UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-17020
Sensar Corporation
(Exact name of registrant as specified in its charter)
Nevada 87-0429944
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
(Address of principal executive offices) (Zip Code)
(801) 350-0587
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of August 13, 1999, the Company had 2,911,323 shares of its common
stock, par value $0.001 per share, issued and outstanding.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Sensar Corporation (the "Company") has included the consolidated balance
sheets of the Company and its subsidiaries as of June 30, 1999 (unaudited), and
December 31, 1998 (the end of the Company's most recently completed fiscal year,
restated for discontinued operations), and unaudited consolidated statements of
operations and comprehensive income (loss) for the three and six months ended
June 30, 1999 and 1998, and unaudited consolidated statements of cash flows for
the six months ended June 30, 1999 and 1998, together with unaudited condensed
notes thereto. In the opinion of management of the Company, the financial
statements reflect all adjustments, all of which are normal recurring
adjustments, necessary to fairly present the financial condition, results of
operations, and cash flows of the Company for the interim periods presented.
The financial statements included in this report on Form 10-Q should be read in
conjunction with the audited financial statements of the Company and the notes
thereto included in the annual report of the Company on Form 10-K for the year
ended December 31, 1998.
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
(unaudited) (restated for
discontinued
operations)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,601,344 $ 694,959
Notes receivable 628,656 120,000
Other current assets 14,879 609
Net assets of discontinued operations 1,742,151 3,495,147
-------------- --------------
Total current assets 3,987,030 4,310,715
Property and equipment, net of
accumulated depreciation 6,123 7,054
Investment in affiliate 150,000 -
-------------- --------------
$ 4,143,153 $ 4,317,769
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 101,875 $ 125,742
Accrued liabilities 25,878 142,455
-------------- --------------
Total current liabilities 127,753 268,197
Deferred gain 200,000 -
-------------- --------------
Total liabilities and deferred gain 327,753 268,197
-------------- --------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $0.001 par value; authorized
10,000,000 shares; issued and outstanding
zero shares at June 30, 1999, and 3,039.95
shares at December 31, 1998 - 3
Common stock, $0.001 par value; authorized
290,000,000 shares; issued and outstanding
2,911,323 shares at June 30, 1999, and
2,614,183 shares at December 31, 1998 2,911 2,614
Additional paid-in capital 29,381,599 30,703,947
Accumulated deficit (25,415,110) (26,282,308)
Notes receivable from sale of stock (154,000) (374,684)
-------------- --------------
Total stockholders' equity 3,815,400 4,049,572
-------------- --------------
$ 4,143,153 $ 4,317,769
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
and Comprehensive Income (Loss)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ - $ - $ - $ -
------------ ------------ ------------ ----------
Costs and operating expenses:
General and administrative 211,045 200,892 338,447 378,054
Compensation charge for stock
option grants 717,328 - 717,328 -
Unusual charges 32,860 - 157,860 -
------------ ------------ ------------ ------------
961,233 200,892 1,213,635 378,054
------------ ------------ ------------ ------------
Operating loss (961,233) (200,892) (1,213,635) (378,054)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 29,624 43,187 34,117 77,287
Other, net (21,665) - (21,665) -
------------ ------------ ------------ ------------
7,959 43,187 12,452 77,287
------------ ------------ ------------ ------------
Loss from continuing operations
before income taxes (953,274) (157,705) (1,201,183) (300,767)
Income taxes - - - -
------------ ------------ ------------ ------------
Loss from continuing operations (953,274) (157,705) (1,201,183) (300,767)
Gain (loss) on disposition of
discontinued operations (68,898) - 2,071,267 -
Income (loss) from discontinued
operations 387,319 (592,178) 22,528 (1,495,113)
------------ ------------ ------------ ------------
Net income (loss) (634,853) (749,883) 892,612 (1,795,880)
Other comprehensive income-foreign
currency translation adjustments - (7,863) - 1,473
------------ ------------ ------------ ------------
Comprehensive income (loss) $ (634,853) $ (757,746) $ 892,612 $ (1,794,407)
============ ============ ============ ============
Income (loss) per common share:
Continuing operations:
Basic and diluted $ (0.33) $ (0.31) $ (0.44) $ (0.64)
Discontinued operations:
Basic and diluted 0.11 (0.24) 0.76 (0.60)
------------ ------------ ------------ ------------
Net income (loss)
Basic and diluted $ (0.22) $ (0.55) $ 0.32 $ (1.24)
============ ============ ============ ============
Weighted average common and common
equivalent shares:
Basic and diluted 2,838,624 2,509,209 2,751,304 2,489,855
</TABLE>
The accompanying notes are an integral part of these financial statements.
SENSAR CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities
Net loss from continuing operations $ (1,201,183) $ (300,767)
Adjustments to reconcile net loss from continuing
operations to net cash used in continuing operations
Depreciation 1,503 915
Compensation charge for stock option grants 737,328 -
Stock issued in payment of compensation - 46,338
Provision for impairment losses 49,306 -
Changes in assets and liabilities:
Other current assets (14,270) (249,156)
Accounts payable (23,867) (75,310)
Accrued liabilities 16,110 (61,275)
-------------- --------------
Net cash used in continuing operations (435,073) (639,255)
Net cash used in discontinued operations (558,474) (1,182,042)
-------------- --------------
Net cash used in operating activities (993,547) (1,821,297)
-------------- --------------
Cash flows from investing activities
Purchase of property and equipment (2,249) (6,876)
Proceeds from sale of property and equipment 1,677 3,449
Collection of notes receivable 61,344 -
Issuance of note receivable (35,000) -
Investment in affiliate (150,000) -
-------------- --------------
Net cash used in investing activities of
continuing operations (124,228) (3,427)
Net cash provided by sale of discontinued
operations and other investing activities of
discontinued operations 4,095,684 10,238
-------------- --------------
Net cash provided by investing activities 3,971,456 6,811
-------------- --------------
Cash flows from financing activities
Net proceeds from issuances of common stock and
exercise of options and warrants 1,015,746 3,732,314
Redemption of preferred stock, including accrued dividends (3,071,437) -
-------------- --------------
Net cash provided by (used in) financing
activities of continuing operations (2,055,691) 3,732,314
Net cash used in financing activities of
discontinued operations (15,833) (1,367,731)
-------------- --------------
Net cash provided by (used in) financing
activities (2,071,524) 2,364,583
-------------- --------------
Effect of exchange rates on cash - 1,473
-------------- --------------
Net increase in cash and cash equivalents 906,385 551,570
Cash and cash equivalents at beginning of period 694,959 1,212,473
-------------- --------------
Cash and cash equivalents at end of period $ 1,601,344 $ 1,764,043
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
SENSAR CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(A) Basis of Presentation
The accompanying unaudited consolidated financial statements of Sensar
Corporation and Subsidiaries (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, these financial statements do not include all of the information
and footnote disclosures required by generally accepted accounting principles
for complete financial statements. These financial statements and footnote
disclosures should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1998. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
fairly present the Company's consolidated financial position as of June 30,
1999, its consolidated results of operations for the three months ended June 30,
1999 and 1998, and its consolidated results of operations and cash flows for the
six months ended June 30, 1999 and 1998. The results of operations for the
three months and six months ended June 30, 1999, may not be indicative of the
results that may be expected for the year ending December 31, 1999.
(B) Change in Executive Management
Effective April 21, 1999, the then current members of the board of directors of
the Company resigned and a new board and chief executive officer were appointed.
In connection with the appointment of the new chief executive officer, he was
granted an option to acquire 100,000 shares of common stock, half of which is
exercisable at $3.00 per share and the other half at $5.00 per share. Each new
board member has also been granted an option to acquire 100,000 shares of common
stock, half of which are exercisable at $3.00 per share and the other half at
$5.00 per share. The options are immediately exercisable, expire three years
after grant, and have a cashless exercise provision.
On June 24, 1999, the board adopted a deferred compensation plan to provide
long-term incentive compensation to the members of the board and certain other
consultants or members of management. The plan establishes an unfunded deferred
compensation pool, based on the Company's net income and increases in its market
capitalization. No earnings compensation will be paid into the pool until the
cumulative net income from the operations under the new board has exceeded
$2,000,000 and no amounts will be paid for increases in market capitalization
unless the increase in market capitalization exceeds 150% of any increase in the
Russell 2000 Index (with appropriate adjustments for additional capital
infusions or acquisitions). The chief executive officer, Mr. Landa, received an
initial 30% ownership in the pool and may grant the other 70% to persons other
than himself. To date, he has granted a total of 11%. On December 31, 2002,
amounts due, if any, will be paid out to the participants.
Under the employment agreements of the former chief executive officer and former
chief operating officer, each had the right to terminate his employment
agreement for cause with the sale of the assets of the acoustics division (see
Note C) and to receive compensation equal to his base salary remaining under his
employment agreement, which would have been approximately $560,000 in the
aggregate for the two officers. In lieu of this payment the new board of
directors negotiated a termination benefit of $195,000 in the aggregate and
consulting/employment arrangements whereby the former chief executive officer
would provide transitional consulting services to the Company and the former
chief operating officer would continue as the chief operating officer of the
Company to supervise the ongoing operations of the Company in exchange for
monthly compensation of $10,000 each and aggregate options to acquire 70,000
shares of common stock, half of which are exercisable at $3.00 per share and the
other half at $5.00 per share. Since the right to the termination benefit arose
in connection with the sale of the assets of the acoustics division, the
termination benefit of $195,000 has been recorded in the quarter ended March 31,
1999, as an unusual charge.
During the quarter ended June 30, 1999, the Company recognized $577,500 of non-
cash expense as a consequence of the cashless exercise provisions of the options
granted to management and to the outside board members to acquire an aggregate
of 420,000 shares. Generally accepted accounting principles require that
compensation be recorded for stock options with cashless exercise provisions in
each quarter, equal to the increase in the stock price above the exercise price.
If the price of the stock declines during the quarter, a credit is recorded
against compensation expense, but not in excess of the cumulative compensation
recorded since the grant date. Additionally, the Company has recorded non-cash
compensation expense of $139,828 during the quarter ended June 30, 1999, for
stock options granted to the former chief executive officer and certain other
non-employees to acquire an aggregate of 100,000 shares of common stock.
(C) Discontinued Operations
Prior to the quarter ended June 30, 1999, the Company developed and marketed
various products in one industry segment, analytical instrumentation. During
1998, the Company sold its supercritical fluid chromatography (SFC) product and
abandoned its TOF2000 mass spectrometer product. At March 31, 1999, the Company
sold the assets (except certain real estate) and operations associated with its
acoustics division to PCB Group, Inc. (PCB). The board of directors has also
committed the Company to sell or otherwise dispose of its (1) Jaguar mass
spectrometer operations; (2) CrossCheck products; and (3) ANOMS noise monitoring
software, which represent the remaining products in the analytical
instrumentation segment. Subsequent to June 30, 1999, the following have
occurred:
The Jaguar operations are being held as an asset for sale. The Company is
currently negotiating for the sale of its Jaguar operations with a third party
and hopes to complete the sale during the quarter ending September 30, 1999. As
a consequence of the Company's commitment to sell the Jaguar operations, its
marketing agreement with JEOL was terminated. The termination of this agreement
requires a payment of $350,000 to JEOL. If sold, the Company expects to realize
a gain on the sale in excess of its carrying costs of the related assets and
expenses of the sale, including the termination payment to JEOL. That gain will
be recorded when the transaction closes.
The CrossCheck technology has been returned to Brigham Young University and a
termination of the associated license agreement is being negotiated. The
carrying value of CrossCheck inventory and intangible assets in the amount of
$68,898 was written off at June 30, 1999.
The ANOMS software was sold for an initial payment of $200,000, plus future
contingent payments based upon the future performance of the business. This
gain will be included in the quarter ending September 30, 1999.
In July 1999, the Company closed the sale of real estate to PCB as the final
phase of the sale of the acoustics division. The Company received net proceeds,
after paying off the underlying mortgage, of approximately $670,000 and will
record a gain on the sale, net of expenses, of approximately $600,000 during the
quarter ending September 30, 1999.
The analytical instrumentation operations of the Company have been accounted for
as discontinued operations, and accordingly, these assets and liabilities have
been segregated as "net assets of discontinued operations" in the accompanying
consolidated balance sheets. The results of operations and cash flows
associated with these assets and liabilities are segregated and reported as
discontinued operations in the accompanying consolidated statements of
operations and cash flows. All periods presented have been restated to reflect
the discontinued operations. Information related to the discontinued operations
of the analytical instrumentation business is set forth below:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 199,783 $ 2,421,203 $ 1,778,924 $ 4,777,341
Costs and operating expenses:
Cost of sales (138,288) (1,358,581) (954,730) (2,679,579)
Research and development (126,485) (739,036) (518,646) (1,597,815)
Selling, general, and administrative (106,200) (899,167) (742,317) (1,850,542)
Unusual credits, net 582,309 - 512,309 -
----------- ------------ ------------ ------------
Operating income (loss) 411,119 (575,581) 75,540 (1,350,595)
Other income (expense) (23,800) (16,597) (53,012) (144,518)
----------- ------------ ------------ ------------
Net income (loss) $ 387,319 $ (592,178) $ 22,528 $ (1,495,113)
=========== ============ ============ ============
</TABLE>
Net assets of discontinued operations consist of the following elements:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Trade accounts receivable, net $ 142,649 $ 1,681,755
Inventories 1,247,582 2,046,871
Other current assets 550,028 93,160
Property and equipment, net 866,444 1,320,194
Assets under capital lease obligations, net - 202,026
Intangible assets, net 53,715 322,779
Accounts payable (178,934) (412,379)
Accrued liabilities (263,785) (779,228)
Long-term debt (675,548) (682,982)
Capital lease obligations - (297,049)
------------ ------------
Total $ 1,742,151 $ 3,495,147
============ ============
</TABLE>
(D) Private Placement
In May 1999, the Company completed a private placement of 250,000 shares of
common stock at $4.00 per share, subject to up to a 10% adjustment if the
average closing price of the common stock was less than $4.00 for any 20 day
period prior to the effectiveness of a registration statement the Company
committed to file. The net proceeds to the Company, after associated expenses,
were approximately $970,000. The stock issued was subsequently registered for
resale with the Securities and Exchange Commission.
(E) Investments in Affiliates
In June 1999, the Company invested $150,000 in PayStation.com, Inc.
(PayStation), and received a convertible promissory note and 15,000 shares of
convertible preferred stock, representing 2.5% of the offering. PayStation is
an internet-based company that has the capability to deliver internet-based
financial services to consumers who prefer to pay bills through the internet.
The Company's investment in PayStation will be accounted for under the cost
method of accounting.
Subsequent to June 30, 1999, the Company invested $50,000 in convertible
preferred stock of journeylink.com inc. (Journeylink), representing 1.7% of the
offering. Journeylink is an internet-based company that will provide online
services to users of recreational vehicles. The Company's investment in
Journeylink will be accounted for under the cost method of accounting.
Subsequent to June 30, 1999, the Company also participated in the second round
funding of Durect Corporation ("Durect"), a pioneer in drug therapy treatments,
employing subcutaneous delivery technology and paid $250,000 for preferred stock
convertible into approximately 1% of Durect. The Company's investment in Durect
will be accounted for under the cost method of accounting.
(F) Reverse Stock Split
At a special meeting of stockholders held on March 18, 1999, a one-for-five
consolidation of the issued and outstanding common stock of the Company was
approved. The board of directors implemented the consolidation of the common
stock effective at the close of business on April 30, 1999. All common share
and per common share information included in the accompanying financial
statements has been retroactively restated to reflect the consolidation.
(G) Income (Loss) Per Common Share
Basic income (loss) per common share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during each period. Diluted earnings (loss) per common share are
similarly calculated, except that the weighted average number of common shares
outstanding includes common shares that may be issued subject to existing rights
with dilutive potential.
For the three and six months ended June 30, 1998, net loss attributable to
common shareholders includes a non-cash imputed dividend to preferred
shareholders related to the beneficial conversion feature on the 1998 Series A
Preferred Stock and related warrants that were then outstanding. The beneficial
conversion feature was computed as the difference between the market value of
the common stock into which the Series A Preferred Stock could be converted and
the value assigned to the Series A Preferred Stock in the private placement.
The imputed dividend was a one-time, non-cash charge and was amortized for the
period from the date of issuance of the 1998 Series A Preferred Stock through
the date 90 days later, when the securities were first convertible. All
outstanding shares of 1998 Series A Preferred Stock were subsequently redeemed
by the Company.
Basic and diluted income (loss) per common share were calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ----------------------------------
1999 1998 1999 1998
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Continuing operations:
Loss from continuing operations $ (953,274) $ (157,705) $ (1,201,183) $ (300,767)
Preferred dividends - (34,642) (25,414) (52,920)
Imputed dividend from beneficial
conversion feature - (592,105) - (1,239,290)
------------ ------------ ------------- ------------
Loss attributable to common shareholders $ (953,274) $ (784,452) $ (1,226,597) $ (1,592,977)
============ ============ ============= ============
Weighted average common and common
equivalent shares 2,838,624 2,509,209 2,751,304 2,489,855
============ ============ ============= ============
Loss per common share $ (0.33) $ (0.31) $ (0.44) $ (0.64)
============ ============ ============= ============
Discontinued operations:
Income (loss) attributable to common
shareholders $ 318,421 $ (592,178) $ 2,093,795 $ (1,495,113)
============ ============ ============= ============
Weighted average common and common
equivalent shares 2,838,624 2,509,209 2,751,304 2,489,855
============ ============ ============= ============
Income (loss) per common share $ 0.11 $ (0.24) $ 0.76 $ (0.60)
============ ============ ============= ============
Total operations:
Net income (loss) $ (634,853) $ (749,883) $ 892,612 $ (1,795,880)
============ ============ ============= ============
Preferred dividends - (34,642) (25,414) (52,920)
Imputed dividend from beneficial
conversion feature - (592,105) - (1,239,290)
------------ ------------ ------------- ------------
Net income (loss) attributable to common
shareholders $ (634,853) $ (1,376,630) $ 867,198 $ (3,088,090)
============ ============ ============= ============
Weighted average common and common
equivalent shares 2,838,624 2,509,209 2,751,304 2,489,855
============ ============ ============= ============
Income (loss) per common share $ (0.22) $ (0.55) $ 0.32 $ (1.24)
============ ============ ============= ============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes contained herein and in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and the audited consolidated financial statements
included in the Company's report on Form 10-K for the year ended December 31,
1998.
This report and other information made publicly available by the Company
from time to time may contain certain forward looking statements and other
information relating to the Company and its business that are based on the
beliefs of management of the Company and assumptions made concerning information
then currently available to management. Such statements reflect the views of
management of the Company at the time they are made and are not intended to be
accurate descriptions of the future. The discussion of future events, including
the business prospects of the Company, is subject to a number of risks and
assumptions, including the ability of the Company to identify purchasers and
negotiate the successful sale of its assets held for disposition, the ability of
the Company to identify potentially favorable uses for its cash position, the
ability of the Company to negotiate and complete investments, the success of the
entities in which the Company may invest (over which the Company will have no
control), the ability of the Company to attract the necessary capital to permit
it to take advantage of opportunities with which it is presented, and the
ability of the Company to generate sufficient revenue such that it can support
its current cost structure. Should one or more of these or other risks
materialize or if the underlying assumptions of management prove incorrect,
actual results of the Company may vary materially from those described in the
forward looking statements. The Company does not intend to update these forward
looking statements, except as may occur in the regular course of its periodic
reporting obligations.
RECENT EVENTS
As previously disclosed, the Company is now governed by a newly appointed
board of directors and executive management. Since April 21, 1999, the chief
executive officer, Mr. Landa, and the board of directors have reviewed the
historical operations of the Company, the status and advisability of pending
transactions, and the Company's research and development efforts. Mr. Landa and
the board have also reviewed a significant number of new business opportunities.
While much of what has happened to date has been in the nature of addressing
issues concerning the historical operations of the Company, some foward steps
have been taken.
The highlights of transactions to date are as follows:
The Company resolved all of its zoning and boundary issues and closed
its real estate sale to PCB Group, Inc., receiving gross proceeds in excess
of $1,350,000. A net gain of approximately $600,000 from that sale will be
recorded in the third quarter.
The Company reviewed the operations associated with its Jaguar
product, in particular the Jaguar teams' failure to perform in accordance
with their budget for June and the second quarter and determined to
reclassify the Jaguar operations as assets held for sale. Please see Note
C to the financial statements, which explains the accounting effects of
such action. The Company has terminated its distribution and development
agreements for its Jaguar products and is engaged in serious negotiations
for the sale of the Jaguar technology.
The Company completed a private placement of 250,000 shares of the
Company's common stock at $4.00 per share.
The Company undertook three minority participations: PayStation.com,
Inc. (see press release of July 7, 1999); journeylink.com inc. (see press
release of July 7, 1999); and Durect Corporation (see press release of
August 4, 1999).
The Company sold its remaining ANOMS technology for $200,000 and
possible additional payments based upon the buyers' future operations.
The Company terminated all development efforts with respect to
CrossCheck products and returned the CrossCheck technology to Brigham Young
University after an evaluation of the additional capital investment that
would be necessary to move the CrossCheck products forward balanced against
estimates of potential revenue and profits from these products.
While the Company had hoped to post a profit in the second quarter, the
failure to meet budget for Jaguar shipments in June and the accounting
requirement to record $717,328 as a non-cash compensation charge (required to be
recorded for the granting of stock options to attract Mr. Landa, the new board
of directors, and other advisors), resulted in a loss for the period.
RESULTS OF OPERATIONS
Comparison of Three Months Ended June 30, 1999 and 1998
Net Sales
The Company had no sales from continuing operations for the three and six
month periods ended June 30, 1999 and 1998. The Company does not expect
revenues from ongoing operations unless and until it acquires a majority
interest in an operating business.
Costs and Operating Expenses
Costs and operating expenses for the three months ended June 30, 1999, were
$961,233, compared to $200,892 for the three months ended June 30, 1998. The
increase in the costs is almost wholly attributable to the non-cash accounting
charge for options granted during the quarter.
Comparison of Six Months Ended June 30, 1999 and 1998
Net Sales
The Company did not have net sales from continuing operations for the six
months ended June 30, 1999 and 1998.
Costs and Operating Expenses
Costs and operating expenses for the six months ended June 30, 1999, were
$1,213,635, compared to $378,054 for the six months ended June 30, 1998. The
increased level in costs and operating expenses resulted from $717,328 in a non-
cash compensation charge associated with options granted during the period and
$157,860 in unusual charges, principally consisting of the termination benefit
paid to the former chief executive officer.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had total current assets of $3,987,030,
including cash and cash equivalents of $1,601,344. A significant portion of the
balance were net assets held for sale with a book value of $1,742,151. A
portion of these assets with a book value of approximately $750,000, has already
been sold for approximately $1,550,000. The ability of the Company to recognize
the book value of the remaining assets held for sale will depend on the
successful completion of pending negotiations with respect to the Jaguar
operations. The Company had total current liabilities of $127,753 at June 30,
1999, resulting in working capital of $3,859,277.
The Company's primary source of cash for the six months ended June 30,
1999, was the net cash provided by the sale of discontinued operations of
approximately $4.1 million.
The Company's primary uses of cash for the six months ended June 30, 1999,
were net cash used in operations of $993,547 and the $3,071,437 used to redeem
the Company's remaining 1998 Series A Preferred Stock.
Management believes that the current cash balances are more than sufficient
to meet the existing commitments of the Company for the fiscal year. However,
the Company anticipates that it will require additional equity and bank
financing to participate in opportunities identified by management from time to
time.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are included as part of this report:
<TABLE>
<CAPTION>
SEC
Exhibit Reference
Number Number Title of Document
------- --------- --------------------------------------------------
<S> <C> <C>
1 (10) Deferred Compensation Plan, effective May 1, 1999
2 (10) Executive Employment Agreement of Howard S. Landa,
effective April 22, 1999
3 (27) Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
During the quarter ended June 30, 1999, the Company filed a report on Form
8-K dated April 21, 1999, reporting the appointment of new officers and
directors. Subsequent to June 30, 1999, the Company filed a report on Form 8-K
reporting certain developments through July 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Sensar Corporation
Dated: August 16, 1999 By /s/ Howard S. Landa
Howard S. Landa, Chairman of the
Board (Chief Executive Officer and
Principal Financial and
Accounting Officer)
SENSAR CORPORATION
DEFERRED COMPENSATION PLAN
Adopted by the Board of Directors
Effective May 1, 1999
I. ESTABLISHMENT AND ADMINISTRATION OF PLAN
1.1 Establishment of Plan. Sensar Corporation, a Nevada corporation
("Sensar"), hereby establishes this SENSAR CORPORATION DEFERRED COMPENSATION
PLAN (the "Plan"), to be effective as of May 1, 1999 (the "Effective Date"), for
the purpose of establishing a pool of deferred compensation amounts (the
"Deferred Compensation Pool") to award certain individuals who contribute
significantly to the success of Sensar and the enhancement of shareholder value
(collectively, "Participants"), such Deferred Compensation Pool to be
distributed to the Participants within one hundred five (105) days after
December 31, 2002, or earlier if there is a Change of Control, as defined
herein, all on the terms and conditions of this Plan. The benefits provided
under this Plan are intended to be in addition to other employee benefit
programs or agreements with the Participants.
1.2 Applicability of ERISA. This Plan is intended to be a "top-hat" plan.
This Plan is an unfunded plan maintained primarily for the purpose of rewarding
individuals who contribute significantly to the success of Sensar and the
enhancement of shareholder value.
1.3 Administration of Plan. This Plan shall be administered by the Board
of Directors of Sensar; provided, however, that the Chairman of the Board of
Directors (the "Chairman") shall have sole authority to nominate Participants in
the Plan, as set forth below. Subject to compliance with applicable provisions
of governing law, the Board of Directors may delegate administration of the Plan
or specific administrative duties with respect to the Plan to such committees as
the Board of Directors deems proper. The Board of Directors or duly authorized
committee administering this Plan at any time is referred to herein as the
"Administrative Entity." The construction, interpretation and implementation of
this Plan by the Administrative Entity shall be final and binding on all
Participants absent a showing of demonstrable error. Neither the Chairman nor
any member of the Administrative Entity shall be liable for any action taken or
not taken under this Plan. Neither the Chairman nor any member of the
Administrative Entity shall be liable for any determination made in good faith
with respect to this Plan.
1.4 Designation of Participants. Participation in this Plan shall be made
available to a select group of individuals, who may or may not be employees of
Sensar. Howard S. Landa, the Chairman, shall be a Participant with a
participating percentage (the "Participating Percentage") in this Plan of thirty
percent (30%). From time to time until the Deferred Compensation Pool is
distributed, the Chairman may nominate other Participants in this Plan, and
shall recommend the Participating Percentage of each Participant; provided that,
Mr. Landa shall not designate a Participant who is a member of his immediate
family. The designation of Participants and the Participating Percentage of
each Participant (other than the Participating Percentage held by Mr. Landa)
shall be subject to review and approval by the Administrative Entity. The
determination as to the eligibility of any individual to participate in this
Plan shall be in the sole and absolute discretion of the Chairman and the
Administrative Entity, which decision shall be conclusive and binding for all
purposes hereunder. The Chairman may reduce his Participating Percentage in
order to allocate it to another Participant, including an immediate family
member. In the event that the Chairman has not designated Participants to the
extent of one hundred percent (100%) of the Deferred Compensation Pool, any
amounts not designated shall be the property of Sensar and Sensar shall have no
obligation to distribute such amounts.
1.5 No Right to Corporate Assets; Nonalienation of Benefits. This Plan is
unfunded and Sensar and all companies controlling, controlled by and under
common control with Sensar ("Affiliates") will not be required to set aside,
segregate, or deposit any funds or assets of any kind to meet the obligations of
Sensar hereunder. Nothing in this Plan will give a Participant or any other
person any equity or other interest in the assets of Sensar or any of its
Affiliates, or create a trust of any kind or a fiduciary relationship of any
kind between Sensar or any of its Affiliates on the one hand and any Participant
or any such other person on the other. To the extent that any person acquires a
right to receive distributions hereunder, such right shall be no greater than
the right of any unsecured general creditor of Sensar and may not be assigned,
sold, anticipated, pledged or otherwise transferred by Participant except by
will or by the laws of descent and distribution, and shall not be subject to any
claims of a Participant, a Participant's spouse, their respective creditors, or
their respective successors or assigns. The foregoing sentence shall not
relieve Sensar of its obligations to pay and distribute the Deferred
Compensation Pool when and to the extent distributable pursuant to this
Agreement.
1.6 Limitation on Rights Created by Plan. Nothing in this Plan will give
a Participant any right to continue as an officer, employee, consultant, or in
any other capacity of or with Sensar, or any of its Affiliates.
1.7 Binding Effect of Plan. This Plan will be binding upon and inure to
the benefit of the Participants individually and will be binding upon and inure
to the benefit of Sensar and its assigns and successors in interest.
1.8 Severability. In the event that any provision of this Plan shall be
declared illegal or invalid for any reason, said illegality or invalidity shall
not affect the remaining provisions of this Plan but shall be fully severable
and this Plan shall be construed and enforced as if said illegal or invalid
provision had never been inserted herein.
1.9 Interpretation. This Plan will be construed, enforced and
administered according to the laws of the state of Utah, except to the extent
superseded by federal laws.
II. DEFERRED COMPENSATION POOL
2.1 Schedule of Deferred Compensation Pool. The Administrative Entity
shall maintain a Schedule of Deferred Compensation Pool (the "Schedule"). The
Schedule shall be maintained on the records of Sensar only to reflect the
amounts to be credited to the Deferred Compensation Pool in accordance with this
Plan and shall be for notational purposes only. Until the date of distribution,
the amount of the Deferred Compensation Pool set forth on the Schedule shall be
entirely the property of Sensar and its Affiliates and shall be available to
Sensar and its Affiliates from time to time for the payment of their debts,
liabilities and commitments generally.
2.2 Deferred Compensation Pool Amounts. Subject to the other provisions
of this Plan, amounts shall be credited to the Deferred Compensation Pool and
set forth on the Schedule in accordance with the terms of this Section. For
purposes hereof, the "Measurement Date" shall be the earlier of December 31,
2002, or the date of effectiveness of a Change of Control requiring distribution
of the Deferred Compensation Pool pursuant to Section 3.2.
(a) Net Income. The Deferred Compensation Pool shall be increased by
a percentage of Sensar's cumulative net income before income taxes between
March 31, 1999, and the Measurement Date, as follows:
Amount of Net Income %
----------------------------- -----
Greater than Less than
$0 $2 million 0%
$2 million $5 million 3%
$5 million $10 million 4%
$10 million $20 million 5%
$20 million 71/2%
For purposes hereof, net income before income taxes shall be determined on
the same basis used to prepare the financial statements of Sensar, all in
accordance with generally accepted accounting principles, consistently
applied; provided that, such net income shall not include any income
recognized on the sale of the ANOMS, Jaguar, or CrossCheck Technologies nor
include any loss, charge, or reserve for options granted after April 15,
1999, with respect to any claims or disputes based on matters occurring
prior to April 21, 1999, or established with respect to potential
distributions to Participants under the terms of this Plan.
(b) Unrealized Appreciation of Investments. For purposes of
calculating the amount to be credited to the Deferred Compensation Pool as
set forth in subsection (a), net income before taxes shall be increased by
an amount equal to seventy-five percent (75%) of the net unrealized gain on
marketable securities held by Sensar, valued as of the Measurement Date;
provided that, only securities that are publicly held and traded and quoted
on a registered national securities exchange or the Nasdaq Stock Market
shall be included in such calculation. Net unrealized gain shall mean the
increase in the value of the marketable securities held by Sensar offset by
any decreases in such securities, as measured by the average of the trading
price of such securities for twenty (20) trading days preceding the
Measurement Date compared to the acquisition price of such security,
appropriately adjusted for any stock splits, consolidations, or other
recapitalizations. Notwithstanding the foregoing, the Deferred
Compensation Pool shall not be reduced in the event the unrealized losses
on the marketable securities exceed the unrealized gains. In no event
shall the Deferred Compensation Pool be increased by a combined amount
greater than $25,000,000 pursuant to subparagraphs (a) and (b).
(c) Increase in Market Capitalization. The Deferred Compensation
Pool shall be increased by an amount equal to seven and one-half percent
(71/2%) of the increase in Sensar's market capitalization between the
Effective Date and the Measurement Date that is in excess, on a percentage
basis, of one hundred fifty percent (150%) of any increase in the Russell
2000 Index for such period. For purposes of this calculation, the market
capitalization of Sensar at the Effective Date shall be deemed to be
$13,392,562 ($5.00 per share). The market capitalization of Sensar as of
the Measurement Date shall be reduced by the amount, as reflected on the
financial statements of Sensar, of paid-in capital and additional paid-in
capital recorded for the issuance of securities of Sensar for cash or for
the acquisition of assets or properties between the Effective Date and the
Measurement Date. Notwithstanding the foregoing, the Deferred Compensation
Pool shall not be increased by an amount greater than $50,000,000 pursuant
to this subparagraph (c).
2.3 Interest. Interest will not be credited to the Deferred Compensation
Pool or included on the Schedule.
III. PAYMENTS AND DISTRIBUTIONS
3.1 Distribution of Deferred Compensation Pool on Distribution Date.
Within 105 days following December 31, 2002, or within 45 days following a
Change of Control, as defined in Section 3.2, distributions of the Deferred
Compensation Pool shall be made to Participants according to their allocated
Participating Percentage in the manner set forth in this Article III.
3.2 Distribution of Deferred Compensation Pool on Change of Control. In
the event of a Change of Control, distribution of the Deferred Compensation Pool
shall be made to Participants according to their Participating Percentage;
provided, however, that if the Deferred Compensation Pool is then less than
$5,000,000, it shall be deemed to be increased to $5,000,000 for purposes of
calculating the distributions. For purposes hereof, a Change of Control shall
mean any of the following: (i) the sale, lease, exchange, or other transfer in
one transaction or a series of transactions of all or substantially all of the
assets of Sensar to a single purchaser that is not a wholly owned subsidiary of
Sensar; (ii) the sale, lease, exchange, or other disposition to a single person
or group of persons under common control in one transaction or a series of
related transactions resulting in such person or persons owning, directly or
indirectly, greater than twenty-five percent (25%) of the combined voting power
of Sensar's then outstanding voting securities entitled to vote generally; (iii)
as a result of a merger, consolidation, sale of all or substantially all of the
assets of Sensar, a contested election, or any combination of the foregoing, the
persons who were directors of Sensar immediately prior thereto shall cease to
constitute a majority of the board of directors of Sensar or any successor to
Sensar; (iv) the decision by Sensar to terminate its business and liquidate its
assets; (v) the merger or consolidation of Sensar in a transaction in which the
shareholders of Sensar immediately prior to such merger or consolidation receive
less than fifty percent (50%) of the outstanding voting securities of the new or
continuing corporation; or (vi) any person, entity or group of persons, within
the meaning of Section 3(a)(9) or Section 13(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), or any comparable successor provisions, shall
become the beneficial owner, within the meaning of Rule 13d-3 of the Exchange
Act, of twenty-five percent (25%) or more of either the outstanding shares of
common stock of Sensar or the combined voting power of Sensar's then outstanding
voting securities entitled to vote generally.
3.3 Method of Distribution. The Deferred Compensation Pool shall be
distributed to each Participant in an amount equal to such Participant's
Participating Percentage multiplied by the Deferred Compensation Pool at the
Measurement Date, all in accordance with the following:
(a) The Deferred Compensation Pool shall be paid to the Participants
in a lump sum cash payment.
(b) Notwithstanding the foregoing, if Sensar has received all
necessary shareholder approval of this Plan required by state or federal
securities laws or the corporate governance rules of the national
securities exchange or the Nasdaq Stock Market on which the common stock of
Sensar is then listed and Sensar has obtained the effectiveness of a
registration statement permitting the immediate sale without restriction by
the Participants, Sensar can pay a portion of the amounts due to
Participants as follows:
(i) At the election of the Administrative Entity, up to thirty
percent (30%) of the Deferred Compensation Pool may be paid in common
stock of Sensar, such shares to be valued at the average closing price
for Sensar's common stock on a registered national securities exchange
or, if not listed on such exchange, the Nasdaq Stock Market over the
twenty (20) trading day period immediately preceding the Measurement
Date; or
(ii) To the extent that Sensar does not have cash and cash
equivalents available for distribution of the Deferred Compensation
Pool in excess of a reasonable reserve for its working capital needs
as determined in good faith by the Board of Directors, based on the
historical needs of Sensar, the amount necessary to maintain such a
reasonable working capital reserve can be paid by delivery of shares
of common stock.
(c) In the event that it delivers common stock to Participants,
Sensar shall use commercially reasonable best efforts to maintain the
effectiveness of the registration statement until the resale of such shares
is no longer required to be registered by reason of Rule 144(h) under the
Securities Act.
3.4 Hardship Distributions from Deferred Compensation Accounts. If a
designated Participant is the subject of an Unforeseeable Emergency which would
result in severe financial hardship to such Participant, then, to the extent
such Participant's Participating Percentage has been determined, the
Administrative Entity may, in its sole discretion, cause to be distributed a
portion or all of such Participant's allocable part of the Deferred Compensation
Pool, as set forth on the Schedule at such time. The Administrative Entity must
approve the payment in respect of any distribution. No payment shall be made to
the extent that a hardship may be relieved (i) through reimbursement or
compensation by insurance or otherwise, or (ii) by liquidation of such
Participant's assets, to the extent the liquidation of such assets would not
itself cause severe financial hardship. No payment shall be made in excess of
the amount reasonably required to satisfy the Unforeseeable Emergency,
determined with regard to any Federal or state income tax payable with respect
to any distribution. For purposes of this section, "Unforeseeable Emergency"
means severe financial hardship to a Participant resulting from a sudden illness
or accident of such Participant or of a dependent of such Participant, loss of
such Participant's property due to a casualty, or other similar extraordinary
or unforeseeable circumstance arising as a result of events beyond the control
of such Participant.
3.5 Distribution to Beneficiary. A Participant may designate a
beneficiary to receive the deferred compensation hereunder in the event of the
Participant's death prior to the Distribution Date. In the event a beneficiary
is not designated then rights under this Plan may pass according to the laws of
descent and distribution.
3.6 Termination of Rights. If a Participant is the perpetrator of a
fraud, a theft, or an embezzlement from or with respect to either Sensar or an
Affiliate, the Administrative Entity may suspend, reduce, terminate, or
otherwise alter any participation or payment of the Participant's distribution.
3.7 Receipt and Release for Payments. Any payment to a Participant or any
beneficiary shall, to the extent thereof, be in full satisfaction of any claim
hereunder against Sensar. Sensar may require the Participant or beneficiary, as
a condition precedent to such payment, to execute a receipt and release thereof
in such form as shall be determined by Sensar.
3.8 Withholding. All amounts payable hereunder shall be reduced by any
and all federal, state and local taxes imposed upon the Participant which are
required to be paid or withheld by Sensar. Sensar may withhold any amounts it
deems appropriate with respect to the payment of any distribution pursuant to
this Plan for the purpose of satisfying the obligations of Sensar and its
Affiliates with respect to the payment of any amounts due appropriate
authorities with respect to said distributions.
3.9 Right of Setoff. Sensar shall have the right to setoff against any
distributions made to any Participant pursuant to this Plan any amounts owed to
Sensar or any of its Affiliates by any Participant.
IV. AMENDMENT AND TERMINATION
4.1 Amendment. The Board of Directors of Sensar may, without the consent
of any Participant or any other person, amend the Plan; provided, however, that
no amendment will change the Participating Percentage of any Participant
designated prior to the amendment or negatively affect the rights of any such
Participant under this Plan.
4.2 Termination. The Board of Directors of Sensar may terminate this Plan
at any time in its sole discretion. Upon termination of the Plan, Sensar shall
be required to distribute to the Participants an aggregate amount equal to the
greater of $5,000,000 or the amount reflected on the Schedule setting forth the
Deferred Compensation Pool (treating the date of termination of the Plan as the
Measurement Date).
IN WITNESS WHEREOF, this Sensar Corporation Deferred Compensation Plan has
been executed to take effect on May 1, 1999.
SENSAR CORPORATION
By /s/ Howard S. Landa
Howard S. Landa, Chairman of the
Board
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into effective as of April 22, 1999, by and between SENSAR CORPORATION, a Nevada
corporation ("Sensar"), and HOWARD S. LANDA ("Executive"), based on the
following:
Premises
Sensar wishes to employ Executive and Executive wishes to accept employment
on the terms set forth herein.
Agreement
NOW, THEREFORE, based on the foregoing premises, which are incorporated
herein by this reference, and for and in consideration of the mutual covenants
and agreements hereinafter set forth and the mutual benefit to the parties to be
derived herefrom, it is hereby agreed as follows:
1. Employment and Term.
(a) Sensar hereby employs Executive and Executive hereby accepts
employment upon the terms and conditions set forth herein. The initial
term of Executive's employment shall begin on April 22, 1999, and continue
through December 31, 2002. After December 31, 2001, this Agreement shall
be automatically renewed so that it always has an unexpired term of one (1)
year, unless action is taken by one of the parties to terminate this
Agreement in accordance with the other provisions of this Agreement. The
initial term, plus the automatic extension, is hereinafter referred to as
the "Employment Period."
(b) During the Employment Period, Executive will serve as chief
executive officer of Sensar. Executive also agrees to serve in such
positions with each of Sensar's subsidiaries and such other or further
offices or positions of substantially consistent rank and authority as
shall, from time to time, be determined by Sensar's board of directors.
Executive agrees to perform the duties appropriate for the chief executive
officer of Sensar as may be assigned to him from time to time by the board
of directors and as described in the bylaws of Sensar. Executive shall
serve at the pleasure of the board of directors, subject to the terms of
this Agreement.
2. Performance of Services.
(a) During the Employment Period, Executive agrees to perform
faithfully the duties assigned to him by the board of directors to the best
of his ability, to devote his full and undivided business time, attention,
and services to the business of Sensar and not to engage in any other
substantial business activities other than at the direction or with the
approval of the board of directors of Sensar; provided, however, that
Executive shall remain "of counsel" with the firm Kruse, Landa & Maycock,
L.L.C., and will render services to the firm in his capacity as such; and
provided further, that nothing herein shall restrict Executive from
conducting incidental personal business that does not conflict with his
obligations under the terms of this Agreement. It is also understood that
Kruse, Landa & Maycock, L.L.C., will continue to provide legal services to
Sensar and its affiliates under an arrangement pursuant to which Executive
has negotiated an initial ten percent (10%) discount with respect to such
services.
(b) All duties hereunder shall be rendered in Salt Lake County, Utah,
and, on a temporary basis, at such other places as the interests, needs,
business, and opportunities of Sensar shall require.
(c) Executive shall observe and comply with the commercially
reasonable rules and regulations of Sensar respecting its business and
shall carry out and perform such commercially reasonable orders,
directions, and policies of Sensar as they may be from time to time
communicated to Executive either orally or in writing. Executive shall
further observe and comply with all applicable rules, regulations, and laws
governing the business of Sensar known to Executive.
3. Exclusivity of Services and Nondisclosure of Confidential Information.
(a) Executive agrees that during the term of this Agreement and for a
period ending on the first anniversary of the termination of the Employment
Period:
(i) he will not engage in any activity directly competitive with
an operating business of Sensar or any of its majority-owned
subsidiaries (the "Sensar Group"), directly or indirectly, in the
market defined in subsection 3(c), whether as employer, proprietary
owner, partner, stockholder (other than the holder of less than five
percent (5%) of the stock of an entity, the securities of which are
traded on a national securities exchange or in the over-the-counter
market), director, officer, employee, consultant, or agent;
(ii) he will not solicit, in competition with the Sensar Group,
any person who is a customer of the operating businesses conducted by
the Sensar Group at the date hereof or a customer of the operating
businesses conducted by the Sensar Group at any time during the
Employment Period; and
(iii) he will not induce or attempt to persuade any employee
of the Sensar Group to terminate his or her employment relationship in
order to enter into employment with any party in competition with the
Sensar Group.
(b) Executive further agrees that he will not, at any time during the
Employment Period or at any time after the termination of this Agreement,
irrespective of the time, manner, or cause of termination, use, disclose,
copy, or assist any other person or firm in the use, disclosure, or copying
of any trade secrets or other confidential information of the Sensar Group,
except to the extent authorized in writing by Sensar. Upon termination of
his employment hereunder, Executive will surrender to Sensar all records
and other documents obtained by him or entrusted to him during the course
of his employment by Sensar (together with all copies thereof); provided,
however, that Executive may retain copies of such documents as are
necessary for Executive's personal records for income tax purposes. For
purposes of this section 3, proprietary information about the business of
the Sensar Group shall be treated as confidential until it has been
published or is generally or publicly known outside the Sensar Group or
until it has been recognized as standard practice outside the Sensar Group.
The provisions of this paragraph 3(b) shall remain in effect for a period
of three (3) years subsequent to the termination of the Employment Period.
(c) The following provisions shall apply to the covenants of
Executive contained in this section 3:
(i) The covenants contained in clauses (i) and (ii) of
subsection 3(a) shall apply to those markets in which the Sensar Group
is doing business at the termination of the Employment Period and
those markets in which the Sensar Group has publicly or internally
issued written plans to enter prior to the termination of the
Employment Period.
(ii) Executive agrees that a breach or threatened breach on his
part of any covenant contained in this section 3 will cause such
damage to Sensar as will be irreparable. Therefore, without limiting
the right of Sensar to pursue all other legal and equitable remedies
available for violation by Executive of the covenants contained in
this section 3, it is expressly agreed that remedies other than
injunctive relief cannot fully compensate the Sensar Group for such a
violation and that Sensar and the Sensar Group shall be entitled to
injunctive relief to prevent any such violation or continuing
violation thereof.
(iii) It is the intent and understanding of each party hereto
that if, in any action before any court or agency legally empowered to
enforce the covenants contained in this section 3, any term,
restriction, covenant, or promise contained therein is found to be
unreasonable and for that reason unenforceable, then such term,
restriction, covenant, or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
4. Business Ideas.
(a) Executive acknowledges that Sensar will own all rights in all
"Business Ideas" (as hereinafter defined) which are originated or developed
by Executive, either alone or with employees or consultants of Sensar,
during the Employment Period.
(b) Executive agrees that, during the Employment Period, he will:
(i) assign to Sensar all Business Ideas and promptly execute all
documents which Sensar may reasonably require to protect its patent,
copyright, and other rights to such Business Ideas throughout the
world; and
(ii) promptly disclose to Sensar all information concerning all
material Business Ideas originated by Executive or any employee of
Sensar, which come to his attention and which concern the business of
Sensar.
(c) For purposes of this section 4, "Business Ideas" shall mean all
ideas, whether or not patentable, which are originated or developed by
Executive in connection with his employment by Sensar and which relate to
the business of Sensar and/or the Sensar Group.
5. Corporate Opportunities. Executive understands that Sensar is
presently seeking to identify, investigate, and, if appropriate, make
investments in or provide funding to start-up companies (a "Corporate
Opportunity"). Executive acknowledges that Sensar will own all rights to pursue
such Corporate Opportunities which he may become aware of during the term of
this Agreement. In the event Executive identifies an entity or business that
may reasonably present a Corporate Opportunity to Sensar, Executive will
immediately notify Sensar. If Executive wishes to pursue such Corporate
Opportunity, either individually or through any entity other than Sensar, he
must notify the board of directors of Sensar of such desire. The board of
directors will have 15 days to evaluate the Corporate Opportunity. If the board
of directors determines that the Corporate Opportunity would not be a suitable
investment for Sensar, they shall so notify Executive in writing. Absent such
written consent, Executive may not pursue the Corporate Opportunity.
6. Compensation and Benefits. For all services rendered by Executive
pursuant to this Agreement, Sensar shall compensate Executive as follows:
(a) As annual compensation for Executive's services hereunder, in
accordance with its normal payroll practices, Sensar agrees to pay
Executive during the Employment Period a base salary of Eight Thousand
Dollars ($8,000.00) per month.
(b) Executive shall be entitled to receive a thirty percent (30%)
participating interest in the Deferred Compensation Plan adopted by the
board of directors of Sensar. In addition, Executive may participate in
such other bonuses and incentive compensation as the board of directors may
determine.
(c) Sensar shall grant to Executive a stock option for 100,000 shares
as set forth on Exhibit "A."
(d) Sensar shall provide to Executive suitable executive offices and
facilities appropriate for Executive's position and suitable for the
performance of Executive's responsibilities.
(e) Executive shall be entitled to vacation and sick leave in
accordance with the general policy of the Sensar Group for executive level
employees. Vacations shall be taken by Executive at a time and with
starting and ending dates mutually convenient to Sensar and Executive.
Vacations or portions of vacations not used in one employment year shall
carry over to the succeeding employment year, but shall thereafter expire
if not used within such succeeding year.
(f) Sensar shall reimburse Executive for all proper expenses incurred
by him on behalf of the Company in the performance of his duties hereunder
in accordance with the policies and procedures established by Sensar.
(g) Subject to the insurability of Executive, Sensar shall provide
Executive with health, medical, and disability insurance policies on the
same terms as offered to other executive level employees of Sensar. Sensar
shall additionally provide to Executive incentive, retirement, pension,
profit sharing, stock option, or other employee benefit plans which are
consistent with and similar to such plans provided by the Sensar Group to
its executive level employees generally. Executive shall also have the
right to participate in any other employee benefit programs provided by the
Sensar Group.
(h) Sensar shall assume and pay reasonable dues of Executive in
local, state, and national societies and associations, and in such other
clubs and organizations, as shall be approved and authorized by the board
of directors of Sensar.
(i) Sensar shall withhold from Executive's compensation hereunder all
proper federal and state payroll and income taxes on compensation paid to
Executive and shall provide an accounting to Executive for such amounts
withheld.
7. Nomination to Board of Directors. Executive shall be appointed to
serve on the board of directors of Sensar until the next annual meeting of
shareholders. Sensar shall include Executive as a nominee of the Company to be
presented to the shareholders for election to a position on the board of
directors at the next annual meeting of shareholders and shall recommend his
approval by the shareholders.
8. Termination of Agreement.
(a) Termination by Sensar for Cause. Sensar shall have the right,
without further obligation to Executive other than for compensation
previously accrued, including Executive's rights under the Deferred
Compensation Plan, to terminate this Agreement for cause ("Cause") by
showing that (i) Executive has materially breached the terms hereof; (ii)
Executive, in the reasonable determination of the board of directors of
Sensar, has been grossly negligent or engaged in material willful or gross
misconduct in the performance of his duties; or (iii) Executive has
committed or been convicted of fraud, embezzlement, theft, or dishonesty or
other criminal conduct against Sensar.
(b) Termination Upon Death or Disability of Executive. This
Agreement shall terminate immediately upon Executive's death, subject to
the payment of Executive's base salary for a ninety (90) day period after
death. This Agreement shall also terminate on the continued disability of
Executive for a consecutive period of ninety (90) days. For purposes of
this paragraph "disability" shall be defined as the inability of Executive
to substantially perform his duties as president, chief executive officer,
and a member of the board of directors of Sensar.
(c) Termination Upon Change of Control. Notwithstanding any
provision of this Agreement to the contrary, Executive may terminate this
Agreement by providing written notice of such termination to Sensar within
sixty days (60) days of the occurrence of any of the following events:
(i) The sale, lease, exchange, or other transfer in one
transaction or a series of transactions of all or substantially all of
the assets of Sensar to a single purchaser that is not a wholly owned
subsidiary of Sensar or to a group of associated purchasers;
(ii) The sale, lease, exchange, or other disposition to a single
person or group of persons under common control in one transaction or
a series of related transactions resulting in such person or persons
owning, directly or indirectly, greater than twenty-five percent (25%)
of the combined voting power of the outstanding shares of Sensar's
common stock;
(iii) As a result of a merger, consolidation, sale of all or
substantially all of the assets of Sensar, a contested election, or
any combination of the foregoing, the persons who were directors of
Sensar immediately prior thereto shall cease to constitute a majority
of the board of directors of Sensar or any successor to Sensar;
(iv) The decision by Sensar to terminate its business and
liquidate its assets;
(v) The merger or consolidation of Sensar in a transaction in
which the shareholders of Sensar immediately prior to such merger or
consolidation receive less than fifty percent (50%) of the outstanding
voting securities of the new or continuing corporation; or
(vi) A person (within the meaning of Section 3(a)(9) or Section
13(d)(3), as in effect on the date hereof, of the Securities Exchange
Act of 1934 (the "Exchange Act")) shall become the beneficial owner
(within the meaning of rule 13d-3 of the Exchange Act as in effect on
the date hereof) of fifty percent (50%) or more of the outstanding
voting securities of Sensar.
If, as a result of one of the foregoing events, Sensar is not the
surviving entity, the provisions of this Agreement shall inure to the
benefit of and be binding upon the surviving or resulting entity. If as a
result of the merger, consolidation, transfer of assets, or other event
listed above, the duties of Executive are increased, then the compensation
of Executive provided for by this Agreement shall be reasonably adjusted
upward to compensate for the additional duties and responsibilities
assumed.
(d) Termination by Executive for Cause. Executive shall have the
right to terminate this Agreement in the event of (i) Sensar's intentional
breach of any covenant or term of this Agreement, but only if Sensar fails
to cure such breach within twenty (20) days following the receipt of notice
by Executive setting forth the conditions giving rise to such breach; or
(ii) the exercise of Executive's rights under subsection 8(c).
(e) Termination Payments. In the event that this Agreement is
terminated for any reason other than by Sensar for Cause, Sensar shall:
(1) Pay to Executive all amounts accrued through the date of
termination; any unreimbursed expenses incurred pursuant to this
Agreement; the participating percentage of Executive under the
Deferred Compensation Plan (provided that, such amount to be paid to
Executive shall not be less than One Million Five Hundred Thousand
Dollars ($1,500,000.00)); and any other benefits specifically provided
to Executive under any benefit plan.
(2) Pay to Executive an amount equal to the greater of (i) the
amount of salary that would otherwise accrue to Executive during the
remaining Employment Period, or (ii) the amount of Executive's base
salary for a one-year period.
(f) Exit Interview. To insure a clear understanding of this
Agreement, including but not limited to the protection of the business
interests of Sensar, Executive agrees, upon termination of this Agreement
for any reason or the expiration of the Employment Period, at no additional
expense to Executive, to engage in an exit interview with Sensar at a time
and place designated by Sensar.
9. Indemnification. Sensar shall indemnify Executive and hold Executive
harmless from liability for acts or decisions made by Executive while performing
services for Sensar to the greatest extent permitted by applicable law, except
for acts that constitute fraud, gross negligence, or willful and knowing
violations of the terms of this Agreement. Sensar shall use its best efforts to
obtain coverage for Executive under any insurance policy now in force or
hereafter obtained during the term of this Agreement insuring officers and
directors of Sensar against such liability. Executive agrees to indemnify and
to hold Sensar harmless from any and all damages, losses, claims, liabilities,
costs, or expenses arising from Executive's acts or omissions in violation of
his duties under this Agreement.
10. Notice. Any notice or request required or permitted to be given
hereunder shall be sufficient if in writing and delivered personally, sent by
facsimile transmission, or sent by registered mail, return receipt requested, to
the addresses hereinabove set forth or to any other address designated by either
of the parties hereto by notice similarly given. Such notice shall be deemed to
have been given upon such personal delivery, facsimile transmission, or mailing,
as the case may be, to the addresses set forth below:
If to Executive, to: Howard S. Landa
6053 South 2300 East
Salt Lake City, Utah 84121
Fax: (801) 277-7091
Confirmation: (801) 277-7054
If to Sensar, to: Sensar Corporation
50 West Broadway, Suite 501
Salt Lake City, Utah 84101
Fax: (801) 350-0825
Confirmation: (801) 350-0587
With a copy to: Keith L. Pope, Esq.
Kruse, Landa & Maycock, L.L.C.
50 West Broadway
Salt Lake City, Utah 84101
Fax: (801) 531-7091
Confirmation: (801) 531-7090
11. Assignment. Except to any successor or assignee of Sensar as provided
in subsection 8(c), neither this Agreement nor any rights or benefits hereunder
may be assigned by either party hereto without the prior written consent of the
other party.
12. Attorneys' Fees. In the event that any action, suit, arbitration, or
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall be entitled to recover all of such party's costs,
including reasonable attorneys' fees, incurred in each and every such action,
suit, arbitration, or other proceeding, including any and all appeals or
petitions therefrom.
13. Validity of Provisions and Severability. If any provision of this
Agreement is, or becomes, or is deemed invalid, illegal, or unenforceable in any
jurisdiction, such provision shall be deemed amended to conform to the
applicable jurisdiction, or if it cannot be so amended without materially
altering the intention of the parties, it will be stricken. However, the
validity, legality, and enforceability of any such provisions shall not in any
way be effected or impaired thereby in any other jurisdiction and the remainder
of this Agreement shall remain in full force and effect.
14. Entire Agreement. This Agreement constitutes the entire agreement and
understanding between the parties pertaining to the subject matter of this
Agreement. This Agreement supersedes all prior agreements, if any, any
understandings, negotiations, and discussions, whether oral or written. No
supplement, modification, waiver, or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby.
15. Governing Law. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
IN WITNESS WHEREOF, Sensar has caused this Agreement to be signed by its
duly authorized officer and Executive has signed this Agreement as of the date
first above written.
Sensar:
SENSAR CORPORATION
By /s/ Howard S. Landa
Duly Authorized Officer
Executive:
/s/ Howard S. Landa
Howard S. Landa
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999, AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,601,344
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,987,030
<PP&E> 8,917
<DEPRECIATION> 2,794
<TOTAL-ASSETS> 4,143,153
<CURRENT-LIABILITIES> 127,753
<BONDS> 0
<COMMON> 2,911
0
0
<OTHER-SE> 3,812,489
<TOTAL-LIABILITY-AND-EQUITY> 4,143,153
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 961,233
<OTHER-EXPENSES> 21,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (953,274)
<INCOME-TAX> 0
<INCOME-CONTINUING> (953,274)
<DISCONTINUED> 318,421
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (634,853)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
