with an independent
domestic engineering firm, as well as with Lintel Security, with regard to R&D
efforts on its behalf.
In January of this year the Company recruited Joel Maloff to act as the
Company's Chief Technology Officer ("CTO") on a part time basis. Mr. Maloff has
considerable experience in the field of business applications for the Internet,
on-line services and other network environments. In his capacity as CTO he will
assist the Company in positioning its computer and network security products and
consulting and training services to maximize its involvement in this growing
arena. Mr. Maloff will also provide critical input that is necessary to pursue
those R&D projects that offer the greatest commercial potential in a rapidly
evolving, and as yet largely undefined, market.
While management is committed to enhancing its current product offerings
and introducing new products there can be no assurance that the Company's R&D
activities will be successful in this regard. Furthermore, there can be no
assurance that the Company will have the financial resources required to
identify and develop new technologies and bring to market related products in a
timely and cost effective manner, or that those products will be commercially
successful if and when they are introduced.
PRODUCT PRODUCTION
The Company's security hardware devices, Access Key II and International
SmartCard Reader, are assembled under contract by companies who specialize in
this activity. Both products are comprised primarily of commercially available
electronic components which are bought domestically by Company personnel. The
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Company's software components, or software-only products, are controlled
in-house by Company personnel and can be produced in-house, or can be produced
by several outside sources in the Chicago area.
The "heart" of the Access Key II however is a custom designed and
fabricated microprocessor, or chip, which is currently available from a single
source in the United States. The Company also has a single source for the wire
bonding process and final assembly of the Access Key II which is in the mainland
China facility of a Hong Kong based contract producer. The Company purchases the
majority of Access Key II components and arranges for the shipment of these
components to China for assembly and testing in accordance with design
specifications. Equipment designed to test product at the point of assembly is
supplied by the Company and periodic trips are made to China by Company
personnel for purposes of quality assurance, assembly process review and
supplier relations.
There is an inherent risk in the Company's dependence on a single source of
supply, both at the primary component and assembly levels, and there can be no
assurance that events beyond the Company's control will not interrupt the supply
of components (microprocessors) or finished product (Access Key II devices). In
the event that the flow of components or finished product was interrupted there
would be a considerable delay in finding suitable replacements.
The Company is in the process of designing the next generation Access Key
II product which, in addition to added functionality and other benefits, will
incorporate a commercially available programmable chip and be engineered to
manufacture using surface mount technology. This will dramatically reduce the
current level of risk through the ability to purchase chips fabricated for
"inventory" and will open up a multitude of contract assembly options, including
many domestically.
This next generation product is scheduled for shipment in the fourth
quarter of 1996 and primary and secondary contract assembly sources will be
sought out in mid-year. There can be no assurance however that this product can
be manufactured as designed, completed on schedule or successfully
multi-sourced. There can also be no assurance that the product, even if
successfully designed, will be commercially viable at the level required to make
multiple supply sources economically practical.
The Company's International SmartCard Reader is assembled under contract in
the Chicago area. While the engineering design of this product is proprietary in
nature the components are readily available from a number of domestic sources.
The Company also owns the tooling for the housing component of the Reader and
can have this component produced by a number of local suppliers. The Company
believes there is minimal risk associated with the outsourcing of the assembly
of this product.
THE COMPETITION
The marketplace for the Company's training and consulting services is
highly fragmented and is characterized by numerous independent consultants
nationwide. Generally these independent's rates are lower than those of the
Company, but the depth and breadth of their services is less encompassing. There
are several local, medium sized companies with rates comparable to the Company's
and there are a few large, worldwide accounting and consulting organizations
with rates higher than the Company. However, these large organizations offer an
"end to end" approach incorporating both systems development and integration.
Other competition can come from corporate in-house training departments which
will sometimes supplement their capabilities with those of an outside consulting
organization.
The market for computer and network security solutions is very competitive
and, not unlike most technology driven markets, is subject to rapid change and
constantly evolving products and services. The industry is comprised of many
companies offering hardware, software and services that range from simple
locking mechanisms to sophisticated encryption technologies. The most sensitive
and highly visible area of the industry is the Secure Remote Access market that
deals with the protection of data transmission over networks. Security in this
arena is accomplished primarily through the employment of data encryption
products and/or "firewall" type security products at the network server level,
but typically does not focus on the individual user.
8
<PAGE> 10
The Company is in the "Who?" business, that is, authenticating "who" the
user is. The Company's products are designed to allow authorized users access to
a computing environment using leading edge, proprietary technology as a
replacement for the static password, an antiquated approach that is not
synonymous with security as we know it today.
The Company believes that all end-users of computers, whether in
stand-alone or network environments, are potential customers for its security
products. This would include employees of large corporations, small businesses,
government agencies, as well as home computer users. Furthermore, virtually all
other security vendors are in a position to integrate the Company's products
into their solutions and/or to offer them in addition to their own.
Although the Company's Extended User Authentication technology is
proprietary, there are other organizations that offer token type password
generators incorporating challenge-response, or response only, approaches that
employ a slightly different technological solution and compete with the Company
for market share. The Company classifies its competitors into two distinct
groups -- direct competitors and other security vendors. Direct competitors are
defined by the Company as those that sell token based authentication devices
only. Among those companies that could be considered direct competitors are
CryptoCard, Inc., ActivCard, Inc., Digipass S.A. and, until the Company's recent
investment in same, Lintel Security.
Other security vendors are defined by the Company as those that offer a
token based authentication device as incidental to a security solution,
primarily software in nature. Competitors of that variety would include Security
Dynamics Technology, Inc., Digital Pathways, Inc., Enigma Logic, Inc., Leemah
DataCom Security Corporation and Racal-Guardata, Inc.
Although the Company believes its products compete favorably with others
with regard to product price, quality, performance and functionality there can
be no assurance that the Company's current or future products will be meet the
future needs of customers or that the industry will not be dominated by
companies offering similar or different approaches to security than that of the
Company.
The Company has limited financial and human resources and their can be no
assurance that the Company can maintain profitability and commercial viability
in view of the fact that many of its competitors enjoy significantly larger
market share and have significantly greater financial, marketing, technical and
other resources than the Company. It must also be assumed that the Company will
have to continue to compete for market share with these companies, and perhaps
many more, as the demand for computer and network security solutions increases.
SALES AND MARKETING
The Company markets its consulting and training services as VASCO
Performance Systems ("VPS"). VPS has a Director of Sales and shares a Director
of Marketing with VASCO Data Security, Inc. ("VDSI"). Generally speaking, VPS
services are sold directly by Company personnel similar to the approach taken by
most professional consulting organizations. Services are sold on an hourly basis
on terms which are usually set forth in a professional services contract.
As is typically true in the professional consulting environment, much of
the VPS revenue stream has been derived from repeat activity and referrals. The
Company also attends trade and industry shows and employs print communication
and phone contact in the pursuit of new business. The Company also maintains
strategic partnerships with proven organizations in the hardware/software
integration and field/sales force automation arenas. There are often cross
selling opportunities for VDSI as a result of these relationships, as computer
and/or network security issues are almost always present.
The Company's computer and network security products are marketed by its
wholly owned subsidiary, VDSI, through a multi-channel marketing, sales and
distribution network. The Company markets these products in North America and
Europe through a combination of direct selling, OEMs, VARs, independent
distributors and manufacturers representatives.
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<PAGE> 11
The Company's strategic marketing plan is built around collaborations, or
joint marketing alliances, which have been aggressively pursued since the
beginning of 1995. These alliances, which are marketed as the Strategic
Partnership Program ("SPP"), are directed at other organizations such as
Internet access providers, firewall security companies, and network security
companies. The SPP is designed to enhance these companies' offerings through the
addition or integration of VDSI security products. As of the end of 1995 over
thirty (30) such alliances had been established.
VDSI has a Vice President of Business Development and currently shares a
marketing director with VPS. The Company attends industry gatherings and
actively participates in trade shows domestically and abroad and seeks to make
computer and network security a high priority consideration for all computer
end-users. This is further accomplished through a combination of public
relations initiatives, speaking engagements, white papers and, most recently,
with the appointment of a well respected individual to the position of Chief
Technology Officer.
The Company conducts its sales and marketing activities from its
headquarters facility in suburban Chicago and has an additional sales office and
a regional sales executive in Calverton, Maryland, located in the
Baltimore/Washington, D.C. corridor. Additionally, the Company has regional
sales executives located at headquarters and in Toronto, Canada. The Company
expects to have as many as six regional sales executives and sales offices in
North America by the end of 1996.
CUSTOMERS
The customers for the Company's consulting and training services are
generally Fortune 1000 companies. These relationships are either directly with
the client or through other service organizations. Often the Company partners
with, or functions as a sub-contractor to, these other service organizations.
Customers for the Company's security products may be businesses that
purchase products directly from the Company for use by their employees, but more
often than not will be resellers or distributors of related security products or
services, who in turn sell to other businesses. The Company is also targeting
individuals through traditional computer hardware and software retail outlets
and the Internet.
To date, the majority of the Company's security products, primarily Access
Key and Access Key II, have been sold to one customer in Europe. This customer
accounted for 64% and 44% of the Company's consolidated revenues in 1995 and
1994 respectively (See "Management's Discussion and Analysis").
The Company is keenly aware of the risks associated with such a high degree
of customer concentration and is working diligently to minimize its reliance on
this major customer. Initiatives include the exploitation of previously signed
joint marketing agreements, the establishment of a North American direct sales
organization, and strategic acquisitions when and where practical. The Lintel
Security transaction is a recent example of a strategy that is expected to
minimize such reliance.
There can be no assurance however that the Company's efforts to minimize
this risk will ultimately be successful or that the Company can sustain
comparable sales volume with this customer. Furthermore, the loss of this
customer's business, or the ability to maintain reasonable profit margins on
these sales, would have a material adverse effect on the Company.
EMPLOYEES
At January 31, 1996, the Company employed eighteen (18) full-time
employees. Of these employees seven (7) were involved in sales, marketing and
customer support, six (6) in product production, research and development and
five (5) in administration.
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
VASCO's operations are comprised of VASCO Performance Systems ("VPS"), an
operating division of the Company, and VASCO Data Security, Inc., ("VDSI") a
wholly owned subsidiary of the Company. VPS delivers high level training and
integration services and professional advice. VDSI is involved in the research
and development, manufacture and distribution of leading edge hardware devices
designed around PC and network end-user security needs. Management believes that
any significant growth in the Company will be generated by VDSI. It is expected
that any VPS growth will be modest and that VPS will contribute an increasingly
smaller percentage of future revenues and earnings.
On March 15, 1996 the Company, through VASCO Data Security Europe SA/NV, a
newly formed and wholly owned subsidiary, acquired a 15% interest in Lintel
Security SA/NV ("Lintel"). The Company has agreed to acquire an additional 36%
interest on July 1, 1996, which will result in 51% ownership. The Company is
required to acquire the remaining 49% of Lintel subject to the occurrence of
certain events and criteria, including profitability and certain product sales
volumes achieved through December 31, 2001. Lintel, based in Brussels Belgium,
is a developer of security technologies for PCs, computer networks and
telecommunications systems, using cryptographic algorithms such as DES and RSA.
The following discussion and analysis should be read in conjunction with
the audited Financial Statements and the accompanying Notes included in this
document. Revenues and Cost of Revenues are categorized as "Data Security
Products" and "Training and Consulting Services" which equate to the operations
of VDSI and VPS respectively.
REVENUES
The Company's consolidated revenues for the year ended December 31, 1995
were $3,800,133, an increase of $1,048,966, or 38% over the previous year ended
December 31, 1994.
VDSI revenues were $2,562,587 for 1995, an increase of $1,047,910, or 69%,
over 1994, representing virtually all of the increase in consolidated revenues.
The majority of VDSI's sales were comprised of Access Key II devices. One
European customer (its "major customer") accounted for 95% and 80% of VDSI's
sales in 1995 and 1994 respectively, and 64% and 44% of consolidated revenues in
1995 and 1994 respectively. Revenues for VPS were $1,237,546 and $1,236,490 for
the comparable periods.
Management expects sales to its major customer will increase in 1996, but
expects this customer to account for a smaller percentage of the Company's sales
if, as expected, sales to other customers and markets increase. However, the
Company expects that this major customer will continue to be a significant
contributor to the Company's revenues and earnings for the foreseeable future.
Consequently, the unforeseen loss of this customer's business, or the inability
to maintain reasonable profit margins on sales to this customer, would have a
material adverse effect on the Company. This effect could be minimized if other
markets are successfully developed prior to such an event. The Company expects
that the Lintel acquisition, beginning in 1996, will lessen the Company's
dependence on this major customer.
Additionally, the Company has made a significant commitment to establishing
strategic regional North American sales offices, and expects to have established
as many as six such offices by the end of 1996. Currently the Company has
regional sales offices located in suburban Washington, D.C. and Toronto, Canada.
Regional sales executives, currently located in Washington, Toronto and at
headquarters in suburban Chicago, are responsible for capitalizing on the more
than thirty joint marketing alliances that have been previously established.
They are also responsible for selling directly to businesses located within
their respective regions. The Company expects to see increased domestic sales
generated in 1996 as a result of these activities.
COST OF REVENUES
Consolidated cost of revenues was $2,906,403 and $1,436,587 in 1995 and
1994 respectively, an increase of $1,469,816 or 102%.
11
<PAGE> 13
VDSI's cost of revenues was $2,052,186 in 1995, representing an increase of
$1,313,065, or 178% over 1994, and accounting for the majority of the increase
in consolidated cost of revenues. The majority of the increase in VDSI's cost of
revenues can be attributed to a corresponding increase in sales, but was further
impacted by an adjustment to capitalized development costs amounting to
approximately $350,000, and the write down of certain inventory valuations
amounting to approximately $100,000, both occurring in the fourth quarter of
1995.
VPS's cost of revenues were $854,217 in 1995, representing an increase of
$156,751, or 22% over 1994. This increase is reflective of higher costs
associated with the inclusion of increased third party goods and services in the
delivery of certain assignments.
RESEARCH AND DEVELOPMENT
Total research and development costs were $242,002 and $210,535 in 1995 and
1994, respectively, reflecting an increase of $31,467, or 15% over the prior
year. R&D costs are principally attributable to the operations of VDSI.
Research and development ("R&D"), principally the design and development of
hardware and software prior to the determination of technological feasibility,
are expensed as incurred on a project by project basis. The Company's
capitalization policy currently defines technological feasibility as a
functioning beta test prototype, with confirmed manufacturability, within a
reasonably predictable range of costs. Additional criteria include receptive
customers, or potential customers, as evidenced by interest expressed in a beta
test prototype, at some suggested selling price.
Once technical feasibility have been established, ongoing development costs
incurred prior to actual sales of the subject product are capitalized in
accordance with Statement of Financial Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Product development costs, if capitalized, are capitalized on a
product-by-product basis and are amortized by the greater of (i) the ratio that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or (ii) the straight line
method over the remaining estimated economic life of the product. The remaining
estimated economic life of these products are reviewed at least quarterly.
The Company has expensed, as cost of revenues, $444,975 and $54,207 in 1995
and 1994 respectively, reflecting the amortization of capitalized development
costs. In the fourth quarter of 1995 the Company accelerated the amortization of
capitalized development costs to reflect an adjustment to the estimated economic
life of certain products. The accelerated portion of 1995 amortization amounted
to approximately $350,000.
Net product development costs carried on the Company's books were $157,311
and $602,106 at December 31, 1995 and December 31, 1994 respectively. There were
no product development costs capitalized in 1995 as compared to $227,985 in
1994. The Company anticipates that capitalized development costs of $157,311 at
December 31, 1995 will be fully amortized in 1996.
Management has concluded that, in today's rapidly evolving technology
markets, and with the expanding state of the computer and network security
industry in general, it may be impractical to anticipate product life cycles in
excess of two years. Historically, the Company has experienced significantly
longer product life cycles.
SELLING AND ADMINISTRATIVE EXPENSES
Consolidated selling and administrative expenses for 1995 increased by
$404,082 to $1,186,191, an increase of 52% over 1994. The entire increase can be
attributed to VDSI and reflects additions of personnel and related expenses and
investments in the development of the North American market.
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<PAGE> 14
OPERATING (LOSS) INCOME
The Company's consolidated operating loss was $534,463 for the year ended
December 31, 1995, compared to an operating profit of $321,936 for the previous
year. This is primarily due to the accelerated amortization of capitalized
development costs described above, and increased expenditures in virtually all
areas of VDSI.
INTEREST EXPENSE
Consolidated interest expense in 1995 was $73,576 compared to $97,244 in
1994. The decrease of $23,668 can be attributed to average borrowings in 1995
being below those levels of the previous year, and generally lower interest
rates throughout 1995.
INCOME TAXES
The Company has recorded an estimated tax benefit of $251,000 for 1995
based upon a loss before taxes of $608,039, compared to a prior year tax expense
of $87,000 based upon income before taxes of $224,692. At December 31, 1995 the
Company has net operating loss carryforwards of approximately $885,000 which may
be used to offset future taxable income of the Company.
NET INCOME AFTER TAXES, DIVIDENDS AND ACCUMULATED DEFICIT
As a result of the above factors, the Company reported a net loss of
$357,039 for the year ended December 31, 1995. This compares to net income of
$137,692 for the previous year. Dividends of $108,000 and $27,000 were paid in
1995 and 1994 respectively. These dividend payments were attributable to 9,000
shares of Series B Convertible Preferred Stock issued in 1994. The Series B
dividend payments of $108,000, accrued dividends of $254 relating to the Series
A Convertible Preferred Stock, and the net loss after taxes of $357,039, yielded
an accumulated deficit of $474,488 at December 31, 1995, compared to an
accumulated deficit of $9,195 at the end of the previous year.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through a
combination of the issuance of equity securities, short-term commercial
borrowings, cash flow from operations, and loans from Mr. T. Kendall Hunt, the
Company's founder and CEO.
On September 14, 1994 Mr. Hunt exchanged a note in the principal amount of
$150,000 for 1,000 shares of the Company's newly issued Series B, convertible
preferred stock ("Series B") and 250,000 shares of its common stock. Coincident
with this transaction an additional 8,000 Series B shares were sold for
consideration amounting to $800,000. In 1995 the Company borrowed $130,000 from
Mr. Hunt, resulting in a loan payable of $190,000 at the end of 1995, as
compared to $60,000 at the end of 1994.
In the fourth quarter of 1995 the Company raised $369,498 in a private
placement by selling 108,676 units, at $3.40 per unit, each unit consisting of
two shares of common stock plus one warrant, each warrant authorizing the
purchase of an additional share of common stock at a price of $6.00 per share.
In January of 1996 the Company raised an additional $284,720 by selling 83,741
units under the same terms and conditions.
Net cash provided by operations aggregated $58,699 in 1995 compared to net
cash used in operations of $436,061 in 1994, an improvement of $494,760. The
majority of this improvement can be attributed to the positive impact of the
reduced investment in accounts receivable and inventories. Cash provided by
financing activities, net of those used in investing activities, aggregated
$647,777 in 1995, as compared to $264,995 in 1994, an increase of $382,782. Of
the foregoing $647,777, $347,237 can be attributed to the net proceeds from the
above described private placement in the fourth quarter of 1995. The net effect
of 1995 activity was an increase in cash of $706,476, resulting in a cash
balance of $744,612 at December 31, 1995, compared to $38,136 at the end of the
previous year.
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<PAGE> 15
The Company's Working Capital at December 31, 1995 was $1,154,228, an
increase of $390,242, or 51% from the end of the previous year. The majority of
the improvement is attributable to an increase in current assets, specifically
cash as noted above, offset by an increase in current liabilities, primarily in
notes payable to a commercial bank and to Mr. Hunt. The Company's current ratio
was 2.09 at December 31, 1995, relatively unchanged from 2.15 at the previous
year end.
In September of 1995 the Company established a new credit facility with a
commercial lender consisting of two notes in the combined maximum amount of
$1,200,000. The facility includes a $700,000 demand note which expires on August
31, 1996 and bears interest at 1% over the bank's prime rate. The available loan
amount is determined by certain export related accounts receivable and inventory
levels and is secured by same. The obligation is further secured by the personal
guarantee of Mr. Hunt and the Export-Import Bank of the United States. The
second note is a $500,000 demand note which expires on June 30, 1996 and bears
interest at 1% over the bank's prime rate. This obligation is secured by all of
the Company's tangible assets with $250,000 of the obligation further secured by
the personal guarantee of Mr. Hunt.
The amount of debt outstanding under this credit facility at December 31,
1995 was $664,050, consisting of $599,530 attributable to the $700,000 note and
$64,520 attributable to the $500,000 note. The comparable debt at December 31,
1994, under a credit facility with a different lender, was $403,500. The Company
has been in violation of certain covenants associated with its credit facilities
in the past and is expected to be in violation of such covenants in the future.
Such past violations were with regard to the Company's payment of dividends as
required by the Series B Preferred Stock issue and the Company's outstanding
debt to Mr. Hunt, the Company's CEO (See "Certain Relationships and Related
Transactions" and "Description of Securities"). Both of the foregoing conditions
are violations of certain covenants in the Company's loan agreements and existed
at the time the current credit facility was put in place. Such past violations
have been waived by the Company's lenders and any future violations of these
specific covenants have been waived through the term of the respective loans.
Based upon the amount of the Company's purchase order backlog from its
major customer, the Company's general business outlook, and ongoing discussions
with the Company's lender, the Company expects its lender will renew the notes
at their respective expiration dates. If, at the time, business conditions or
opportunities warrant, management will attempt to negotiate an increase in the
amounts of these notes. There can be no assurance that business conditions at
the time the existing notes mature will warrant renewal, or that increased
credit lines can be negotiated under any circumstances. Management believes
that, in the unlikely event that such notes are not renewed, it would not have a
material adverse effect on the Company's ability to finance its operations,
including fulfilling any outstanding customer orders and satisfying the
Company's obligation to purchase an additional 36% interest in Lintel Security
SV/NA on July 1, 1996. Consideration for this additional ownership interest
requires the payment of $100,000 and the issuance of 271,430 shares of VASCO
Corp. common stock to the selling shareholders.
Furthermore, to the extent the Company's lender does not renew the notes at
their respective expiration dates, Mr. Hunt has represented that he is willing,
and has the ability, to loan the Company additional money to finance any
shortfall in cash generated from operations. Historically, to the extent that
commercial financing has not been available to the Company, or has been
inadequate to cover its cash requirements, it has been Mr. Hunt's practice to
loan the Company money. Since the Company does not foresee a shortfall in its
cash requirements, the magnitude of any such unexpected shortfall, and any
resulting loans from Mr. Hunt, would not be expected to be material.
Capital expenditures in 1995 amounted to $93,749 as compared to $14,626 in
1994, and consisted primarily of purchases of computers and related equipment
for newly hired personnel. Expenditures in 1996 are expected to be comparable to
1995 and to consist of further additions of computer equipment as new personnel
are added, and possibly improvements to the Company's leased premises to
accommodate expected expansion. The Company does not expect to need additional
credit for such contemplated capital expenditures.
The Company believes that its current cash balances, together with expected
cash flows from operations, and amounts available under its current bank credit
facility and renewal of same, will be sufficient to meet its
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<PAGE> 16
anticipated cash needs through at least 1996. The Company may however, seek to
raise additional capital that would involve the issuance of debt and/or the sale
of equity securities. The Company is currently exploring all capital formation
alternatives that will facilitate growth within those parameters set forth by
its Board of Directors.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's administrative, sales and marketing, research and development
and support facilities are located in an office complex in Lombard, Illinois, a
western suburb of Chicago. These facilities consist of approximately 5,100
square feet of office space which are occupied under a lease expiring in January
of 1998.
The Company believes that its current space is adequate through the middle
of 1996 at which time the Company expects to need additional space. There is
space available contiguous to and/or within the complex that is available at
comparable rates and there is abundant space available throughout Chicago's
western suburbs where the Company plans to remain.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 15, 1996, the number of shares
of the Company's Common Equity owned by the Company's Chief Executive Officer,
each of the current Directors, and all of the Company's current Directors and
Officers as a group.
The Company has no knowledge of any other person or "group" who owned of
record, or who was known to own, beneficially, more than five percent (5%) of
the Company's outstanding shares.
<TABLE>
<CAPTION>
CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
OF STOCK BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------ --------------------------- -------------------- --------
<S> <C> <C> <C>
Common T. Kendall Hunt 10,082,222(1)(2) 61.64%
Preferred A 11735 Briarwood Court 117,181 36.95%
Preferred B Burr Ridge, IL 60525 1,000 11.11%
Common Forrest D. Laidley 567,770(3) 3.63%
339 Stevensen Drive
Libertyville, IL 60048
Common Robert E. Anderson 666,592(4) 4.14%
831 W. North St.
Hinsdale, IL 60521
Common Gerald Guice 1,435,933(5)(6) 8.49%
Preferred A C124/20 Osabu Road 200,000 63.05%
P O Box 10219
Abelenkpe Accra
North Ghana, West Africa
Common Michael L. Mulshine 220,750(7)(8) 1.40%
2517 Route 35, Suite D-201
Manasquan, NJ 08736
Common All Officers and Directors 13,500,843(9) 82.69%
as a Group (8 persons)
</TABLE>
- -------------------------
(1) Includes 1,043,175 shares held by Barbara J. Hunt, wife of the Company's
Chief Executive Officer, T. Kendall Hunt, and 68,750 shares underlying stock
options granted to Ms. Hunt between 1990 and 1996 and exerciseable as of
April 15, 1996 pursuant to the Company's Stock Option Plan. Mr. Hunt
disclaims beneficial ownership of any portion of his wife's holdings.
(2) Includes 781,207 shares underlying 117,181 shares of Series A Convertible
Preferred Stock ("Preferred A") which is convertible at the option of the
holder at any time. (See "Description of Securities" and "Certain
Relationships and Related Transactions".)
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<PAGE> 17
(3) Includes 136,250 shares underlying stock options granted between 1987 and
1996 and exerciseable as of April 15, 1996 pursuant to the Company's Stock
Option Plan.
(4) Includes 590,757 shares underlying stock options granted between 1987 and
1996 and exerciseable as of April 15, 1996 pursuant to the Company's Stock
Option Plan.
(5) Includes 76,250 shares underlying stock options granted between 1990 and
1996 and exerciseable as of April 15, 1996 pursuant to the Company's Stock
Option Plan.
(6) Includes 1,333,333 shares underlying 200,000 shares of Series A Convertible
Preferred Stock ("Preferred A") which is convertible at the option of the
holder at any time. (See "Description of Securities" and "Certain
Relationships and Related Transactions".)
(7) Includes 16,250 shares underlying stock options granted between 1993 and
1996 and exerciseable as of April 15, 1996 pursuant to the Company's Stock
Option Plan.
(8) Includes 200,000 shares underlying Warrants granted to Mr. Mulshine in
connection with certain investment banking activities undertaken on behalf
of the Company. (See -- "Certain Relationships and Related Transactions".)
(9) Includes all shares referenced in footnotes (1) through (8) above.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The Executive Officers, Key Employees and Directors of the Company and its
Subsidiary, VASCO Data Security, Inc. ("VDSI"), and their respective ages, as of
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
NAME AGE SINCE POSITION
- ------------------------- --- ----- -----------------------------------------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS:
T. Kendall Hunt.......... 52 1984 President & Chief Executive Officer, and Chairman of
the Board of Directors
Michael B. Wiggen........ 40 1993 Vice President & Chief Financial Officer
John C. Haggard.......... 38 1994 President & Chief Operating Officer (VDSI)
Richard M. Vaden, Jr..... 38 1995 Vice President of Business Development (VDSI)
KEY EMPLOYEES:
Robert R. Mason.......... 43 1994 Director of Marketing(1)
Michael C. Tillmans...... 49 1994 Director of Consulting and Development(1)
Sandra L. Bogaard........ 49 1994 Director of Sales(1)
Gregory T. Apple......... 29 1996 Controller/Director of Administration(1)
OUTSIDE DIRECTORS:
Forrest D. Laidley....... 51 1985 Director & Secretary(2)(3)
Robert E. Anderson....... 46 1986 Director(2)(3)
Gerald Guice............. 54 1989 Director(2)(3)
Michael A. Mulshine...... 56 1992 Director(2)(3)
</TABLE>
- -------------------------
(1) These individuals are not officers of the Company or members of its Board of
Directors. This title should not be confused with the reference to Director
as used under Outside Directors to denote members of the Company's Board of
Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation Committee of the Board of Directors.
All Directors serve one year terms and are elected at the Company's Annual
Meeting. The next such meeting is scheduled to be held in June of 1996.
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<PAGE> 18
T. KENDALL "KEN" HUNT -- serves as Chairman of the Board of both VASCO and
VDSI. He is also President and CEO of VASCO and CEO of VDSI. Prior to founding
VASCO, he was the President and CEO of Deltak, Inc., an international technical
services company which specialized in the creation and distribution of
information programs, training, and job support and productivity software tools.
Prior to Deltak, he was President of Itel Corporation's $200 million Computer
System Division which sold, leased and serviced IBM products worldwide. Prior to
Itel, he had positions with Proprietary Systems Corporation and IBM. Mr. Hunt
received his B.A. from the University of Miami (Florida) and his M.B.A. from
Pepperdine University.
MICHAEL B. WIGGEN -- serves as Vice President and Chief Financial Officer
of VASCO and VDSI. His responsibilities include accounting, finance and
administration for both entities. Prior to joining VASCO, he was Principal of
Michael Wiggen Consulting Services, providing consulting, tax, accounting and
automation services to business and individuals. Previously he was employed by
Price Waterhouse where he was co-leader of the Tax Technology Group which
developed Fortune 500 tax department automation projects, including software
development, implementation and training. Mr. Wiggen holds a B.A. degree and a
M.S. degree in Taxation and is a Certified Public Accountant.
JOHN C. HAGGARD -- serves as President and Chief Operating Officer of VDSI.
Prior to joining VDSI, Mr. Haggard was Assistant Vice President of Research and
Development and Technical Owner for Computer Associates' Security Control and
Audit ("SCA") division. The SCA product line includes industry leading mainframe
products CA-ACF2, CA-TOP SECRET, CA-Examine, and CA-PANAUDIT. Prior to Computer
Associates Mr. Haggard was employed by SKK, Inc. which developed ACF2, an IBM
mainframe data security product. During his 13 years in the data security
industry Mr. Haggard has specialized in user authentication technologies ranging
from biometric recognition to a variety of complex encryption schemes, including
DES, RSA, and Kerberos. He has a B.S. degree in Computer Science.
RICHARD M. VADEN, JR. -- serves as Vice President of Business Development
of VDSI. He has over twenty-one years experience in the data processing field.
The past fifteen years have been spent specializing in the security of large
main-frame, mid-range and micro systems. Prior to joining VDSI, Rick spent eight
years with Computer Associates International, Inc. ("CA") in a variety of key
positions. While with the Federal Division, Rick held the positions of Product
Technical Manager, Security Products; Technical Director, Business Development;
and Technical Director, Federal Division. Most recently at CA Rick was the
Project Manager, Development Division, for the CA-ACF2 B1 evaluation and
currently holds the certification of Vendor Security Analyst with the National
Computer Security Center.
ROBERT R. MASON -- serves as Director of Marketing of VASCO and VDSI. His
responsibilities include planning and management of marketing efforts for those
operations, encompassing: market research, sales support, marketing
partnerships, and corporate communications. Prior to this position, Mr. Mason
served as Account Executive and Senior Project Manager for VASCO. He has led
large-scale needs assessments for various clients -- forming the foundations for
process reengineering, reorganization, and implementation of field automation
systems. Prior to VASCO, Mr. Mason was employed by Andrew Corporation, an
international telecommunication equipment manufacture, as Manager, Market
Development, and was responsible for the preparation and execution of business
plans, expert system computer modeling, marketing communications planning and
management, and special projects to support corporate marketing, sales and
product development. Mr. Mason holds B.A. and M.B.A. degrees and is a Certified
Business Communicator.
MICHAEL C. TILLMANS -- serves as Director, Consulting and Development of
VASCO. His primary responsibility is for delivery of VASCO Performance Systems
consulting, training, documentation, and programming projects including
scheduling, staffing and quality assurance. His own areas of expertise include
business process analysis, curriculum planning, job/task analysis, materials
development, evaluation and project management. During his 20 years in the
training and development business, he was a Senior Education Manager at Arthur
Andersen & Co. and a Senior Training Specialist -- Training Standards and
Performance at United Airlines. Dr. Tillmans hold a Ph.D. in Instructional
Design and Development.
SANDRA L. BOGAARD -- serves as Director of Sales of VASCO. She is
responsible for VPS's sales of consulting, custom instructional design,
development and delivery, and project management services. She has over 15 years
of sales and marketing experience. Prior to joining VASCO in 1994, Ms. Bogaard
was a sales
17
<PAGE> 19
executive at Cara Corporation and Performance Management Inc. where she
specialized in selling professional services to Fortune 1000 companies. Ms.
Bogaard has a B.S. in Psychology, and an M.Ed. in Guidance & Counseling.
GREGORY T. APPLE -- serves as Controller and Director of Administration of
VASCO and VDSI. His responsibilities encompass all accounting and administrative
aspects of both entities. Before joining VASCO, he was employed as Controller of
Napersoft, Inc., with essentially the same responsibilities for this privately
held software company. Prior to Napersoft, Inc., he was employed by KPMG Peat
Marwick, spending five years in the audit practice. Mr. Apple holds a B.S.
degree in Financial Accounting -- Business Information Systems and is a
Certified Public Accountant.
FORREST D. LAIDLEY -- serves as Director, Secretary and General Counsel of
VASCO and VDSI and has been involved with the Company from its inception in
these capacities and was an early investor in the Company. He is a Partner in
the law firm of Laidley, Sutter, and Porter in Libertyville, Illinois. His firm
has served as counsel to William Blair & Company, a major midwest investment
banking firm, and to the Archdiocese of Chicago. In addition to his business and
investment activities, he is active in local community affairs, including
serving on the Advisory Council for Main Street Libertyville and the boards of
directors of Harris Bank Libertyville, an Illinois chartered banking
institution, and Marytown, a Catholic shrine. Mr. Laidley has a B.A. degree in
History and a J.D. degree.
ROBERT E. ANDERSON -- serves as a Director of VASCO and as Chairman of the
Audit and Compensation Committees. Mr. Anderson was involved with the Company
from its inception as a consultant and investor and served as its Executive Vice
President and Chief Financial Officer between 1987 and 1989. He is currently an
independent consultant who most recently served as President, Chief Executive
Officer and a Director of The Bruss Company, a $100 million Chicago based
processor and international distributor of high-value food products to the
foodservice industry. Between 1989 and 1990 he served as Chief Operating Officer
for Comfab Technologies, Inc., a Chicago area telecommunications industry
manufacturer. His early career encompassed several financial management
positions in service and manufacturing organizations in the public and private
sectors. He holds a B.S. degree in Accounting with a concentration in finance
and information systems.
GERALD GUICE -- serves as a Director of VASCO and VDSI. Mr. Guice was
instrumental in financing the acquisition of ThumbScan, now VDSI (See Item 7 --
"Certain Relationships and Related Transactions"). He is currently developing
several business ventures in Ghana, Africa. He was a founder and former
President of Sentinel Computer Services, Inc. (now Sentinel Technologies, Inc.),
the largest Midwest regional computer hardware maintenance provider. Prior to
Sentinel Computer Services. Inc., he held senior management and executive
positions with several computer industry companies, including Control Data and
IBM.
MICHAEL A. MULSHINE -- serves as a Director of VASCO. Mr. Mulshine has been
actively involved in raising private capital on behalf of the Company during his
tenure as a Director. (See Item 7 -- "Certain Relationships and Related
Transactions".) He is a principal of Osprey Partners, a management consulting
firm, and is a Director and Secretary of Scangraphics, Inc. (NASDAQ: SCNG), a
provider of Geographic Information Systems database management software products
and a leader in scanning and image processing technology, since 1985. Mr.
Mulshine has served as a Director of Environmental Tectonics Corporation (AMEX:
ETC), since 1994. Additionally, Mr. Mulshine is a Director of Intertec, Inc., an
import/export trading company, and a Director of Inresco Inc., a manufacturer of
circuit protection devices. He has a B.A. degree in Electrical Engineering.
18
<PAGE> 20
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information with respect to all plan and
non-plan compensation earned by, awarded to or paid to Mr. Hunt, the Company's
Chief Executive Officer, for 1995, 1994 and 1993. The Company had no employees
whose total annual salary and bonus exceeded $100,000 in the last three
completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------- OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SARS(#)
- --------------------------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
T. Kendall Hunt -- 1995 $60,200 $10,794 -0-
President and Chief 1994 $72,000 -0- -0-
Executive Officer 1993 $72,000 -0- -0-
</TABLE>
STOCK PLAN
The 1987 Stock Option Plan, as amended, ("Option Plan") is designed and
intended as a performance incentive for employees, directors, consultants and
other key persons performing services for the Company to encourage such persons
to acquire or increase a proprietary interest in the success of the Company. The
Option Plan is administered by the Compensation Committee as appointed by the
Board of Directors of the Company.
The Option Plan permits the grant of options to employees of the Company to
purchase shares of Common Stock intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended ("Code"). All
options granted to employees are for a period of ten years, are granted at a
price equal to the fair market value of the Common Stock on the date of the
grant and are vested 25% on the date of the grant, with remaining vesting
occurring at 25% on each subsequent anniversary of the grant. Options are
therefore fully vested on the third anniversary of the date of grant.
The Option Plan further permits the grant of options to directors,
consultants and other key persons ("non-employees") to purchase shares of Common
Stock not intended to qualify as incentive stock options under the Code. All
options granted to non-employees are for a period of ten years, are granted at a
price equal to the fair market value of the Common Stock on the date of the
grant, and may contain vesting requirements and/or restrictions as determined by
the Compensation Committee at the time of grant.
The Plan authorizes the grant of 2,500,000 options to purchase Common Stock
of the Company as described above. On February 1, 1995, pursuant to the Plan,
the Company granted to certain employees, officers, and directors of the
Company, options to purchase 411,000 shares of the Company's common stock at an
exercise price of $.20 per share. As of December 31, 1995 there were 1,425,382
options outstanding of which 973,507 were exercisable at prices between $.125
and $.375 per share. During 1995 there were 495,000 options exercised at prices
between $.125 and $.375 per share (See "Notes to Consolidated Financial
Statements").
EXECUTIVE INCENTIVE COMPENSATION PLAN
In February of 1995 the Compensation Committee of the Board of Directors
("Committee") adopted the Executive Incentive Compensation Plan ("Incentive
Plan") to become effective for the year ended December 31, 1994. The Incentive
Plan covers the Company's eligible executives and key employees
("participants"), with such eligibility determined at the end of each year, at
the sole discretion of the Committee. Awards are based on prior year results,
such results being subject to audit by the Company's independent accountants,
and are distributed following the completion of such audit.
19
<PAGE> 21
The Incentive Plan allows for the creation of a cash pool ("Pool") in the
amount of 10% of annual pre tax earnings. Fifty percent (50%) of the Pool is
awarded to those participants based on each participant's earned salary as a
percentage of all participants' salaries. The remaining fifty percent (50%) is
awarded at the sole discretion of the Committee.
Awards, in whole or in part, may be offered in the form of shares of the
Company's Common Stock at the sole discretion of the Committee. If this option
is made available to participants, the choice of cash or stock is at the sole
discretion of each participant. To the extent that shares of stock are awarded
in lieu of cash, the number of shares is based on the market value of the
Company's shares on the date the award is determined, and are taxable to the
participant in the year the award is granted. Such shares are restricted and
cannot be sold or transferred except pursuant to a registration under the
Securities Act of 1933 or an exemption from such registration.
COMPENSATION OF DIRECTORS
Directors of the Company are reimbursed for expenses incurred in connection
with their attendance at periodic Board meetings. Directors receive no cash
compensation for their services however, non-employee Directors are eligible to
receive stock option grants from time to time (See "Stock Plans" above, and
"Security Ownership of Certain Beneficial Owners and Management").
In 1995 the non-employee Directors of the Company, Mr. Laidley, Mr.
Anderson, Mr. Guice, and Mr. Mulshine each received options to purchase 10,000
shares of the Company's Common Stock, at an exercise price of $.20 per share,
pursuant to the Company's Stock Option Plan.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
T. Kendall "Ken" Hunt was the founder of the Company and, as such, was an
original equity participant and remains the Company's majority shareholder (See
"Security Ownership of Certain Beneficial Owners and Management"), and may be
regarded as a parent of the Company. Since inception, the Company has relied on
Mr. Hunt, the Company's CEO, to provide various forms of working capital from
time to time. Mr. Hunt has done this through a combination of foregoing and/or
deferring his salary, loaning funds to the Company, and guaranteeing the
Company's loans with various commercial lenders, including the Company's current
credit facility.
Throughout 1994 and 1995 the Company was indebted to Mr. Hunt for money
borrowed. In 1994 the high balance owing was $150,000 which was liquidated in a
refinancing as described below. Subsequent to the refinancing of this $150,000
note, Mr. Hunt loaned the Company an additional $60,000 which remained
outstanding at December 31, 1994. In 1995 Mr. Hunt made additional loans of
$130,000 to the Company. The aggregate principal amount of these loans,
$190,000, remained outstanding at December 31, 1995. All notes evidencing such
borrowing have been interest bearing with interest payable annually at the rate
of prime plus 1%. The Company has made all interest payments on a timely basis
and the notes, if not repaid, have been extended at maturity. In January of 1996
the Company paid Mr. Hunt $100,000 and reduced its note obligation by an equal
amount. It is the Company's intent to pay Mr. Hunt the remaining balance of
$90,000 during 1996.
On September 14, 1994 Mr. Hunt surrendered a Company note in the principal
amount of $150,000 in exchange for 1,000 shares of the Company's newly issued
Series B, convertible preferred stock ("Series B") and 250,000 shares of its
common stock. The Series B shares bear dividends payable quarterly at 12% per
annum. The shares are non-voting (except for failure to pay dividends and with
respect to certain amendments affecting the holders of the Series B shares) and
convertible, at the option of the holders or the Company anytime after September
of 1997, into shares of the Company's common stock at 50% of the average of the
bid and ask price of the common stock for 20 days prior to the conversion date
(See "Description of Securities").
Forrest D. Laidley serves as Director and Secretary of the Company. Mr.
Laidley is also a Partner in the law firm of Laidley, Sutter, and Porter which
has performed various legal services for the Company since the Company's
inception. Mr. Laidley and his partners have made equity investments in the
Company from time
20
<PAGE> 22
to time through various private placements and are currently shareholders (See
"Security Ownership of Certain Beneficial Owners and Management"). Mr. Laidley's
firm is currently performing legal services for the Company and is expected to
continue to do so.
On June 2, 1992 the Company entered into a certain Investment Banking and
Management Consulting Agreement (the "Agreement") with Osprey Partners
("Osprey"). Michael A. Mulshine, a Director of the Company, is a principal of
Osprey. In 1993 and 1994 Osprey was instrumental in obtaining certain financing
for the Company and, pursuant to the Agreement, Osprey was paid fees aggregating
$60,000 during 1993, 1994 and 1995. The Agreement also granted Osprey a warrant
to purchase 400,000 shares of the Company's common stock at a price of $.25 per
share exercisable through May 31, 1997, if certain levels of financing were
successfully achieved. On January 20, 1996, as the targeted level of financing
was never achieved by Osprey, the Company exercised its election to terminate
the Agreement and cancelled the 400,000 share warrant. Coincident with the
cancellation of this original warrant, in recognition of services performed,
including certain financing that was successfully achieved, the Company issued
Osprey a new warrant to purchase up to 200,000 shares of the Company's common
stock at $.25 per share anytime before May 31, 1999. The new warrant entitles
the holder to piggy back registration rights with respect to the shares which
may be purchased pursuant to its exercise.
ITEM 8. DESCRIPTION OF SECURITIES.
GENERAL
As of December 31, 1995 the Company's authorized capital stock consists of:
(a) 50,000,000 shares of Common Stock, par value of $.001 per share, 15,793,575
of which are issued and outstanding and; (b) 509,500 shares of Preferred Stock,
par value of $.01 per share, of which 317,181 shares of Series A and 9,000
shares of Series B are issued and outstanding. In addition, the Company had
1,425,382 shares of Common Stock reserved for issuance under the Stock Option
Plan. As of December 31, 1995 there were 161 shareholders of record.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Subject
to the rights of any outstanding Preferred Stock, the holders of the Common
Stock are entitled to such dividends as may be declared at the discretion of the
Board of Directors out of funds legally available thereof. Holders of Common
Stock are entitled to share ratably in the net assets of the Company upon
liquidation after payment or provision for all liabilities and any preferential
liquidation rights of any Preferred Stock then outstanding. The holders of
Common Stock have no pre-emptive rights to purchase shares of stock of the
Company. Shares of Common Stock are not subject to any redemption provisions and
are not convertible into any other securities of the Company. All outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation and limitations imposed by law,
the Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders.
One of the effects of undesignated Preferred stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The
21
<PAGE> 23
issuance of shares of Preferred Stock pursuant to the Board of Director's
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock at a premium or may otherwise adversely affect the
market price of the Common Stock.
The Series A Preferred Stock ("Series A Shares") consists of 317,181 shares
of Convertible Preferred Stock that carry a cumulative dividend payable monthly
of 8% per annum based on a conversion value of $1.00 per share. Such shares are
convertible at the option of the holders, at any time, into 2,114,539 shares of
Common Stock. Holders of the Series A Shares are entitled to cast that number of
votes per share as is equal to the number of full shares of Common Stock into
which shares are convertible. Cumulative dividends, which become payable upon
conversion of the Preferred Stock, have been reflected as an accrued expense in
the Company's financial statements (See "Financial Statements" and notes
thereto).
The Series B Preferred Stock ("Series B Shares") consists of 9,000 shares
of Convertible Preferred Stock that carry a cumulative dividend payable monthly
of 12% per annum based on a liquidation value of $100 per share. The Series B
shares are convertible, at the option of the holders or the Company, into shares
of the Company's Common Stock, at a price per share determined by dividing the
liquidation value of such shares, or $100, by 50% of the average of the bid and
ask price conversion date. Dividends are payable monthly at the rate of 1% per
month, provided that if dividends are delinquent for more than a month, and for
so long as such delinquency continues, the monthly dividend rate shall be 1.5%.
In addition, holders of the Series B Shares have the right, with proper notice,
to purchase Common Stock in satisfaction of accrued and unpaid dividends at a
price per Common Share determined by dividing the accrued and unpaid dividends
by 50% of the average of the bid and ask price of the Common Stock for 20 days
prior to the notice of such shareholder to purchase such shares of Common Stock.
The Series B Shares are non-voting, except with respect to certain amendments
changing the terms of such shares or creating any class of preferred stock
ranking prior to, or on a parity with the Series B Shares. In addition, if the
monthly dividend is more than 30 days in arrears and remains in arrears, after
proper notice by a holder of Series B Shares, a majority of the holders of such
shares shall be entitled to elect a majority of the Board of Directors until the
default in the dividend payments have been paid in full. Of the total Series B
Shares outstanding, 4,000 shares are convertible in March of 1997 and the
remaining 5,000 shares are convertible in September of 1997. (See "Financial
Statements" and notes thereto and "Recent Sales of Unregistered Securities").
On June 2, 1992 the Company entered into a certain Investment Banking and
Management Consulting Agreement (the "Agreement") with Osprey Partners
("Osprey"). Michael A. Mulshine, a Director of the Company, is a principal of
Osprey. In 1993 and 1994 Osprey was instrumental in obtaining certain financing
for the Company and, pursuant to the Agreement, Osprey was paid fees aggregating
$60,000 during 1993, 1994 and 1995. The Agreement also granted Osprey a warrant
to purchase 400,000 shares of the Company's common stock at a price of $.25 per
share. On January 20, 1996 the Company exercised its election to terminate the
Agreement and deemed that 200,000 of the 400,000 shares of common stock
underlying the warrant were earned and vested as of that date. Osprey may
exercise its right to purchase such 200,000 shares of common stock at $.25 per
share anytime before June 1, 1999.
22
<PAGE> 24
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock trades over-the-counter on the National
Association of Securities Dealers ("NASD") Electronic Bulletin Board System
under the symbol VASC. The following table sets forth the high and low bid
prices of these shares for each quarter of 1994 and 1995.
<TABLE>
<CAPTION>
HIGH LOW
BID BID
------- -------
<S> <C> <C>
1994 First Quarter......................................... $0.6875 $0.1250
1994 Second Quarter........................................ $0.3750 $0.0625
1994 Third Quarter......................................... $0.1875 $0.0313
1994 Fourth Quarter........................................ $0.3750 $0.1250
1995 First Quarter......................................... $0.8125 $0.0125
1995 Second Quarter........................................ $1.3750 $0.0125
1995 Third Quarter......................................... $2.7500 $0.5000
1995 Fourth Quarter........................................ $7.3750 $1.1250
</TABLE>
The foregoing quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not represent actual transactions.
As of March 31, 1996 there were approximately 161 holders of record of the
Company's Common Stock.
As of March 31, 1996 there were 15,793,575 shares of the Company's Common
Stock outstanding.
The Company has not paid any common stock dividends since its inception.
The Board of Directors of the Company does not anticipate the payment of any
such dividends in the foreseeable future. However, if the Board of Directors of
the Company were to consider paying common stock dividends, the Company's bank
credit facility contains certain restrictive covenants which, among other
things, limit the Company's ability to pay cash dividends.
The Company's stock transfer agent is Illinois Stock Transfer Company, 233
West Jackson Boulevard -- Suite 1215, Chicago, Illinois 60606.
ITEM 2. LEGAL PROCEEDINGS.
In December of 1995, the Company entered into an agreement with Security
Dynamics Technology, Inc. ("SDTI"), whereby VASCO and SDTI agreed to act as
co-plaintiffs in a claim against ActivCard, Inc., a California company, and
ActivCard SA, a European company based in France (collectively "ActivCard").
VASCO and SDTI believe ActivCard to be in violation of both VASCO and SDTI
patents covering a wide range of technology encompassing secure data access. In
this regard, a lawsuit claiming such infringement was filed against ActivCard by
VASCO and SDTI, as co-plaintiffs, in Federal District Court in the Northern
District of California in December of 1995. The lawsuit seeks monetary damages
and an injunction against further infringement.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During July and August of 1993 the Company privately placed $725,000 of
debt and equity with accredited investors. This placement consisted of $211,500
of three-year 12% notes along with 135,000 shares of common stock and $470,000
of five-year 13% notes along with 300,000 shares of common stock. (See
"Description of Securities".)
23
<PAGE> 25
On September 14, 1994 the Company's CEO, Mr. Hunt, exchanged a note in the
principal amount of $150,000 for 1,000 shares of the Company's newly issued
Series B, convertible preferred stock ("Series B") and 250,000 shares of its
common stock (See "Certain Relationships and Related Transactions"). Coincident
with this transaction an additional 8,000 Series B shares were privately placed
with an unrelated accredited investor in the amount of $800,000. (See
"Description of Securities".)
During the period from October 1995 through January 1996, the Company sold
(i) 114,264 Units to 10 investors (each Unit consisting of two shares of the
Company's Common Stock and a Warrant to purchase one share of the Company's
Common Stock at a price of $6.00), all of whom were officers and/or directors of
the Company or relatives of such officers and/or directors, and (ii) 78,153
Units to 16 other investors, in each case at a price of $3.40 per Unit. All of
the securities issued in such transactions contained an appropriate restrictive
legend.
During 1995, pursuant to the Company's Executive Incentive Compensation
Plan and for certain other compensation owing, the Company issued 300,975 shares
of common stock, 250,975 of which were treasury stock, to certain key employees,
including 43,175 shares to Mr. Hunt, the Company's CEO and principal
shareholder. Compensation expense of $75,244 was recorded based on the fair
market value of the shares at the date of award.
During 1995, pursuant to the Company's Stock Option Plan, as amended, the
Company issued 495,000 shares of common stock, 445,000 of which were treasury
stock, as a result of the exercise of stock option grants (See "Notes to
Consolidated Financial Statements"). The Company realized proceeds of $96,000
from the exercise of these options.
On February 1, 1995, pursuant to the Company's Stock Option Plan, as
amended, the Company granted to certain employees, officers, and directors of
the Company, options to purchase 411,000 shares of the Company's common stock at
an exercise price of $.20 per share (See "Notes to Consolidated Financial
Statements").
On January 20, 1996 the Company issued to Osprey Partners a warrant to
purchase 200,000 shares of common stock at $.25 per share anytime before June 1,
1999 (See "Certain Relationships and Related Transactions"). On April 15, 1996,
pursuant to the Company's Stock Option Plan, as amended, the Company granted to
certain employees, officers, directors and non-employees of the Company, options
to purchase 239,000 shares of the Company's common stock at an exercise price of
$4.25 per share.
The Company claims exemption from registration for each of the sales
reflected above under Section 3(b) of the Securities Act of 1933 (the "Act") by
reason of the application of Rules 501 through 508, inclusive of the rules and
regulations promulgated under the Act and/or under Section 4(2) of the Act on
the grounds that sales of such securities did not involve a public offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-Laws of the Company provide that directors and officers of the
Company shall be, and in the discretion of the Board of Directors non-officer
employees may be, indemnified by the Company to the fullest extent authorized by
Delaware law, as it now exists or as same may in the future be amended, against
all expenses and liabilities reasonably incurred in connection with service for
or on behalf of the Company. The By-Laws of the Company also provide that the
right of directors and officers to indemnification shall be a contract right and
shall not be exclusive of any other right now possessed or hereafter acquired
under any by-law, agreement, vote of shareholders or otherwise.
The Certificate of Incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors for monetary
damages for breaches of their fiduciary duty, including breaches involving
negligence or gross negligence in business combinations, unless the director has
breached his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation Law
or obtained an improper personal benefit. This provision does not alter a
director's liability under federal securities law. In addition, this provision
does not affect the availability of equitable remedies, such as an injunction or
rescission, for breach of fiduciary duty.
24
<PAGE> 26
PART F/S
VASCO CORP.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
DESCRIPTION PAGE NUMBER
- -------------------------------------------------------------------------------- -----------
<S> <C>
Report of Independent Accountants............................................... F-1
Consolidated Balance Sheets..................................................... F-2
Consolidated Statements of Operations and Accumulated Deficit................... F-3
Consolidated Statements of Cash Flows........................................... F-4
Notes to Consolidated Financial Statements...................................... F-5
</TABLE>
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of VASCO Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and accumulated deficit and of
cash flows present fairly, in all material respects, the financial position of
VASCO Corp. and its subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse sig
PRICE WATERHOUSE LLP
Chicago, Illinois
March 6, 1996, except as to Note 5,
which is as of May 7, 1996
F-1
<PAGE> 28
VASCO CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 744,612 $ 38,136
Accounts receivable, net of allowance for doubtful accounts of
$182,000 and $10,000............................................ 610,490 760,348
Inventories, net................................................... 360,646 436,948
Deferred income taxes.............................................. 395,000 144,000
Other current assets............................................... 103,056 50,416
---------- ----------
Total current assets....................................... 2,213,804 1,429,848
---------- ----------
Property and equipment:
Furniture and fixtures............................................. 183,375 151,495
Plant and office equipment......................................... 123,773 61,904
---------- ----------
307,148 213,399
Accumulated depreciation............................................. 183,807 134,322
---------- ----------
123,341 79,077
---------- ----------
Other assets:
Software costs, net of accumulated amortization of $371,000 and
$57,000......................................................... 157,311 602,106
---------- ----------
Total assets......................................................... $2,494,456 $2,111,031
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt, including stockholder note of
$190,000 in 1995................................................ $ 199,678 $ 1,197
Notes payable...................................................... 664,050 403,500
Accounts payable................................................... 93,776 117,687
Other accrued expenses............................................. 102,072 143,478
---------- ----------
Total current liabilities....................................... 1,059,576 665,862
---------- ----------
Long-term debt, including stockholder loan of $60,000 in 1994........ 7,258 60,000
---------- ----------
Excess of acquired net assets over cost, net of accumulated
amortization of $43,000 and $32,000................................ 10,735 21,470
---------- ----------
Stockholders' equity:
Preferred stock, 8% cumulative series A convertible, $0.01 par
value -- 317,181 shares authorized; 317,181 shares issued and
outstanding..................................................... 3,172 3,172
Preferred stock, 12% cumulative series B convertible, $0.01 par
value -- 9,500 shares authorized; 9,000 shares issued and
outstanding..................................................... 90 90
Common stock, $0.001 par value -- 50,000,000 shares authorized;
15,794,000 and 15,694,000 shares issued......................... 15,794 15,694
Capital in excess of par value..................................... 1,879,428 1,394,588
Accumulated deficit................................................ (474,488) (9,195)
---------- ----------
1,423,996 1,404,349
Treasury stock 288,000 and 1,202,000 common shares, at cost........ (7,109) (40,650)
---------- ----------
Total stockholders' equity...................................... 1,416,887 1,363,699
---------- ----------
Total liabilities and stockholders' equity........................... $2,494,456 $2,111,031
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 29
VASCO CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Revenues:
Data security products.......................................... $2,562,587 $1,514,677
Training and consulting services................................ 1,237,546 1,236,490
----------- -----------
3,800,133 2,751,167
----------- -----------
Costs and expenses:
Cost of data security products.................................. 2,052,186 739,121
Cost of training and consulting services........................ 854,217 697,466
Research and development costs.................................. 242,002 210,535
Selling and administrative expenses............................. 1,186,191 782,109
----------- -----------
4,334,596 2,429,231
----------- -----------
Operating (loss) income........................................... (534,463) 321,936
Interest expense ($12,900 and $9,600 to stockholders)............. 73,576 97,244
----------- -----------
(Loss) income before income taxes................................. (608,039) 224,692
(Benefit) provision for income taxes.............................. (251,000) 87,000
----------- -----------
Net (loss) income................................................. (357,039) 137,692
Accumulated deficit:
Beginning of year............................................... (9,195) (119,633)
Series A preferred stock dividends payable upon conversion...... (254) (254)
Series B preferred stock dividends.............................. (108,000) (27,000)
----------- -----------
End of year..................................................... $ (474,488) $ (9,195)
=========== ===========
(Loss) income available for common stockholders................... $ (465,293) $ 110,438
=========== ===========
(Loss) earnings per common share.................................. $ (0.03) $ 0.01
=========== ===========
Weighted average shares outstanding............................... 14,817,264 14,259,915
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 30
VASCO CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................... $(357,039) $ 137,692
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization.................................... 483,545 154,965
Deferred income taxes............................................ (251,000) 87,000
Compensation expense............................................. 75,244 --
Changes in current assets and current liabilities:
Accounts receivable, net....................................... 149,858 (535,859)
Inventories, net............................................... 76,302 (250,323)
Other current assets........................................... (52,640) 15,816
Accounts payable............................................... (23,911) 2,545
Accrued commissions............................................ -- (60,957)
Other accrued expenses......................................... (41,660) 13,060
--------- ---------
Net cash provided by (used in) operations............................. 58,699 (436,061)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment................................. (93,749) (14,626)
Additions to software products...................................... -- (227,985)
--------- ---------
Net cash used in investing activities................................. (93,749) (242,611)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of Series B preferred stock.............. -- 750,783
Series B preferred stock dividends.................................. (108,000) (27,000)
Net proceeds from sales of common stock............................. 443,237 12,500
Proceeds from issuance of debt...................................... 810,986 463,500
Repayment of long-term debt......................................... (404,697) (692,177)
--------- ---------
Net cash provided by financing activities............................. 741,526 507,606
--------- ---------
Net increase (decrease) in cash....................................... 706,476 (171,066)
Cash, beginning of year............................................... 38,136 209,202
--------- ---------
Cash, end of year..................................................... $ 744,612 $ 38,136
========= =========
Supplemental disclosure of cash flow information:
Interest paid....................................................... $ 67,087 $ 80,747
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 31
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
VASCO Corp. and its subsidiary, VASCO Data Security, Inc. (the Company),
offer a variety of products and services. The Company's products include
computer security, extended end user authentication, and virus protection for
financial institutions, industry and government. The primary market for these
products is Europe. The Company's integrated performance systems and services
are offered to assist firms in implementing new software applications or
procedures including field force automation design and implementation, end user
support services, job task analysis, user and technical documentation. These
services are targeted towards domestic companies.
PERVASIVENESS 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of VASCO Corp.
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenues from the sale of security hardware and imbedded software are
recorded upon shipment. Customer training and consulting revenues are recorded
when such services are provided.
The principal elements of cost of security hardware and imbedded software
sold are components, manufacturing costs and amortization of imbedded software
development costs. The principal elements of the cost of training and consulting
services are salaries and amounts paid to independent consultants.
Accounts receivable from revenues are unsecured.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the related assets
ranging from 5 to 7 years. Additions and improvements are capitalized, while
expenditures for maintenance and repairs are charged to operations as incurred.
The cost and accumulated depreciation of property sold or retired are removed
from the respective accounts and the resultant gains or losses, if any, are
included in current operations.
Depreciation expense aggregated $49,500 and $39,500 for in 1995 and 1994,
respectively.
SOFTWARE COSTS
The Company capitalizes imbedded software development costs in accordance
with Statement of Financial Accounting Standards No. 86. Research and
development costs, prior to the determination of technological feasibility, are
expensed as incurred. The Company's policy is to amortize capitalized costs by
the greater of (a) the ratio that current gross revenues for a product bear to
the total of current and anticipated
F-5
<PAGE> 32
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
future gross revenues for that product or (b) the straight-line method over the
remaining estimated economic life of the product, including the period being
reported on.
The Company has expensed $444,795 and $54,207 in 1995 and 1994,
respectively, for the amortization of capitalized software costs. Approximately
$350,000 of fiscal 1995 amortization is as a result of the Company's revision of
the remaining estimated economic life of previously capitalized development
costs, resulting in acceleration of the amortization of these assets. The
Company anticipates remaining capitalized software costs at December 31, 1995
will be fully amortized in fiscal 1996.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been reported in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company considers all expected future events other than
changes in tax law or rates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported for short-term and long-term debt approximates
fair value because the underlying instruments are at rates similar to current
rates offered to the Company for debt with the same maturities.
LOSS AND EARNINGS PER COMMON SHARE
Loss per common share in fiscal 1995 has been computed using the weighted
average number of common shares outstanding during the year. The computation of
primary and fully diluted loss per common share was anti-dilutive. Accordingly
common stock equivalents and the effect of conversion of preferred stock have
been excluded from the calculation of loss per common share.
Earnings per common share in fiscal 1994 has been computed using the
weighted average number of common shares and common stock equivalents
outstanding during the year. Primary and fully diluted earnings per common share
did not differ materially.
SIGNIFICANT CUSTOMERS
During 1995 and 1994, sales to one customer (a reseller of the Company's
products) of principally one of the Company's products aggregated $2,422,000 and
$1,209,000. Accounts receivable from this customer represented 64% and 42% of
the Company's gross accounts receivable balance at December 31, 1995 and 1994,
respectively. Foreign export sales aggregated $2,496,000 and $1,296,000 for the
years ended December 31, 1995 and 1994, respectively, and were made principally
to one European customer.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
(SFAS 121) is effective for the Company's year ended December 31, 1996. This
standard requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company does not expect the adoption of SFAS 121 to have a
material effect on its results from operations for the year ended December 31,
1996. Also, effective for the Company's year ended December 31, 1996, the
Company intends to adopt Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" (SFAS 123). As allowed by
F-6
<PAGE> 33
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
SFAS 123, the Company intends to continue to measure compensation costs of its
stock option plan using the intrinsic value method prescribed by APB Opinion No.
25 "Accounting for Stock Issued to Employees."
The Company will make the required pro forma disclosures in its Notes to
Consolidated Financial Statements of net income and earnings per share
determined as if the fair value method of accounting defined in SFAS 123 had
been applied to all stock-based compensations.
NOTE 2 -- INVENTORIES:
Inventories, consisting principally of hardware and component parts, are
stated at the lower of cost or market. Cost is determined using the
first-in-first-out (FIFO) method.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
--------- --------
<S> <C> <C>
Component parts......................................... $ 260,243 $214,130
Work-in-process and finished goods...................... 213,988 237,818
Obsolescence reserves................................... (113,585) (15,000)
--------- --------
$ 360,646 $436,948
========= ========
</TABLE>
The Company is dependent on a single source of supply, both at the primary
component and assembly levels, and there can be no assurance that events beyond
the Company's control will not interrupt the supply of component parts. In the
event that the supply of component parts was interrupted, there would be
considerable delay in finding suitable replacements.
NOTE 3 -- OTHER ACCRUED EXPENSES:
Other accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
--------- --------
<S> <C> <C>
Accrued expenses........................................ $ 7,264 $ 10,900
Accrued interest........................................ 22,967 16,497
Accrued payroll......................................... 10,555 30,000
Due to former shareholders.............................. -- 84,769
Accrued dividends....................................... 1,566 1,312
Professional fees....................................... 30,000 --
Other................................................... 29,720 --
-------- --------
$102,072 $143,478
======== ========
</TABLE>
NOTE 4 -- INCOME TAXES:
At December 31, 1995, the Company has net operating loss carry forwards
approximating $885,000. Such losses are available to offset future taxable
income at VASCO Corp. and its subsidiary and expire in varying amounts beginning
in 1999 and continuing through 2005. In addition, if certain substantial changes
in the Company's ownership should occur, there would be an annual limitation on
the amount of the carryforward which could be utilized. In fiscal 1995 and 1994,
the Company had no current tax provision due to the utilization of approximately
$66,000 and $96,000 respectively, of loss carryforward benefits.
F-7
<PAGE> 34
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
The differences between income taxes at the statutory federal income tax
rate of 34% and the provisions (benefits) for income taxes reported in the
statements of income for the years ended December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1995 1994
----- ----
<S> <C> <C>
Federal statutory income tax rate........................ (34.0)% 34.0%
State income taxes, net of federal benefit............... (4.6) 4.5
Adjustment of prior year accrual......................... (2.8) --
Other, net............................................... 0.1 0.2
----- ----
(41.3)% 38.7%
===== ====
</TABLE>
The deferred tax balances are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Net operating loss carryforwards......................... $339,000 $355,000
Inventory................................................ 45,000 6,000
Accounts Receivable...................................... 72,000 4,000
Other.................................................... -- 12,000
-------- --------
Total deferred income tax assets......................... 456,000 377,000
Research and development costs........................... (61,000) (233,000)
-------- --------
Net deferred income tax assets........................... $395,000 $144,000
======== ========
</TABLE>
NOTE 5 -- DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Bank notes payable, interest payable at prime plus 1%.... $ 664,050 $ 403,500
Stockholder loan, interest payable annually at prime plus
1%..................................................... 190,000 60,000
Installment notes payable, secured by certain equipment
of the Company......................................... 16,936 1,197
--------- ---------
870,986 464,697
Less current maturities.................................. (863,728) (404,697)
--------- ---------
Long-term debt........................................... $ 7,258 $ 60,000
========= =========
</TABLE>
In January 1993, the Company entered into a financing agreement with a bank
which provided for a $500,000 revolving demand note, bearing interest at 1% over
the bank's prime rate, and a $250,000 term loan maturing January 1994. The
demand note's balance outstanding was $403,500 at December 31, 1994 and was
secured by the Company's accounts receivable. This note was repaid during fiscal
1995.
During 1994, the principal stockholder exchanged a note with a face value
of $150,000 for 1,000 shares of Series B, convertible preferred stock and
250,000 shares of common stock. The principal stockholder made a loan of $60,000
to the Company in fiscal 1994. The Company borrowed an additional $130,000 from
the
F-8
<PAGE> 35
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
principal stockholder in fiscal 1995, increasing the amount outstanding to
$190,000. This note bears interest at 1% over the prime rate (8.5% at December
31, 1995).
In September 1995, the Company entered into a $1.2 million credit facility
with a bank consisting of a $700,000 note due February 29, 1996 and a $500,000
note due June 30, 1996. The $700,000 note is secured by separately identifiable
export-related accounts receivable and inventory. This note is guaranteed by the
principal stockholder. The $500,000 note is secured by all of the tangible
assets of the Company, with $250,000 guaranteed by the principal stockholder.
Both notes bear interest at 1% over the bank's prime rate. Amounts outstanding
at December 31, 1995 were $599,530 and $64,520 under each respective note.
Subsequent to year-end, the bank extended the due date of the $700,000 demand
note to August 31, 1996.
The bank credit facility contains certain restrictive covenants which,
among other things, limit the Company's ability to pay cash dividends, issue
stock and incur additional debt. The Company was in violation of certain of
these covenants during 1995 and requested and received waivers of such
violations. On May 7, 1996, the Company requested and received waivers
effectively amending the credit agreement through its remaining term and
removing restrictions on the payment of cash dividends and the incurrence of
certain additional debt.
Based upon the amount of the Company's purchase order backlog from its
major customer, the Company's general business outlook, and ongoing discussions
with the Company's lender, the Company expects to renew the notes at their
respective expiration dates. If, at the time, business conditions or
opportunities warrant, management will attempt to negotiate an increase in the
amounts of these notes. There can be no assurance that business conditions, at
the time the existing notes mature, will warrant renewal or that increased
credit lines can be negotiated. The Company is currently investigating
additional capital formation alternatives including the issuance of additional
debt and/or the sale of equity securities. The Company will continue to explore
all capital formation alternatives that will facilitate growth within the
parameters set forth by its Board of Directors.
Aggregate maturities of debt at December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996............................................................... $863,728
1997............................................................... 7,258
--------
Total.............................................................. $870,986
========
</TABLE>
NOTE 6 -- STOCKHOLDERS' EQUITY:
PREFERRED STOCK
The Company has the authority to issue 500,000 shares of preferred stock of
which 317,181 have been designated Series A, 8% convertible preferred stock and
9,500 have been designated Series B, 12% convertible preferred stock at December
31, 1995 and December 31, 1994.
The Series A, 8% convertible preferred stock (Series A Shares) consists of
317,181 shares that carry a cumulative dividend, payable monthly, of 8% per
annum. Such shares are convertible at the option of the holders, at any time,
into 2,114,539 shares of common stock. Holders of the Series A Shares are
entitled to cast that number of votes per share as is equal to the number of
full shares of common stock into which shares are convertible. Cumulative
dividends, which become payable upon conversion of the Series A Shares, have
been accrued in the Company's financial statements.
The Series B, 12% convertible preferred stock (Series B Shares) consists of
9,000 shares that carry a cumulative dividend payable monthly of 12% per annum
based on a liquidation value of $100 per share. The
F-9
<PAGE> 36
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
Series B Shares are convertible, at the option of the holders or the Company,
into shares of the Company's common stock, at a price per share determined by
dividing the liquidation value of such shares, or $100, by 50% of the average of
the bid and ask price of the Company's common stock for 20 days prior to the
conversion date. Dividends are payable monthly at the rate of 1% per month,
provided that if dividends are delinquent for more than a month, and for so long
as such delinquency continues, the monthly dividend rate shall be 1.5%. In
addition, holders of the Series B Shares have the right, with proper notice, to
purchase common stock in satisfaction of accrued and unpaid dividends at a price
per common share determined by dividing the accrued and unpaid dividends by 50%
of the average of the bid and ask price of the Company's common stock for 20
days prior to the notice of such shareholder to purchase such shares of common
stock. The Series B Shares are non-voting, except with respect to certain
amendments changing the terms of such shares or creating any class of preferred
stock ranking prior to, or on a parity with the Series B Shares. In addition, if
the monthly dividend is more than 30 days in arrears and remains in arrears,
after proper notice by a holder of Series B Shares, a majority of the holders of
such shares shall be entitled to elect a majority of the Board of Directors
until the default in the dividend payments have been paid in full. Of the total
Series B Shares outstanding, 4,000 shares are convertible after March of 1997
and the remaining 5,000 shares are convertible after September of 1997. Total
issue fees and costs have been netted against proceeds from the placement.
COMMON STOCK
During 1995, the Company reissued from treasury and privately placed
217,352 shares of common stock with 108,676 warrants to purchase one share of
common stock at $6.00. The warrants are exercisable at the option of the holder,
however, the Company maintains the right to require exercise of the warrants 30
days prior to a public offering of the Company's stock. Total issue fees and
costs of $22,261 have been netted against $369,498 of proceeds from the
placement on the Company's consolidated balance sheet at December 31, 1995.
In fiscal 1995, the Company also reissued 250,975 shares of treasury stock
and issued 50,000 shares of common stock to certain key employees, including
43,175 to the principal stockholder. Compensation expense of $75,244 was
recorded based on the fair market value of the shares at the date of issuance. A
further 50,000 shares of common stock were issued and 445,000 shares of treasury
stock reissued as a result of the exercise of options under the Company's
incentive stock option plan (Note 7) for total proceeds of $96,000.
NOTE 7 -- STOCK OPTION PLAN:
The Company's 1987 Stock Option Plan, as amended, (Option Plan) is designed
and intended as a performance incentive for employees, directors, consultants
and other key persons performing services for the Company to encourage such
persons to acquire or increase a proprietary interest in the success of the
Company. The Option Plan is administered by the Compensation Committee as
appointed by the Board of Directors of the Company (Compensation Committee).
The Option Plan permits the grant of options to employees of the Company to
purchase shares of Common Stock intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended (Code). All
options granted to employees are for a period of ten years, are granted at a
price equal to the fair market value of the common stock on the date of the
grant and are vested 25% on each subsequent anniversary of the grant. Options
are therefore vested on the third anniversary of the date of grant.
The Option Plan further permits the grant of options to directors,
consultants and other key persons (non-employees) to purchase shares of common
stock not intended to qualify as incentive stock options under the Code. All
options granted to non-employees are for a period of ten years, are granted at a
price equal to the
F-10
<PAGE> 37
VASCO CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995 AND 1994
fair market value of the common stock on the date of the grant, and may contain
vesting requirements and/or restrictions as determined by the Compensation
Committee at the time of grant.
The Option Plan authorizes the grant of 2,500,000 options outstanding to
purchase common stock of the Company as described above.
The following is a summary of activity under the Option Plan:
<TABLE>
<CAPTION>
OPTION PRICE
OPTIONS PER SHARE
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1993.................... 2,138,211 $0.125-$0.375
Granted............................................. 235,000 $0.250
Exercised........................................... (100,000) $0.125
Forfeited........................................... (424,954) $0.125-$0.375
--------- -------------
Outstanding at December 31, 1994.................... 1,848,257 $0.125-$0.375
--------- -------------
Granted............................................. 411,000 $0.200
Exercised........................................... (495,000) $0.125-$0.375
Forfeited........................................... (338,875) $0.125-$0.375
--------- -------------
Outstanding at December 31, 1995.................... 1,425,382 $0.125-$0.375
========= =============
Exercisable -- December 31, 1995.................... 973,507 $0.125-$0.375
========= =============
</TABLE>
NOTE 8 -- EMPLOYEE BENEFIT PLAN:
The Company maintains a contributory profit sharing plan established
pursuant to the provisions of Section 401(k) of the Internal Revenue Code which
provides benefits for eligible employees of the Company. The Company made no
contributions to the plan during the years ended December 31, 1995 and 1994.
NOTE 9 -- COMMITMENTS:
The Company leases office space and equipment under operating lease
agreements expiring at various times through 1997.
Future minimum rental payments required under the noncancelable leases are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
------------------------------------- --------
<S> <C>
1996................................. $ 55,000
1997................................. 56,000
--------
$111,000
========
</TABLE>
Rent expense under operating leases aggregated $60,000 and $54,000 for the
years ended December 31, 1995 and 1994, respectively.
NOTE 10 -- SUBSEQUENT EVENT:
In March 1996, the Company formed a wholly-owned Belgian subsidiary, VASCO
Data Security Europe SA/NV (VDSI Europe), for the sole purpose of acquiring 15
percent of the common stock of Lintel Security SA/NV (Lintel), a European
manufacturer and distributor of computer security products, for $7,500. VDSI
Europe has rights, and in certain circumstances as defined in the purchase
agreement, is obligated to purchase an additional 36 percent of Lintel in July
1996 for 271,400 shares of the Company's common stock and $100,000, and the
remainder of Lintel at any time through December 31, 2001.
F-11
<PAGE> 38
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
VASCO CORP.
Date: May 7, 1996 By: /s/ T. KENDALL HUNT
------------------------------------
T. Kendall Hunt
President and Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
- ---------------------------------------- --------------- ---------------------------------
<C> <S> <C>
/s/ T. KENDALL HUNT May 7, 1996 President, Chief Executive
- ---------------------------------------- Officer
T. Kendall Hunt and Director
/s/ MICHAEL B. WIGGEN May 7, 1996 Vice President and Chief
- ---------------------------------------- Financial Officer
Michael B. Wiggen
/s/ FORREST D. LAIDLEY May 7, 1996 Secretary and Director
- ----------------------------------------
Forrest D. Laidley
/s/ ROBERT E. ANDERSON May 7, 1996 Director
- ----------------------------------------
Robert E. Anderson
</TABLE>
<PAGE> 39
PART III
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- ----------------------------------------------------------------------------
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2.1 Restated and Amended Certificate of Incorporation
2.2 Corporation By-laws
3.1 Certificate of Designation of Series A Preferred Stock
3.2 Certificate of Designation of Series B Preferred Stock
6.1 Stock Option Plan
6.2 Executive Incentive Compensation Plan
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EXHIBIT 2.1
RESTATED AND AMENDED CERTIFICATE OF INCORPORATION
OF
Vasco Corp., a corporation organized and existing under the laws of the State
of Delaware, hereby certifies as follows:
1. The name of the corporation is VASCO CORP. The date of filing of its
original Certificate of Incorporation with the Secretary of State was August
16, 1990.
2. This Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of this corporation by amending
ARTICLE FOURTH to increase the number of authorized shares of the Corporation
and to authorize the Board of Directors of the corporation to provide for the
issuance of the Shares of Preferred Stock in series, the number of shares in
the series and to fix the designation, powers, preferences, qualifications,
limitations, and rights of such Shares.
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is further amended hereby to read as herein set forth in full:
FIRST. The name of this corporation shall be:
VASCO CORP.
SECOND. Its registered office in the State of Delaware is to be located
at 1209 Orange Street, in the City of Wilmington, County of New Castle 19801
and its registered agent at such address is Corporation Service Company.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have the authority to issue is:
Fifty Million Five Hundred Thousand (50,500,000) shares divided into
Fifty Million (50,000,000) Common shares at the par value of $.001 and Five
Hundred Thousand (500,000) Preferred Shares, at the par value of $.01 of which
Three Hundred Twenty-Six Thousand Six Hundred and Eighty-One (326,681)
Preferred Shares have been designated as follows: Three Hundred Seventeen
Thousand One Hundred Eighty-One (317,181) shares of Preferred Shares, Series A
and Ninety-Five Hundred (9500) shares of Preferred Shares, Series B.
COMMON SHARES
Subject to the rights of any Preferred Stock of any series issued and
outstanding,
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each issued and outstanding share of Common Stock shall entitle the holder
thereof to receive such dividends as may be declared from time to time by the
Board of Directors out of funds legally available therefor, each issued and
outstanding share of Common Stock shall entitle the holder thereof to share
ratably in all assets available for distribution to Common Stockholders in the
event of any liquidation, dissolution or winding up of the Corporation and each
issued and outstanding share of Common Stock shall entitle the holder thereof to
cast one vote on each matter submitted to a vote of the Corporation's
Stockholders.
PREFERRED SHARES
The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article FOURTH, to provide for the issuance
of the shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following: (a) The number of shares
constituting that series and the distinctive designation of that series; (b)
The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of that series; (c) Whether
that series shall have voting rights, in addition to the voting rights provided
by law, and, if so, the terms of such voting rights; (d) Whether that series
shall have conversion privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the conversion rate in such
events as the Board of Directors shall determine; (e) Whether or not the
shares of that series shall be redeemable, and, if so, the terms and conditions
of such redemption, including the date or dates upon or after which they shall
be redeemable, and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund; (g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, or payment of shares
of that series; (h) Any other relative rights, preferences and limitations of
that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment, before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the
same dividend period.
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If upon any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
FIFTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
SIXTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director
shall be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law or (iv) for any transaction from which the director
derived an improper personal benefit. No amendment to or repeal of this
Article Seventh shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
4. This Restated Certificate of Incorporation was duly adopted by vote
of the stockholders in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware on September 14, 1994.
IN WITNESS WHEREOF, said VASCO Corp. has caused this Certificate to be
signed by T. Kendall Hunt, its President, and attested by Forrest D. Laidley,
its Secretary, this 14th day of September, 1994.
VASCO CORP.
By: T. Kendall Hunt
-----------------------------
President
ATTEST:
BY: Forrest D. Laidley
---------------------------
Secretary
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EXHIBIT 2.2
VASCO CORP.
BY-LAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place on such
date, and at such time as the Board of Directors shall each year fix, which
date shall be within thirteen months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of
Directors or the chief executive officer and shall be held at such place, on
such date, and at such time as they or he shall fix.
Section 3. Notice of Meetings
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than sixty days before
the date on which the meeting is to be held, to each stockholder entitled to
vote at such meeting, except as otherwise provided herein or required by law
(meaning, here and hereinafter, as required from time to time by the General
Corporation Law of the State of Delaware or the Certificate of Incorporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date, and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty days after the date for which the meeting was originally noticed, or if
a new record date is fixed for the adjourned meeting, written notice of the
place, date, and time of the adjourned meeting shall be given in conformity
herewith. At any adjourned meeting, any business may be transacted which might
have been transacted at the original meeting.
Section 4. Quorum
At any meeting of the stockholders, the holders of a majority of all of
the shares of the stock entitled to vote at the meeting, present in person or
by proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law.
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If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of the stock entitled to
vote who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization
Such person as the Board of Directors may have designated or, in the
absence of such a person, the highest ranking officer of the corporation who is
present shall call to order any meeting of the stockholders and act as chairman
of the meeting. In the absence of the Secretary of the corporation, the
secretary of the meeting shall be such person as the chairman appoints.
Section 6. Conduct of Business
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him in order.
Section 7. Proxies and Voting
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, except on the election of directors and where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or his proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state
the name of the stockholder or proxy voting and such other information as may
be required under the procedure established for the meeting. Every vote taken
by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
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Section 8. Stock List
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number and Term of Office
The number of directors who shall constitute the whole board shall be
such number not less than five nor more than twenty as the Board of Directors
shall at the time have designated. Each director shall be elected for a term of
one year and until his successor is elected and qualified, except as otherwise
provided herein or required by law.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in office shall
have the power to elect such new directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of directors shall not become effective until the expiration of the term
of the directors then in office unless, at the time of such decrease, there
shall be vacancies on the board which are being eliminated by the decrease.
Section 2. Vacancies
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his successor is elected and
qualified.
Section 3. Regular Meetings
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Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings
Special meetings of the Board of Directors may be called by one-third
of the directors then in office or by the chief executive officer and shall be
held at such place, on such date, and at such time as they or he shall fix.
Notice of the place, date, and time of each such special meeting shall be given
each director by whom it is not waived by mailing written notice not less than
three days before the meeting or by telegraphing the same not less than
eighteen hours before the meeting. Unless otherwise indicated in the notice
thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum
At any meeting of the Board of Directors, one-third of the total number
of the whole board, but not less than two, shall constitute a quorum for all
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without
further notice or waiver thereof.
Section 6. Participation in Meetings by Conference Telephone
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment that enables all persons
participating in the meeting to hear each other. Such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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Section 8. Powers
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the corporation, including, without limiting the generality of the
foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges
on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith:
(4) To remove any officer of the corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(5) To confer upon any officer of the corporation the power to appoint,
remove and suspend subordinate officers and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine:
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers and agents of the corporation and its
subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with these
by-laws, for the management of the corporation's business and affairs.
Section 9. Compensation of Directors
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors
The Board of Directors, by a vote of a majority of the whole board, may
from time to time designate committees of the board, with such lawfully
delegable powers and duties as it thereby confers, to serve
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at the pleasure of the board and shall, for those committees and any
others provided for herein, elect a director or directors to serve as the
member or members, designating, if it desires, other directors as alternative
members who may replace any absent or disqualified member at any meeting of the
committee. Any committee so designated may exercise the power and authority of
the Board of Directors to declare a dividend or to authorize the issuance of
stock if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
place, the member or members of the committee present at the meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may by
unanimous vote appoint another member of the Board of Directors to act at the
meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third of the members shall
constitute a quorum unless the committee shall consist of one or two members,
in which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by
any committee without a meeting if all members thereof consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
ARTICLE IV--OFFICERS
Section 1. Generally
The officers of the corporation shall consist of a president, one or
more vice-presidents, a secretary, a treasurer and such other subordinate
officers as may from time to time be appointed by the Board of Directors
Officers shall be elected by the Board of Directors, which shall consider that
subject at its first meeting after every annual meeting of stockholders Each
officer shall hold his office until his successor is elected and qualified or
until his earlier resignation or removal The President shall be a member of the
Board of Directors Any number of offices may be held by the same person.
Section 2. President
The President shall be the chief executive officer of the corporation
Subject to the provisions of these by-laws and to the direction of the Board of
Directors, he shall have the responsibility for the general management and
control of the affairs and business of the corporation and shall perform all
duties and have all powers which are commonly incident to the office of chief
executive or which are delegated to him by the Board of Directors He shall have
power to sign all stock certificates, contracts and other instruments of the
corporation which are authorized He shall have general supervision and
direction of all of the other officers and agents of the corporation.
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Section 3. Vice-Presidents
Each vice-president shall perform such duties as the Board of Directors
shall prescribe In the absence or disability of the President, the
Vice-President who has served in such capacity for the longest time shall
perform the duties and exercise the powers of the President.
Section 4. Treasurer
The Treasurer shall have the custody of all monies and securities of
the corporation and shall keep regular books of account He shall make such
disbursements of the funds of the corporation as are proper and shall render
from time to time an account of all such transactions and of the financial
condition of the corporation.
Section 5. Secretary
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors He
shall have charge of the corporate books.
Section 6. Delegation of Authority
The Board of Directors may from time to time delegate the powers or
duties of any officer to any other officers or agents notwithstanding any
provision hereof.
Section 7. Removal
Any officer of the corporation may be removed at any time, with or
without cause, by the Board of Directors.
Section 8. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the President
shall have power to vote and otherwise act on behalf of the corporation, in
person or by proxy, at any meeting of stockholders of or with respect to any
action of stockholders of any other corporation in which this corporation may
hold securities and otherwise to exercise any and all rights and powers which
this corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE V--RIGHT OF INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 1. Right to Indemnification
Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding whether civil,
criminal, administrative or investigative ("proceeding"), by
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reason of the fact that he or she or a person for whom he or she is the legal
representative is or was a director or officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director or officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent such amendment permits the corporation to provide broader
indemnification rights than said law permitted the corporation to provide prior
to such amendment) against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith Such right shall be a contract right and shall
include the right to be paid by the corporation expenses incurred in defending
any such proceeding in advance of its final disposition; provided, however,
that the payment of such expenses incurred by a director or officer of the
corporation in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding shall be
made only upon delivery to the corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this section or otherwise.
Section 2. Right of Claimant to Bring Suit
If a claim under Section 1 is not paid in full by the corporation
within 90 days after a written claim has been received by the corporation, the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the corporation
to indemnify the claimant for the amount claimed but the burden of proving such
defense shall be on the corporation Neither the failure of the corporation
(including its Board of Directors independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
had not met the applicable standard of conduct.
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Section 3. Non-Exclusivity of Rights
The rights conferred by Sections 1 and 2 shall not be exclusive of any
other right which such person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation by-law agreement vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance
The corporation may maintain insurance, at its expense, to protect
itself and any such director, officer, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense liability or
loss under the Delaware General Corporation Law.
ARTICLE VI--STOCK
Section 1. Certificates of Stock
Each stockholder shall be entitled to a certificate signed by, or in
the name of the corporation by, the President or a vice-president, and by the
secretary or an assistant secretary, or the treasurer or an assistant
treasurer, certifying the number of shares owned by him Any of or all the
signatures on the certificate may be facsimile.
Section 2. Transfers of Stock
Transfers of stock shall be made only upon the transfer books of the
corporation kept at an office of the corporation or by transfer agents
designated to transfer shares of the stock of the corporation Except where a
certificate is issued in accordance with Section 4 of Article Vl of these
by-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date
The Board of Directors may fix a record date, which shall not be more
than 60 nor less than 10 days before the date of any meeting of stockholders,
nor more than 60 days prior to the time for the other action hereinafter
described as of which there shall be determined the stockholders who are
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof; to express consent to corporate action in writing without
a meeting; to receive payment of any dividend or other distribution or
allotment of any rights; or to exercise any rights with respect to any change,
conversion or exchange of stock or with respect to any other lawful action.
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Section 4. Lost, Stolen or Destroyed Certificates
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations
The issue transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VII--NOTICES
Section 1. Notices
Whichever notice is required to be given to any stockholder, director
officer, or agent, such requirement shall not be construed to mean personal
notice Such notice may in every instance be effectively given by depositing a
writing in a post office or letter box, in a postpaid, sealed wrapper, or by
dispatching a prepaid telegram, addressed to such stockholder director,
officer, or agent at his or her address as the same appears on the books of the
corporation The time when such notice is dispatched shall be the time of the
giving of the notice.
Section 2. Waivers
A written waiver of any notice, signed by a stockholder, director
officer or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director officer, or agent Neither the business nor
the purpose of any meeting need be specified in such a waiver.
ARTICLE VIII--MISCELLANEOUS
Section 1. Facsimile Signature
In addition to the provisions for the use of facsimile signatures
elsewhere specifically authorized in these by-laws facsimile signatures of any
officer or officers of the corporation may be used whenever and as authorized
by the Board of Directors or a committee thereof.
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Section 2. Corporate Seal
The Board of Directors may provide a suitable seal containing the name
of the corporation, which seal shall be in charge of the secretary If and when
so directed by the Board of Directors or a committee thereof, duplicates of the
seal may be kept and used by the treasurer or by the assistant secretary or
assistant treasurer
Section 3. Reliance Upon Books, Reports, and Records
Each director each member of any committee designated by the Board of
Directors, and each officer of the corporation shall in the performance of his
duties, be fully protected in relying in good faith upon the books of account
or other records of the corporation, including reports made to the corporation
by any of its officers, by an independent certified public accountant, or by an
appraiser selected with reasonable care.
Section 4. Fiscal Year
The fiscal year of the corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods
In applying any provision of these by-laws which requires that an act
be done or not done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE IX--AMENDMENTS
Section 1. Amendments
These by-laws may be amended or repealed by the Board of Directors at
any meeting or by the stockholders at any meeting.
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EXHIBIT 3.1
CERTIFICATE OF DESIGNATION,
RIGHTS AND PREFERENCES
OF THE
SERIES A PREFERRED STOCK
OF
VASCO CORP.
________________________________________
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
_________________________________________
VASCO CORP. (the "Corporation"), a company organized and existing under
and by virtue of the provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), certifies that pursuant to the authority contained in
Article Fourth of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the DGCL, its Board of Directors has adopted the
following resolution creating a series of its Preferred Stock designated as the
Series A Preferred Stock:
"RESOLVED, that a separate series of the class of authorized
Preferred Stock of the Corporation be hereby created, and that the
designation and the amount thereof and the voting powers,
preferences and relative, participating, optional and other
special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as
follows:
<PAGE> 2
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE
CLASS A CONVERTIBLE PREFERRED STOCK
OF
VASCO CORP.
WHEREAS, VASCO Corp., a Delaware corporation (the "Corporation"), intends
to issue 317,181 of the 500,000 shares of its authorized Preferred Stock, $.01
par value ("Preferred"); and
WHEREAS, the Board of Directors of the Corporation (the "Board") is
authorized to issue Preferred Shares in one or more series, each having the
designation, powers preferences and rights and the qualifications, limitations
or restrictions thereof as the Board shall by resolution determine;
NOW, THEREFORE, BE IT RESOLVED, that the Corporation issue 317,181 shares
of the 500,000 Preferred designated Class A Cumulative Convertible Preferred
Stock ("Series A Preferred"), the Series A Preferred to have the powers,
preferences and rights and the qualifications, limitations or restrictions
thereof hereinafter set forth in this Resolution:
1. Preference. The preferences of each share of Series A Preferred with
respect to dividend payments and distributions of the Corporation's assets upon
redemption and upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation shall be equal to the preferences of every other
share of Series A Preferred from time to time outstanding in every respect, and
prior in right to such preferences of all other equity Securities, whether now
or hereafter authorized.
2. Voting Rights; Preemptive Rights. Except as otherwise provided
herein or by law, the Holders of Series A Preferred shall, by virtue of their
ownership thereof, be entitled to cast the number of votes per share thereof on
each matter submitted to the Corporation's Stockholders for voting as is equal
to the number of full shares of Conversion Stock into which such share is then
convertible. Such votes shall be cast together with those cast by the Holders
of Common and not as a separate class, except as otherwise provided herein by
law. The Series A Preferred shall not have cumulative voting rights. The
Holders of Series A Preferred shall not have any preemptive rights upon the
issuance or sale of any Securities.
3. Liquidation Rights. If the Corporation shall be voluntarily or
involuntarily liquidated, dissolved or wound up at any time when any of the
Series A Preferred shall be outstanding, the Holders of the then outstanding
Series A Preferred shall have a preference against the assets of the
Corporation available for distribution to the Holders of the Corporation's
equity Securities. Provided, however, that neither the consolidation nor merger
of the Corporation into or with any corporation or corporations, nor the sale
nor transfer by the Corporation of all or any part of its assets, nor any
reduction of the
<PAGE> 3
authorized or issued shares of the Stock of the Corporation of any class,
whether now or hereafter authorized, shall be deemed to be a liquidation of the
Corporation within the meaning of any of the provisions of this Section 3.
4. Dividends. Commencing on November 9, 1994, each Holder of Series A
Preferred shall be entitled to receive dividends at a rate of eight percent
(8%), out of any funds legally available therefor, payable in cash at the rate
of $0.15 per share at the election of the Corporation, on the aforesaid date
and on each month end thereafter, that any Series A Preferred shall be
outstanding. Such dividends shall accrue, without interest, on a cumulative
basis on each such share from the date of issuance thereof, whether or not
earned, whether or not funds of the Corporation are legally available therefor
and whether or not declared by the Board.
5. Redemption. The Corporation shall not redeem, purchase or otherwise
acquire, directly or indirectly through a Subsidiary or otherwise, any of the
Series A Preferred without the consent of the Holders of all of the Series A
Preferred then outstanding.
6.Conversion.
(A) General. For the purposes of conversion, the Series A Preferred shall
be valued at $1.00 per share ("Value"), and, if converted, the Series A
Preferred shall be converted into Common (the "Conversion Stock") at the
conversion price ("Conversion Price") of $0.15 per share of VASCO Common Stock,
subject to adjustment pursuant to the provisions of this Section 6.
(B) Right to Conversion. The Holders of Series A Preferred shall have the
right, at their option, to convert such shares into Conversion Stock at any
time upon a sixty (60) day written notice to the Corporation.
(C) Stock Fully Paid; Reservation of Shares. All shares of Common which
may be issued upon conversion of Series A Preferred will, upon issuance, be
duly issued, fully paid and non-assessable and free from all taxes, liens, and
charges with respect to the issue thereof. At all times that any Series A
Preferred is outstanding, the Corporation shall have authorized, and shall have
reserved for the purpose of issuance upon such conversion, a sufficient number
of shares of Common to provide for the conversion into Common of all Series A
Preferred then outstanding at the then effective Conversion Price, or shares
payable in lieu of cash on any dividends payable by the Corporation on the
Series A Preferred. Without limiting the generality of the foregoing, if, at
any time, the Conversion Price is decreased, the number of shares of Common
authorized and reserved for issuance upon the conversion of the Series A
Preferred shall be appropriately increased.
AND BE IT FURTHER RESOLVED, that the proper officers of the Corporation
be, and they hereby are, authorized and directed from time to time to execute
such instruments and do all such things as may be necessary or advisable in
their discretion in order to carry out the terms, provisions and intent of the
foregoing Resolution, including,
<PAGE> 4
without limitation, the filing with the relevant state and local officials in
the State of Utah of certified copies of the foregoing Resolution.
IN WITNESS WHEREOF, said VASCO CORP., INC., has caused this Certificate to
be signed by T. Kendall Hunt, its Chairman of the Board of Directors and
attested by Forrest D. Laidley, its Secretary, this 13th day of September, 1994.
By: T. Kendall Hunt
-------------------------------------
T. Kendall Hunt, President
and Chairman of the Board of Directors
ATTEST:
By: Forrest D. Laidley
------------------------------------
Forrest D. Laidley, Secretary
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION,
RIGHTS AND PREFERENCES
OF THE
SERIES B PREFERRED STOCK
OF
VASCO CORP.
-----------------------------------------
PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
-----------------------------------------
VASCO CORP. (the "Corporation"), a company organized and existing under
and by virtue of the provisions of the General Corporation Law of the State of
Delaware (the "DGCL"), certifies that pursuant to the authority contained in
Article Fourth of its Certificate of Incorporation, and in accordance with the
provisions of Section 151 of the DGCL, its Board of Directors has adopted the
following resolution creating a series of its Preferred Stock designated as the
Series B Preferred Stock:
"RESOLVED, that a separate series of the class of authorized
Preferred Stock of the Corporation be hereby created, and that the
designation and the amount thereof and the voting powers,
preferences and relative, participating, optional and other
special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as
follows:
<PAGE> 2
DESIGNATION
of
SERIES B PREFERRED STOCK
1. Designation and Amount. The shares of one series of Preferred Stock of
the Corporation created and authorized hereby shall be designated as "Series B
Preferred Stock" (hereinafter referred to as the "Series B Preferred Stock")
and the number of shares constituting such series shall be 9,500.
2. Dividends.
(a) Each holder of record of a share of Series B Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds of the Corporation legally available therefor pursuant
to the DGCL (the "Legally Available Funds"), mandatory preferential cumulative
dividends during each Monthly Dividend Period (as hereinafter defined) that
such share of Series B Preferred Stock is outstanding at a rate determined by
multiplying 1% times the Liquidation Preference (as hereinafter defined) of
such Series B Preferred Stock. Such dividends shall be payable on the first
Business Day (as hereinafter defined) succeeding the last day of the preceding
Monthly Dividend Period (each, a "Dividend Payment Date"), commencing October
3, 1994. Such dividends shall be fully cumulative and shall accrue on a
monthly basis (whether or not declared) from the first day of each Monthly
Dividend Period as to which such dividend may be payable as herein provided to
the date on which such Series B Preferred Stock ceases to be outstanding.
(b) Dividends accrued on the Series B Preferred Stock shall be paid
in cash on each Dividend Payment Date, subject to the availability of Legally
Available Funds. If at any time the Corporation distributes less than the
total amount of dividends then accrued with respect to the Series B Preferred
Stock, such payment will be distributed among the holders of Series B Preferred
2
<PAGE> 3
Stock so that an equal amount will be paid (as nearly as possible) with respect
to each outstanding share of Series B Preferred Stock. If for any reason or no
reason for any Monthly Dividend Period all or a portion of the dividends are
not paid in cash on or before the Dividend Payment Date next succeeding the
Dividend Payment Date on which such dividends were payable, then the rate at
which dividends shall be computed shall immediately be increased to 1.5% per
month until all accrued but unpaid dividends have been paid in full and such
accrued but unpaid dividends shall be added (solely for the purpose of
calculating dividends payable on the Series B Preferred Stock) to the
Liquidation Preference of the Series B Preferred Stock effective at the
beginning of the Monthly Dividend Period succeeding the Monthly Dividend Period
as to which such dividends were not paid and shall thereafter accrue additional
dividends in respect thereof ("Additional Dividends") at the rate of 1.5% per
month until such unpaid dividends have been paid in full. At such time as all
accrued but unpaid dividends have been paid in full at the adjusted rate the
dividend rate for future dividends shall return to the initial rate of 1% per
month, unless and until the occurrence of a subsequent failure to make in full
a monthly dividend payment, at which time the rate of dividends shall
immediately be increased in accordance with the preceding sentence.
(c) Each such dividend shall be paid to the holders of record of
shares of Series B Preferred Stock as they appear on the stock register of the
Corporation on such record date as shall be fixed by the Board of Directors of
the Corporation or a duly authorized committee thereof, which date shall be not
more than 30 days nor less than 10 days preceding the Dividend Payment Date
relating thereto.
(d) If dividends (including Additional Dividends) are not paid in full
or declared in full and sums are not set apart for the payment thereof upon the
Series B Preferred Stock and any other preferred stock ranking on a parity as
to dividends with the Series B Preferred Stock,
3
<PAGE> 4
all dividends declared upon shares of Series B Preferred Stock and any other
preferred stock ranking on a parity as to dividends shall be declared pro rata
so that in all cases the amount of dividends declared per share on the Series B
Preferred Stock and such other preferred stock shall bear to each other the
same ratio that accumulated dividends per share, including Additional Dividends
or accrued dividends, as the case may be, on the shares of Series B Preferred
Stock and such other preferred stock shall bear to each other. Except as
provided in the preceding sentence, unless full cumulative dividends (including
Additional Dividends) on the Series B Preferred Stock have been paid or
declared in full and set aside for payment, no dividends or other distribution
shall be declared or paid upon the Common Stock of the Corporation or any such
other capital stock of the Corporation ranking junior to or on parity with the
Series B Preferred Stock as to distribution or liquidation rights nor shall
shares of any such capital stock be redeemed or purchased by the Corporation or
any subsidiary thereof, nor shall any money be paid to or made available for a
sinking fund for redemption or purchase of any shares of capital stock ranking
junior to or on a parity with the Series B Preferred Stock as to distribution
or liquidation rights until all cumulative dividends (including Additional
Dividends) on the Series B Preferred Stock shall have been paid and the
dividend for the then current Monthly Dividend Period shall have been paid or
declared and sufficient funds set aside for payment thereof.
(e) Notwithstanding anything to the contrary contained herein, upon any
conversion pursuant to either Section 3 or Section 4 hereof of the Series B
Preferred Stock, all accrued and unpaid dividends on the Series B Preferred
Stock to and until the date of such conversion shall be due and payable.
(f) The following terms shall have the meanings as set forth below:
4
<PAGE> 5
"Business Day" means any day other than a Saturday, Sunday or any day
on which the New York Stock Exchange is closed.
"Monthly Dividend Period" means the period from the first day through
the last day of each calendar month, provided that the first Monthly Dividend
Period shall mean the period commencing the day shares of Series B Preferred
Stock are originally issued and ending on September 30, 1994 and the amount of
dividends payable in respect thereof shall be determined by multiplying (x) 1%
times (y) the Liquidation Preference of the Series B Preferred Stock times (z)
a fraction, the numerator of which is the number of days the Series B Preferred
Stock is outstanding during such Monthly Dividend Period (including the date of
issuance thereof) and the denominator of which is 30.
3. Conversion At Option of Corporation.
(a) General. Provided that the conditions set forth in Section 3(b)
shall be satisfied, at the option of the Corporation, upon giving the notice
provided in Section 3(d) below, as of the Effective Date (as hereinafter
defined) the Series B Preferred Stock shall be converted in whole or in part
into fully paid and non-assessable shares of Common Stock. The number of
shares of Common Stock to which a holder of Series B Preferred Stock shall be
entitled to receive upon conversion shall be the product obtained by
multiplying (i) the Applicable Conversion Rate (determined as provided in
Section 3(c)) times (ii) the number of shares of Series B Preferred held by
such holder which are being converted.
(b) Conditions. No shares of Series B Preferred Stock shall be
converted into Common Stock pursuant to Section 3(a) unless each of the
following conditions shall be satisfied as of the Effective Date:
5
<PAGE> 6
(i) Immediately prior to authorizing any conversion pursuant to
this Section 3 of the Corporation, by resolution of its Board of Directors
shall, to the extent of any Legally Available Funds, declare a dividend on the
Series B Preferred Stock payable on the Effective Date in an amount equal to
any accrued and unpaid dividends (including Additional Dividends) on the Series
B Preferred Stock as of the Effective Date.
(ii) The issuance to the holders of Series B Preferred Stock of
all shares of Common Stock upon conversion of the Series B Preferred Stock
pursuant to Section 3(a) shall have been registered under a currently effective
registration statement under the Securities Act of 1933, as amended, and either
registered under all applicable securities or blue sky laws of any state in
which a holder resides or such issuance shall be exempt from the registration
provisions of such applicable state securities laws.
(iii) The Common Stock shall be (a) listed for trading on either
the American Stock Exchange or (b) the New York Stock Exchange or quoted on
NASDAQ.
(c) Applicable Conversion Rate. The conversion rate in effect at
any time for the conversion of the Series B Preferred Stock pursuant to this
Section 3 (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) the Liquidation Preference of the Series B Preferred Stock by (ii)
the Applicable Conversion Value (as defined in the next sentence). The
"Applicable Conversion Value" in the case of conversions pursuant to this
Section 3 means the quotient obtained by dividing (x) the average of the Market
Prices (as defined in the next sentence) of the Common Stock for the period of
the 20 consecutive Business Days on which the Common Stock was traded ending on
the Business Day immediately preceding (but not including) the date the notice
referred to in Section 3(d) is deemed given, by (y) 2. The "Market Price" of
the Common Stock for any day means the last reported sales price, regular way,
or, in case no sale takes place on
6
<PAGE> 7
such day, the average reported closing bid and asked prices, regular way, in
either case as reported on the principal national securities exchange on which
such security is listed or admitted for trading or, if such security is not
listed or admitted to trading on any national securities exchange, on the
NASDAQ National Market System or, if such security is not quoted on such
National Market System, the average of the closing bid and asked prices on each
such day in the over-the-counter market as reported by NASDAQ, or, if bid and
asked prices for such security on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for each such day as
furnished by any New York Stock Exchange member firm regularly making a market
in such security selected for such purpose by the Board of Directors of the
Corporation.
(d) Notice of Conversion. At least 30 days but not more than 60 days
prior to the date fixed for the conversion of shares of the Series B Preferred
Stock pursuant to Section 3(a), written notice of such conversion shall be
mailed to each holder of record of shares of Series B Preferred Stock to be
converted in a postage prepaid envelope addressed to such holder at such
holder's post office address as shown on the records of the Corporation. Each
such notice shall state: (i) the effective date of such conversion (the
"Effective Date"); (ii) the number of shares of Series B Preferred Stock to be
converted and, if less than all shares held by such holder are to be converted,
the method of calculating such number; (iii) the Applicable Conversion Rate and
an itemized calculation thereof; (iv) the place or places where certificates
for such shares are to be surrendered in exchange for a certificate or
certificates representing the Common Stock into which the shares of Series B
Preferred Stock are to be converted (the "Conversion Shares"); and (v) that
dividends on the shares to be converted shall cease to accrue on the Effective
Date of the conversion. On or after the Effective Date each holder of shares
of Series B Preferred Stock to be converted shall present and surrender such
holder's certificate or certificates for such shares of Series B Preferred
7
<PAGE> 8
Stock to the Corporation at the place designated in such notice. As promptly
as practicable after the Effective Date, the Corporation shall issue and
deliver to the holder of the shares of Series B Preferred Stock being
converted, or on its written order, such certificate(s) as it may request for
the number of whole shares of Common Stock issuable upon conversion of such
shares of Series B Preferred Stock in accordance with the provisions of this
Section 3 and cash as provided in Section 3(f), in respect of any fraction of a
share of Common Stock issuable upon such conversion. Such conversion shall be
deemed to have been effected immediately prior to the close of business on the
Effective Date, and at such time the rights of the holder as holder of the
converted shares of Series B Preferred Stock shall cease and the person(s) in
whose name(s) any certificate(s) for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby. In the event some
but not all of the shares of Series B Preferred Stock represented by a
certificate or certificates being surrendered by a holder are converted, the
Corporation shall execute and deliver to or on the order of the holder, at the
expense of the Corporation, a new certificate representing the number of shares
of Series B Preferred Stock which are not converted. From and after the
Effective Date, all dividends on the shares of Series B Preferred Stock
designated for conversion in such notice shall cease to accrue and all rights
of the holders thereof, except the right to receive a certificate or
certificates for Conversion Shares and the right to receive the accrued and
unpaid dividends up to the Effective Date and any cash in payment of fractional
shares, without interest, upon the surrender of certificates representing the
Series B Preferred Stock, shall cease and terminate and such shares shall not
be deemed to be outstanding for any purpose whatsoever. A notice hereunder
shall be deemed to be given on the date it is deposited in first class United
States mail in a sealed envelope, postage prepaid.
8
<PAGE> 9
(e) Selection of Shares to be Converted. If less than all of the shares
of Series B Preferred Stock are to be converted, the Board of Directors of the
Corporation shall allocate the aggregate Liquidation Preference of shares to be
converted pro rata (or as nearly pro rata as practicable) or by lot at the
direction of the Board of Directors of the Corporation. Regardless of the
method used, the calculation of the number of shares to be converted shall be
based upon whole shares, such that the Corporation shall in no event be
required to issue fractional shares of Series B Preferred Stock or cash in lieu
thereof.
(f) Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Preferred Stock pursuant to this Section 3.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series B Preferred Stock, the Corporation shall pay
to the holder of the shares of Series B Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the Market Price per share of the Common Stock at the close of
business on the Effective Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the aggregate number of
shares of Series B Preferred Stock being converted at any one time by any
holder thereof, not upon each share of Series B Preferred Stock being
converted.
4. Conversion At the Option of Holder.
(a) General. Subject to and in compliance with the provisions of this
Section 4, at any time after March 16, 1997 shares of the Series B Preferred
Stock may, at the option of any holder, be converted at any time and from time
to time into fully paid and non-assessable shares of Common Stock. The number
of shares of Common Stock to which a holder of Series B Preferred Stock shall be
entitled to receive upon conversion pursuant to this Section 4 shall be the
9
<PAGE> 10
product obtained by multiplying (i) the Applicable Conversion Rate (determined
as provided in Section 4(b)) by the number of shares of Series B Preferred
Stock being converted at any time. Notwithstanding the first sentence of this
Section 4(a), prior to September 16, 1997 the maximum aggregate number of
shares of Series B Preferred Stock held by all holders which may be converted
into Common Stock pursuant to this Section 4 shall be 4,000. Any shares of
Series B Preferred Stock surrendered for exchange prior to September 16, 1997
but after an aggregate of 4,000 shares of Series B Preferred Stock have been
surrendered for conversion pursuant to this Section 4 shall be promptly
returned by the Corporation to the sender.
(b) Applicable Conversion Rate. The conversion rate in effect at any
time for the conversion of the Series B Preferred Stock pursuant to this
Section 4 (the "Applicable Conversion Rate") shall be the quotient obtained by
dividing (i) the Liquidation Preference of the Series B Preferred Stock by (ii)
the Applicable Conversion Value (as defined in the next sentence). The
"Applicable Conversion Value" in the case of conversions pursuant to this
Section 4 means the quotient obtained by dividing (x) the average of the Market
Prices of the Common Stock for the period of the 20 consecutive Business Days
on which the Common Stock was traded ending on the Business Day immediately
preceding (but not including) the date the notice referred to in Section 4(c)
is deemed given, by (y) 2.
(c) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series B Preferred Stock shall surrender the
certificate(s) representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate(s)
for shares of Common Stock issuable upon such conversion shall be issued. The
certificate(s) for shares of Series B Preferred Stock
10
<PAGE> 11
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. A notice hereunder shall be deemed to be given on
the date it is deposited in first class United States mail in a sealed
envelope, postage prepaid. The date when such written notice is received by
the Corporation, together with the certificate(s) representing the shares of
Series B Preferred Stock being converted, shall be the "Conversion Date". Any
voluntary conversion of Series B Preferred Stock by any holder shall be for at
least 100 shares of Common Stock. As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver to the holder of
the shares of Series B Preferred Stock being converted, or on its written
order, such certificate(s) as it may request for the number of whole shares of
Common Stock issuable upon the conversion of such shares of Series B Preferred
Stock in accordance with the provisions of this Section 4, and cash, as
provided in Section 4(d), in respect of any fraction of a share of Common Stock
issuable upon such conversion.
(d) Cash in Lieu of Fractional Shares. No fractional shares of Common
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series B Preferred Stock pursuant to this Section 4.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series B Preferred Stock, the Corporation shall pay
to the holder of the shares of Series B Preferred Stock which were
converted a cash adjustment in respect of such fractional shares in an amount
equal to the same fraction of the Market Price per share of the Common Stock at
the close of business on the Conversion Date. The determination as to whether
or not any fractional shares are issuable shall be based upon the aggregate
number of shares of Series B Preferred Stock being converted at any one time by
any holder thereof, not upon each share of Series B Preferred Stock being
converted.
11
<PAGE> 12
(e) Partial Conversion. In the event some but not all of the shares of
Series B Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and
deliver to or on the order of the holder, at the expense of the Corporation, a
new certificate representing the number of shares of Series B Preferred Stock
which were not converted.
(f) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series B Preferred Stock, and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series B Preferred
Stock, the Corporation shall take such action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
5. Option to Purchase Common Stock in Satisfaction
of Accrued But Unpaid Dividends
(a) General. Subject to and in compliance with the provisions of
this Section 5, if at any time after December 31, 1994 there are then accrued
but unpaid dividends on the Series B Preferred Stock and a holder gives written
notice to the Corporation that such holder intends to purchase Common Stock in
accordance with the terms of this Section 5 and 30 days after the giving of
such notice there remains accrued but unpaid dividends on the Series B
Preferred Stock, then by further written notice to the Corporation in
accordance with Section 5(b), such holder may purchase from the Corporation up
to such number of shares of Common Stock (rounded down to eliminate a
fractional share) as shall equal the quotient obtained by dividing (i) the
amount of accrued
12
<PAGE> 13
but unpaid dividends on the Series B Preferred Stock held by such holder by
(ii) the Applicable Exercise Price (as defined in the next sentence). The
"Applicable Exercise Price" means the quotient obtained by dividing (x) the
average of the Market Prices of the Common Stock for the period of the 20
consecutive Business Days in which the Common Stock was traded ending on the
Business Day immediately preceding (but not including) the date the notice
referred to in Section 5(b) is deemed given, by, (y) 2. The purchase price per
share at which shares of Common Stock may be purchased pursuant to this Section
5 shall be the Applicable Exercise Price. The purchase price shall be paid by
the holder's agreement to the cancellation of an amount of accrued but unpaid
dividends on the Series B Preferred Stock equal to the aggregate purchase price
of the shares of Common Stock purchased. Notwithstanding anything to the
contrary contained herein, no holder may exercise any option hereunder to the
extent that the purchase price for shares of Common Stock to be purchased
pursuant thereto exceeds the amount of Legally Available Funds for the payment
of dividends.
(b) Exercise of Option. To exercise its option under Section 5(a),
a holder of Series B Preferred Stock shall give written notice to the
Corporation at the principal office of the Corporation that such holder elects
to exercise its option. A notice under this Section 5 (including a notice
under Section 5(a)) shall be deemed to be given on the date it is deposited in
first class United States mail in a sealed envelope, postage prepaid.
(c) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of issuing shares of the Series B
Preferred Stock upon exercise of options pursuant to Section 5(a), such number
of its shares of Common Stock as shall from time to time be sufficient to issue
the maximum number of shares of Common Stock issuable upon exercise of such
options, and if at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient
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<PAGE> 14
to issue the maximum number of shares of Common Stock issuable upon exercise of
such options, the Corporation shall take such action as may be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
6. Voting Rights.
(a) The holders of Series B Preferred Stock shall not, except as
required by law or as otherwise set forth herein, have any right or power to
vote on any question in any proceeding or to be represented at, or to receive
notice of, any meeting of the Corporation's stockholders. On any matters on
which the holders of the Series B Preferred Stock shall be so entitled to vote,
they shall be entitled to one vote for each share held.
(b) So long as any shares of the Series B Preferred Stock are
outstanding and unless the vote or consent of the holders of a greater number
of shares shall then be required by law, the consent of the holders of a
majority of all of the outstanding shares of Series B Preferred Stock (given in
person or by proxy, at a special meeting of stockholders called for such
purpose or at any annual meeting of stockholders, with the holders of Series B
Preferred Stock voting as a class and with each share of Series B Preferred
Stock having one vote) shall be necessary for (i) authorizing, effecting or
validating the amendment, alteration or repeal of any of the provisions of this
Certificate of Designation or of any amendment thereto, or of any resolution or
resolutions providing for the issue of any stock, that would have an adverse
effect on the designations, rights, preferences or privileges of shares of
Series B Preferred Stock or (ii) the creation of any class or series of capital
stock ranking prior to or on a parity with the Series B Preferred Stock with
respect to rights to receive dividends, redemption payments or distributions
upon liquidation or winding up of the Corporation.
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(c) If and when, at any time or times, dividends for any Monthly
Dividend Period on the Series B Preferred Stock have not been paid in cash on
or before the Dividend Payment Date next succeeding the Dividend Payment Date
on which such dividends were payable, any holder of Series B Preferred Stock
may give to the Corporation a notice of such non-payment. If within 30 days
after the giving of the notice referred to in the preceding sentence, there
remain any accrued but unpaid dividends on the Series B Preferred Stock, the
holders of Series B Preferred Stock, voting separately as a class, shall be
entitled to elect such number of directors of the Corporation as shall be at
all times a majority of the number of directors of the Corporation. The right
to elect directors may be exercised at any annual meeting of the stockholders
of the Corporation, at any special meeting held in place of an annual meeting,
or at a special meeting of the holders of Series B Preferred Stock called to
elect directors. The right to elect directors shall continue until dividends in
default on Series B Preferred Stock are paid in full, and shall cease when the
dividends are so paid, subject to future reactivation in the event of future
defaults.
At any time that special voting power is vested in the holders of Series B
Preferred Stock, the Secretary of the Corporation may, and at the written
request of holders of 25 percent or more of the shares of Series B Preferred
Stock must, call a special meeting of the holders of Series B Preferred Stock
for the election of directors. The meeting must be held within forty (40) days
of the delivery of the request at the time and place provided by law or in the
bylaws of the Corporation for meetings of stockholders of the Corporation;
provided, however, that no meeting need be called if the request is delivered
less than ninety (90) days before the date fixed for the next annual meeting of
the Corporation's stockholders.
If at any meeting held when special voting power is vested in the holders
of Series B Preferred Stock the holders of at least 50 percent of Series B
Preferred Stock then
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outstanding are present in person or by proxy, then the number of directors of
the Corporation shall be increased by the number of directors that the holders
of Series B Preferred shall be entitled to elect and the holders of Series B
Preferred Stock present by vote of at least 50 percent shall be entitled to
elect the additional directors of the Corporation. The directors so elected
shall serve until the next annual meeting of the stockholders of the
Corporation and until their respective successors are elected by the holders of
Series B Preferred Stock and have qualified.
When the holders of Series B Preferred Stock are divested of special
voting power, the term of office of the persons elected as directors by the
holders of Series B Preferred Stock shall terminate, and the number of
directors of the Corporation shall be reduced accordingly. If the office of
director of a director elected by the holders of Series B Preferred Stock is
vacant due to resignation, removal or death during the time that special voting
power is vested in the holders of Series B Preferred Stock, the vacancy shall
be filled by the majority vote of the directors then in office, even if less
than a quorum. If the vacancy is not so filled within forty (40) day after the
creation of the vacancy, a special meeting of the holders of the Series B
Preferred Stock shall be called and the vacancy filled at that meeting. Any
director elected to fill a vacancy by the remaining directors may be removed by
the vote of a majority of the holders of Series B Preferred Stock.
(d) Nothing herein contained shall be construed so as to require a
class vote or the consent of the holders of the outstanding shares of Series B
Preferred Stock (i) in connection with any increase in the total number of
authorized or issued shares of Common Stock, or (ii) in connection with the
authorization or increase or issuance of any class or series of capital stock
ranking junior to the Series B Preferred Stock as to dividends, redemption
payments and distributions upon liquidation, dissolution or winding up of the
Corporation. Nothing herein
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contained shall in any way limit the right and power of the Corporation to
issue any bonds, notes, mortgages, debentures, and other obligations, or to
incur indebtedness to banks and to other lenders.
7. Priority of Series B Preferred Stock in Event of Liquidation or
Dissolution. In the event of any liquidation, dissolution, or winding up of
the affairs of the Corporation, whether voluntary or otherwise, after payment
or provision for payment of the debts and other liabilities of the Corporation,
the holders of the Series B Preferred Stock shall be entitled to receive, out
of the remaining net assets of the Corporation, the amount of One Hundred
Dollars ($100.00) in cash for each share of Series B Preferred Stock (the
"Liquidation Preference"), plus an amount equal to all dividends accrued and
unpaid on each such share up to the date fixed for distribution, before any
distribution of any kind shall be made to the holders of the Common Stock of
the Corporation or any other stock ranking (as to any such distribution) junior
to the Series B Preferred Stock. In the event of any involuntary or voluntary
liquidation, dissolution or winding up the affairs of the Corporation, the
Corporation by resolution of its Board of Directors shall, to the extent of any
Legally Available Funds, declare a dividend on the Series B Preferred Stock
payable on the date of distribution before any distribution is made to any
holder of any series of preferred stock or common stock or any other stock of
the Corporation ranking junior to the Series B Preferred Stock as to
liquidation, dissolution or winding up, in an amount equal to any accrued and
unpaid dividends on the Series B Preferred Stock as of such date. If the
Corporation does not have sufficient Legally Available Funds to declare and pay
all dividends accrued at the time of such liquidation, any remaining accrued
and unpaid dividends shall be added to the payment to be received by the
holders of the Series B Preferred Stock for such Series B Preferred Stock in
such liquidation. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets distributable among the holders of any series of
preferred stock ranking (as to any such distribution) on a parity with the
Series B Preferred Stock shall be insufficient
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to permit the payment in full to the holders of all such series of preferred
stock of all preferential amounts payable to all such holders, then the entire
assets of the Corporation thus distributable shall be distributed ratably among
the holders of the Series B Preferred Stock and all series of the preferred
stock ranking (as to any such distribution) on a parity with the Series B
Preferred Stock in proportion to the respective amounts that would be payable
per share if such assets were sufficient to permit payment in full.
Except as otherwise provided in this Section 6, holders of Series B Preferred
Stock shall not be entitled to any distribution in the event of liquidation,
dissolution or winding up of the affairs of the Corporation.
For the purposes of this Section 7, neither the voluntary sale, lease,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all the property or assets of the
Corporation, nor the consolidation or merger of the Corporation with one or
more other corporations, shall be deemed to be a liquidation, dissolution or
winding up, voluntary or involuntary.
8. Ranking of Series B Preferred Stock. Except as permitted in
accordance with Section 6(b), with regard to rights to receive dividends,
mandatory redemption payments and distributions upon liquidation, dissolution
or winding up of the Corporation, the Series B Preferred Stock shall rank prior
to any other equity securities of the Corporation, including all classes of the
Common Stock, $.001 par value per share, of the Corporation, except that only
with respect to the right to receive distributions upon liquidation, the Series
B Preferred Stock shall rank on a parity with the Series A Preferred Stock.
RESOLVED, FURTHER, that the appropriate officers of the
Corporation are hereby authorized to execute and acknowledge a
certificate setting forth these
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resolutions and to cause such certificate to be filed and recorded,
all in accordance with the requirements of Section 151(g) of the
Delaware General Corporation Law."
IN WITNESS WHEREOF, the Corporation has caused this certificate to
be duly executed on its behalf, this 13th day of September, 1994.
VASCO CORP.
By: /s/ T. Kendall Hunt
-----------------------------
T. Kendall Hunt
President
ATTEST:
/s/ Forrest D. Laidley
- -----------------------------
Forrest D. Laidley, Secretary
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EXHIBIT 6.1
VASCO CORP.
STOCK OPTION PLAN
1. GRANT OF OPTIONS. The Compensation Advisory Committee of VASCO CORP., a
Delaware Corporation, ("Corporation") is hereby authorized by majority vote of
its members to issue stock options from time to time on the Corporation's
behalf to any one or more persons who at the date of such grant are full-time
employees, directors, or affiliates of the Corporation. Any option granted
under this Plan shall be exercised within 10 Years from the date hereof.
2. AMOUNT OF STOCK. The aggregate amount of stock which may be purchased
pursuant to options granted under this Plan shall be that number of voting
shares of the Corporation's voting common stock as determined and set aside by
the Directors of the Corporation from time to time.
3. EXERCISE. Any option granted pursuant to this Plan shall contain
provisions, established by the Corporation's Compensation Advisory Committee,
setting forth the manner of exercise of such option.
4. NONTRANSFERABILITY. The terms of any option granted under this Plan
shall include a provision making such option nontransferable by the optionee,
except upon the death, and exercisable during the optionee's lifetime only by
the optionee.
5. PURCHASE PRICE. The valuation price for a share of the stock subject
to any option granted hereunder shall be not less than the fair market value of
the stock on the date of grant of the option, said fair market value to be
determined in good faith at the time of grant of such option by decision of the
Corporation's Compensation Advisory Committee.
6. FAIR MARKET VALUE. The aggregate fair market value (determined at the
time of the grant) of the stock exercisable for the first time by an Employee
during any calendar year shall not exceed $100,000.00, unless approved in
writing by the Board of Directors of the Corporation.
7. LIMITATION. An option will not be granted to any individual owning
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Corporation.
8. STOCKHOLDER APPROVAL; EFFECTIVE DATE. This plan was approved by the
stockholders of the Corporation, and by the Corporation's Board of Directors,
and the effective date of this plan is December 28, 1987.
9. STOCK RESERVE. The Corporation shall at all times during the term of
this Plan reserve and keep available such number of shares of its voting stock
as will be sufficient to satisfy the requirements of this Plan, and shall pay
all fees and expenses necessarily incurred by the Corporation in connection
with the exercise of options granted hereunder.
<PAGE> 2
10. OTHER TERMS. Any option granted hereunder shall contain such other and
additional terms, not inconsistent with the terms of this Plan, which are
deemed necessary or desirable by the Board of Directors, the Compensation
Advisory Committee, or by legal counsel to the Corporation, and such other
terms shall include those which, together with the terms of this Plan, shall
constitute such option as an "Incentive Stock Option" within the meaning of
Section 422A of the Internal Revenue Code.
The undersigned hereby certifies that this is a true and accurate copy of
the Corporation's Stock Option Plan as it appears on the books and records of
the Corporation.
Respectfully submitted,
/s/ Forrest D. Laidley
Forrest D. Laidley,
Secretary
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EXHIBIT 6.2
VASCO CORP.
EXECUTIVE INCENTIVE COMPENSATION PLAN
FEBRUARY 1995
The Executive Incentive Compensation Plan (the "Plan") is intended to promote
the interests of VASCO Corp., its subsidiaries (collectively the "Company"),
and the Company's shareholders by encouraging certain executives and key
employees of the Company, upon whose judgment, initiative and effort the
Company depends for the current and future success of its business, to remain
highly motivated employees of the Company.
The Plan covers the Company's eligible executives and other key employees
("participants"), as determined in the sole discretion of the Compensation
Committee of the Board of Directors (the "Committee"), with such eligibility
determined at the end of each calendar year. Participants must have been
employed by the Company at the end of such calendar year. Incentive awards will
be determined in the subsequent calendar year based on prior year results, such
results being subject to audit by the Company's independent accountants, and
will be granted following the completion of such audit.
The Plan shall be effective as of January 1, 1994. Incentive awards under the
Plan will therefore be paid to participants beginning in 1995 based on
performance during 1994.
The Plan will allow for the creation of a cash pool ("Pool") in the amount of
10% of the Company's annual pre tax earnings. Fifty percent (50%) of the Pool
is awarded to those participants based on each participant's earned salary as a
percentage of all participants salaries. The remaining fifty percent (50%) is
awarded at the sole discretion of the Committee.
At the discretion of the Committee, incentive awards, in whole or in part, may
be offered in the form of shares of the Company's Common Stock. If this option
is made available to participants, the choice of cash or stock is at the sole
discretion of each participant. To the extent that shares of stock are awarded
in lieu of cash, the number of shares is based on the market value of the
Company's shares on the date the award is determined, and are taxable income to
the participant in the year awarded. Such shares are restricted and cannot be
sold or transferred except pursuant to a registration under the Securities Act
of 1933 or an exemption from such registration.
