<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 31, 1997
FILE NO. 333-11653
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
Amendment No. 2
to
Form SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------
IFS INTERNATIONAL, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Delaware 5045 13-3393646
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
Rensselaer Technology Park
185 Jordan Road
Troy, New York 12180
(518) 283-7900
(Address and telephone number of principal executive offices)
------
Rensselaer Technology Park
185 Jordan Road
Troy, New York 12180
(Address of principal place of business or
intended principal place of business)
FRANK A. PASCUITO, Chief Executive Officer
IFS International, Inc.
Rensselaer Technology Park
185 Jordan Road
Troy, New York 12180
(518) 283-7900
(Name, address and telephone number of agent for service)
------
Copies to:
MICHAEL D. DIGIOVANNA, Esq. JAMES MARTIN KAPLAN, Esq.
PARKER DURYEE ROSOFF & HAFT ZIMET, HAINES, FRIEDMAN & KAPLAN
529 Fifth Avenue 460 Park Avenue
New York, New York 10017 New York, New York 10022
(212) 599-0500 (212) 486-1700
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine. sion, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
maximum maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered per unit(1) offering price(1) fee
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Convertible Preferred
Stock, $.001 par value(2) .... 1,380,000shs. $5.00 $6,900,000 $2,090.91
- -----------------------------------------------------------------------------------------------
Redeemable Series A Convertible
Preferred Stock Purchase
Warrants(3) .................. 1,955,000wts. $0.10 $195,500 $59.24
- -----------------------------------------------------------------------------------------------
Series A Convertible Preferred
Stock, $.001 par value(4) .... 1,955,000shs. $6.25 $12,218,750 $3,702.65
- -----------------------------------------------------------------------------------------------
Underwriter's Warrants ........ 290,000wts. $0.001 $290 (5)
- -----------------------------------------------------------------------------------------------
Series A Convertible Preferred
Stock, $.001 par value(6) .... 120,000shs. $6.25 $750,000 $227.28
- -----------------------------------------------------------------------------------------------
Redeemable Series A Convertible
Preferred Stock Purchase
Warrants(6) .................. 170,000wts. $0.125 $21,250 $6.44
- -----------------------------------------------------------------------------------------------
Series A Convertible Preferred
Stock, $.001 par value(7) .... 170,000shs. $7.8125 $1,328,125 $402.47
- -----------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(8) ..................... 3,625,000shs. -- -- (9)
- -----------------------------------------------------------------------------------------------
Common Stock, $.001 par
value(10) .................... 100,000shs. $2.50 $250,000 $75.76
- -----------------------------------------------------------------------------------------------
Total Registration Fee ........................................................ $6,564.75(11)
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) Includes 180,000 shares of Series A Convertible Preferred Stock issuable
pursuant to the Underwriter's over allotment option.
(3) Includes 255,000 Redeemable Series A Convertible Preferred Stock
Purchase Warrants issuable pursuant to the Underwriter's over allotment
option.
(4) Represents Series A Convertible Preferred Stock reserved for issuance
upon the exercise of the Redeemable Series A Convertible Preferred Stock
Purchase Warrants.
(5) Pursuant to Rule 457(g), no fee is paid for the registration of such
securities.
(6) Issuable upon exercise of the Underwriter's Warrants.
(7) Represents Series A Convertible Preferred Stock issuable upon exercise
of the warrants issuable upon exercise of the Underwriter's warrants.
(8) Represents the aggregate shares of Common Stock into which the Series A
Convertible Preferred Stock, including the Series A Convertible
Preferred Stock issuable upon exercise of the Redeemable Series A
Convertible Stock Purchase Warrants, is convertible.
(9) Pursuant to Rule 457(i), no fee is paid for the registration of such
securities.
(10) Represents shares of Common Stock being sold by the Selling Stockholders
named herein upon exercise of outstanding warrants.
(11) $6,456.20 has been previously paid.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 31, 1997
1,200,000 SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
1,700,000 REDEEMABLE SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE WARRANTS
IFS INTERNATIONAL, INC.
IFS International, Inc. (the "Company") is offering hereby 1,200,000
shares of its Series A Convertible Preferred Stock (the "Preferred Stock")
and 1,700,000 Redeemable Series A Convertible Preferred Stock Purchase
Warrants (the "Warrants"). The Preferred Stock and Warrants may be purchased
separately and shall be separately transferable immediately upon issuance.
Each share of Preferred Stock is convertible, at the option of the holder,
into one share of Common Stock, subject to adjustment, for a period of five
years commencing on the date hereof; provided that the Preferred Stock must
be converted into Common Stock upon the earlier of the fifth anniversary of
the date hereof or the occurrence of certain events. Each Warrant entitles
the registered holder thereof to purchase one share of Preferred Stock at a
price of $6.25 per share, subject to adjustment, for a period of three years
commencing on _______________, 1999 [two years from the date of this
Prospectus]; except that if the Warrants are called for redemption, or the
Preferred Stock is required to be converted, prior to _________, 1999 [two
years from the date of this Prospectus], the Warrants will be exercisable
from the date on which notice of such redemption or mandatory conversion is
given by the Company. The Warrants are redeemable, with the prior consent of
Duke & Co., Inc. (the "Underwriter"), at any time commencing on
_______________, 1998 [one year from the date of this Prospectus], upon
notice of not less than 30 days, at a price of $0.10 per Warrant, provided
that the last sale price of the Preferred Stock has been equal to or greater
than $8.00 per share, subject to adjustment, for a period of 20 consecutive
days of trading of the Preferred Stock prior to the mailing of the notice of
redemption. See "Description of Securities."
Prior to this offering, there has been no public market for the Preferred
Stock or the Warrants. It is currently estimated that the initial public
offering price of the Preferred Stock will be approximately $5.00 per share
and that the initial public offering price of the Warrants will be
approximately $0.10 per Warrant. For factors considered in determining the
initial public offering prices of the Preferred Stock and the Warrants and
the exercise price of the Warrants, see "Underwriting." The Common Stock is
quoted on the OTC Bulletin Board and on January 29, 1997, the closing bid
price of the Common Stock was $4.50. The Company has applied to have the
Preferred Stock, Warrants and Common Stock approved for quotation on The
Nasdaq SmallCap Market under the symbols "EFTAP", "EFTAW" and "EFTA,"
respectively. The Company also intends to apply to the Boston Stock Exchange
to list the Preferred Stock and Warrants for trading thereon.
This offering involves a high degree of risk.
See "Risk Factors" commencing on page 7 hereof.
------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Price to Underwriting Proceeds to
Public Discounts(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ........................ $ $ $
- --------------------------------------------------------------------------------
Per Warrant ..................... $ $ $
- --------------------------------------------------------------------------------
Total (3) ....................... $ $ $
================================================================================
</TABLE>
(1) Does not include additional compensation to the Underwriter in the form of a
nonaccountable expense allowance of 3% of the gross proceeds of this
offering. The Company has also agreed to sell to the Underwriter warrants to
purchase up to 120,000 shares of Preferred Stock at $6.25 per share and up
to 170,000 Warrants at an exercise price of $1.6875 per Warrant, exercisable
over a period of four years commencing one year from the date hereof (the
"Underwriter's Warrants") and to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses, including the Underwriter's nonaccountable
expense allowance of $_________ ($_________ if the Underwriter's
over-allotment option is exercised in full), estimated at $_________
($___________ if the Underwriter's over-allotment option is exercised in
full), payable by the Company.
(3) The Company has granted the Underwriter a 45-day option to purchase up to
180,000 shares of Preferred Stock and up to 255,000 Warrants upon the
same terms and conditions as set forth above, solely to cover
over-allotments, if any. If such over-allotment option is exercised in
full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $________, $____________ and $_____________,
respectively. See "Underwriting."
The Preferred Stock and Warrants are being offered, subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
the approval of certain legal matters by counsel and to certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this offering and to reject any order in whole or in part. It is expected
that delivery of certificates representing the Preferred Stock and Warrants
will be made against payment therefor on or about ________________, 1997, at
the offices of the Underwriter, 909 Third Avenue, New York, New York 10022.
------
LOGO DUKE & CO., INC.
The date of this Prospectus is , 1997
<PAGE>
Concurrently with this offering, the Company also has registered on behalf
of certain of its stockholders (the "Selling Stockholders") 100,000 shares of
Common Stock (the "Selling Stockholders' Shares"). The Selling Stockholders'
Shares are not part of this underwritten offering, however, and may not be
sold prior to 12 months after the closing of this offering. The Company will
not receive any proceeds from the sale of the Selling Stockholders' Shares.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, the Company files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information that have been or will be filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Regional Offices of the Commission at 7
World Trade Center, New York, New York 10048 and Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60621. Copies of such material may
be obtained from the Public Reference Section of the Commission at prescribed
rates by writing to the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the Commission maintains a Web site on the Internet
at http://www.sec.gov that contains reports and other information of issuers
that file electronically with the Commission.
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the securities being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement, copies of which can be
obtained from the Public Reference Section of the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees
prescribed by the Commission.
STABILIZATION
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
STOCK OR WARRANTS OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
SMALLCAP MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this Prospectus. Unless otherwise indicated, such
information has been adjusted to reflect a 1-for-10 reverse split of the
Company's common stock (the "Common Stock") effectuated at the close of
business on November 8, 1996 and assumes no exercise of outstanding options
and warrants, the Underwriter's Warrants and the Underwriter's over-
allotment option. Unless the context requires otherwise, as used in this
Prospectus, the "Company" means IFS International, Inc. and its wholly-owned
subsidiaries.
Certain terms used in the Prospectus are defined in the Glossary on page
40.
THE COMPANY
The Company is engaged in the business of developing, marketing and
supporting software products for the electronic funds transfer ("EFT")
market. The Company's family of software products, marketed under the name
TechNique Plus II ("TPII"), serves as a UNIX-based manager for EFT systems.
TPII software products are designed to operate with computers utilizing the
UNIX operating system, are written in C programming language and incorporate
Oracle relational database technology and object oriented design concepts. As
a result, TPII software products are compatible with a significant portion of
the industry standard computer platforms.
An EFT system ("EFT System") of a bank or other financial institution
permits the processing of transactions involving credit cards and debit cards
(e.g., ATM cards). An EFT System generally consists of one or more of the
following in various configurations: automatic teller machines ("ATMs"),
point of sale ("POS") terminals, a host computer of the financial institution
and regional, national and international networks ("Networks"), such as
CIRRUS, NYCE, MAC or PLUS. TPII software products primarily route and
authorize the processing of transactions through an EFT System. TPII software
is offered in separate modules which perform different functions, including
(i) interfacing with ATMs, POS terminals, a financial institution's host
computer and Network computers, (ii) updating credit and debit card
information, (iii) providing stand-in authorization for transactions when the
financial institution's host computer is not operating, (iv) computing fees
for transactions processed and (v) generating of reports. The TPII software
products are installed generally at the financial institution's main
processing facility.
The Company's primary business objective is to become a leading world-wide
supplier of UNIX- based managers for EFT Systems. To date, the Company's TPII
software products have been primarily installed in EFT Systems of banks and
other financial institutions located in emerging countries and former Eastern
Bloc nations. As of December 31, 1996, fourteen financial institutions and
two Networks were utilizing TPII software products. Certain of such financial
institutions serve up to 200 ATMs and 1,000 POS terminals and the two
Networks serve 22 and 5 financial institutions, respectively. In addition,
agreements have been executed for the installation of TPII software products
in EFT Systems of four additional financial institutions (which excludes the
agreements relating to the smart card pilot programs referred to below). The
Company principally derives its revenues from the licensing of its TPII
software products. A substantial portion of such revenues are generated by
licensing through or to computer manufacturers, which incorporate the TPII
software products into a turnkey system installed at a financial institution.
The preparation of functional specifications, customization and installation
of TPII software products and the training by the Company of the financial
institution's personnel in the use of the TPII software products take an
average of six to twelve months, depending upon the timing of installation
and final acceptance of the EFT System by the customer. The Company generally
receives payment of a substantial portion of the license fee prior to the
final acceptance by the customer. The Company provides its customers with
maintenance services for its TPII software for a separate fee. The Company
also offers other support services, such as additional training of customer
personnel and consulting, for additional consideration.
The Company recently has adapted its TPII software to manage EFT Systems
that process transactions involving the "loading" of value on smart cards. A
smart card is a plastic card with an electronic chip
3
<PAGE>
that acts as a small computer. These cards can include a stored value
feature, which enables the holder to "load" a fixed amount of purchasing
power or cash equivalent on the card as authorized. As a result, the holder
can purchase items or services without the necessity of carrying cash or
entering into a credit card transaction. The Company has developed software
for Visa International Service Association ("Visa") to manage an EFT System
that facilitates the "loading" of value on a smart card through a bank's
terminals. As a result of a successful test of the Company's TPII smart card
software, Visa entered into an agreement with the Company in July 1996 for
the licensing and installation of this software in connection with the
operation of up to seven pilot programs for the purposes of evaluating the
TPII smart card software and other aspects of the smart card system. The
license for each pilot program is for a term of 24 months commencing on the
date such pilot program goes on-line. As of the date hereof, Visa has
selected financial institutions in the following countries to conduct five of
the pilot programs: the United States, the United Kingdom, Japan, Germany and
Italy. The Company anticipates that the first pilot program that will become
operational will be in Germany during the first calendar quarter of 1997.
Although there can be no assurance, the Company anticipates that revenues
from its agreement with Visa will have a material impact on its financial
position during the next 9-12 months.
The Company was incorporated in Delaware in 1986 under the name "Wellsway
Ventures, Inc." and changed its name to "IFS International, Inc." in 1989.
The Company's principal offices are located at Rensselaer Technology Park,
185 Jordan Road, Troy, New York 12180 and its telephone number is (518)
283-7900.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities offered by
the Company .................... 1,200,000 shares of Preferred Stock
1,700,000 Warrants
Common Stock:
To be outstanding after this
offering....................... 1,072,365 shares (1)
Preferred Stock:
To be outstanding after this
offering ...................... 1,200,000 shares
Conversion Rate ................ One share of Common Stock for each share of Preferred Stock, subject to adjustment
to prevent dilution in certain circumstances. See "Description of Securities."
Conversion Period .............. Commencing on the date hereof and terminating on , 2002 [five years from the
date of this Prospectus]; provided that the Preferred Stock must be converted
("Mandatory Conversion") on the earlier of (i) , 2002 [five years from the date
of this Prospectus] or (ii) the consummation date of a merger or acquisition
of the Company in which the then outstanding securities of the Company are surrendered
or exchanged for cash, property or securities of another entity if the consideration
received in any such transaction is not less than $5.00 per share on a fully-diluted
basis. See "Description of Securities."
Voting Rights .................. One vote for each share held of record on all matters submitted to a vote of
stockholders, voting separately as a class, except that with respect to the
election of directors, the Preferred Stock and the Common Stock vote together
as one class. See "Description of Securities."
Liquidation Preference ......... $5.00 per share
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Warrants:
To be outstanding after this
offering....................... 1,700,000 Warrants
Exercise Price ................. $6.25 per share of Preferred Stock, subject to adjustment. See "Description
of Securities."
Exercise Period ................ Commencing on , 1999 [two years from the date of this Prospectus], and terminating
on , 2002 [five years from the date of this Prospectus]; except that (i) in
the event the Company gives notice of redemption of the Warrants prior to ,
1999 [two years from the date of this Prospectus], the exercise period of the
Warrants will commence on the date of the notice of redemption and terminate
on the day prior to the date fixed for redemption or (ii) if the Preferred Stock
is subject to Mandatory Conversion prior to , 1999 [two years from the date
of this Prospectus], the exercise period of the Warrants will commence on the
date of notice of the Mandatory Conversion. See "Description of Securities."
Redemption ..................... The Warrants are redeemable, with the prior consent of the Underwriter, at any
time commencing on , 1998 [one year from the date of this Prospectus], upon
notice of not less than 30 days, at a price of $.10 per Warrant, provided that
the last sale price of the Preferred Stock has been equal to or greater than
$8.00 per share, subject to adjustment, for 20 consecutive trading days prior
to the notice of redemption. See "Description of Securities."
Use of Proceeds ................. Expand contract capabilities by increasing personnel and computer-related
equipment, expand foreign marketing and licensing activities, research and
development for new and existing products, purchase and renovate new office
space, repayment of debt and interest and working capital. See "Use of Proceeds."
Risk Factors .................... This offering involves a high degree of risk. Prospective investors should carefully
consider the risk factors set forth under "Risk Factors."
Proposed Nasdaq Symbols(2)
Preferred Stock ................ EFTAP
Warrants ....................... EFTAW
Common Stock ................... EFTA
</TABLE>
- ------
(1) Assumes no conversion of the Preferred Stock or certain outstanding
convertible debt (which debt is convertible into a maximum of 59,524
shares of Common Stock (subject to adjustment pursuant to anti-dilution
provisions)) or exercise of outstanding options to purchase 389,724
shares of Common Stock and outstanding warrants to purchase 100,000
shares of Common Stock.
(2) Quotation on The Nasdaq SmallCap Market does not imply that a meaningful
sustained market for the Preferred Stock, the Warrants and/or the Common
Stock will develop.
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended April 30, October 31,
-------------------- --------------------
(unaudited)
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues .................................... $2,441 $2,041 $1,587 $ 695
Cost of revenues and services ..................... 505 346 388 163
Operating expenses ................................ 1,934 1,857 1,021 922
Income (loss) from operations ..................... 2 (162) 178 (390)
Other income (expense) ............................ (50) (44) (26) (24)
Litigation settlement costs ....................... -- -- (100) --
Income (loss) before income taxes and extraordinary
item ............................................. (48) (206) 52 (414)
Income (loss) before extraordinary item ........... (48) (206) 52 (414)
Extraordinary item - gain on debt restructuring and
extinguishments .................................. -- 378 -- --
Net income (loss) ................................. (48) 172 52 (414)
Net income (loss) per common share ................ $ (.05) $ .18 $ .04 $(.41)
Weighted average shares outstanding ............... 1,002 953 1,043 998
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
October 31, 1996
-------------------------------
(Unaudited)
Actual As Adjusted(1)
-------- --------------
<S> <C> <C>
Working capital (deficit) ........... $ (874) $4,179
Total assets ........................ 2,070 6,623
Total long-term debt ................ 436 436
Total stockholders' equity (deficit) (634) 4,419
</TABLE>
- ------
(1) As adjusted to give effect to the sale of 1,200,000 shares of Preferred
Stock and 1,700,000 Warrants offered hereby and the application of the
net proceeds therefrom (assuming initial public offering prices of $5.00
per share of Preferred Stock and $.10 per Warrant), including the
repayment of $500,000 in indebtedness incurred in September 1996 (the
"Bridge Financing"). See "Use of Proceeds," "Capitalization" and "Certain
Transactions."
6
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in
the Company. Each prospective investor should carefully consider the
following risk factors, as well as all other information set forth elsewhere
in this Prospectus.
This Prospectus contains certain forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of the factors set forth below and elsewhere in this
Prospectus, including, but not limited to, the success of the Visa pilot
programs, the development of the capacity to accommodate additional and
larger contracts, establishing the ability of TPII software products to
process transactions for larger EFT Systems, acceptance of TPII software
products by a significant number of new customers and the Company's continued
relationship with computer manufacturers.
OPERATING LOSSES; GOING CONCERN UNCERTAINTY INCLUDED AS PART OF AUDITOR'S
REPORT
Although the Company had net income of approximately $52,100 for the six
months ended October 31, 1996, the Company incurred a net loss of $48,380 for
its fiscal year ended April 30, 1996 and a loss before extraordinary item of
$205,472 for its fiscal year ended April 30, 1995. As of October 31, 1996, the
Company had a shareholder's deficit of $633,687, an accumulated deficit of
$2,854,345 and a working capital deficit of $874,445. In addition, as of October
31, 1996, the Company was not in compliance with several covenants of certain of
its long-term debt obligations, including defaulting on the payment of principal
and interest. However, the Company has received waivers with respect to such
noncompliance and intends to repay the deferred principal and interest with a
portion of the net proceeds of this offering. The Company's auditor, in its
report regarding the Company's financial statements as of April 30, 1996,
indicated that, since the Company had a working capital deficiency and a
shareholders' deficit as of April 30, 1996, substantial doubt exists as to the
Company's ability to continue as a going concern. There can be no assurance as
to the future profitability of the Company. See "Selected Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RELIANCE ON TPII FAMILY OF SOFTWARE PRODUCTS
The Company derived approximately 90%, 96% and 95% of its total revenues
for the fiscal years ended April 30, 1995 and 1996, and the six months ended
October 31, 1996, respectively, from the licensing of its TPII family of
software products, services related to those products and isolated hardware
sales. The TPII software products and related services are expected to
provide the substantial majority of the Company's revenues in the forseeable
future. The Company's results will depend upon continued market acceptance of
its TPII software products and related services as well as the Company's
ability to continue to adapt and configure its TPII software products to meet
the changing needs of its customers. Any reduction in demand for TPII
software products would have a material adverse effect on the Company's
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON REVENUES FROM FOREIGN SOURCES
The Company derived approximately 91%, 82% and 50% of its total revenues
for the fiscal years ended April 30, 1995 and 1996, and the six months ended
October 31, l996, respectively, from the licensing of TPII software products
to customers outside the United States, primarily banks and other financial
institutions located in emerging countries and former Eastern Bloc nations.
Foreign revenues generally are subject to certain risks, including collection
of accounts receivable, compliance with foreign regulatory requirements,
variability of foreign economic conditions and changing restrictions imposed
by United States export laws. To date, all foreign customers have paid the
Company in United States currency, but if future customers pay in foreign
currencies, the Company would be subject to fluctuations in exchange rates.
There can be no assurance that the Company will be able to manage the risks
related to licensing its TPII software products and selling its services in
foreign markets. See "Business -- Marketing and Customers."
DEPENDENCE ON EFT MARKET
The TPII software products are solely for installation in the EFT market,
making the Company susceptible to adverse events in that market. For example,
a decrease in the number of EFT transactions by the general pub-
7
<PAGE>
lic or in spending by financial institutions for software and related
services could result in a smaller overall market for EFT software. These
factors, as well as others negatively affecting the EFT market, could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business -- The EFT Market."
POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company believes that the proceeds of this offering, together with
anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least 24 months
following the completion of this offering. However, since a portion of the
license fee for TPII software products is not paid until acceptance by the
customer and, as a result, the Company is required to fund a portion of the
costs of configuration and installation of such products from available
capital, any substantial increase in the number of installations or delay in
payment could create a need for additional financing. In such event, there
can be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. The Underwriter's consent is required
before the Company may complete certain types of financing. The obligation to
obtain such consent may limit the Company's ability to complete such
financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Underwriting."
DEPENDENCE ON RELATIONSHIPS WITH COMPUTER MANUFACTURERS
In 1994, the Company entered into a strategic alliance with Digital
Equipment International BV ("DEC"), pursuant to which such computer
manufacturer agreed to market on a nonexclusive basis TPII software products
in connection with DEC's world-wide sale of its computers for EFT Systems. In
connection with DEC's sale of computers for EFT Systems, DEC, rather than the
financial institutions, is generally the licensee of the Company's TPII
software products. For the fiscal years ended April 30, 1995 and 1996 and the
six months ended October 31, 1996, approximately 19%, 14% and 23%,
respectively, of the Company's total revenues were derived pursuant to this
relationship. The Company is, therefore, dependent upon this relationship and
would be adversely affected by the loss of such relationship. The Company has
a similar agreement with Unisys World Trade, Inc. ("Unisys") for Europe and
Africa, but as of the date hereof, the Company has not derived any revenues
pursuant to its relationship with Unisys. In addition, pursuant to an
informal arrangement with IBM Thailand Company Limited ("IBM Thailand"), the
Company licensed its TPII software products, through IBM Thailand, to two
Asian financial institutions utilizing International Business Machine
Corporation ("IBM") computers for their EFT Systems. Revenues from such
licenses represented approximately 19% of the Company's total revenues during
the fiscal year ended April 30, 1996. The Company is currently seeking to
enter into alliances with additional computer manufacturers. See "Business --
Marketing and Customers."
GROWTH DEPENDENT ON EXPANDING CUSTOMER BASE
Approximately 72% and 50% of the Company's software revenues for the
fiscal year ended April 30, 1996 and the six months ended October 31, 1996,
respectively, were derived from the licensing of its TPII software products
to new customers at a fixed price. Although the Company will receive
additional revenues from such customers as a result of providing ongoing
maintenance services in support of its licensed TPII software and may receive
additional revenues for enhancements of the TPII software products, the
Company generally will not receive significant license revenues in a
subsequent period from these customers. Since the Company does not usually
generate repeat business from its customers, the Company will be required to
continually attract new customers in order to increase revenues in the
future. As a result, the Company will incur the higher marketing expenses
generally associated with attracting new customers as compared to marketing
expenses associated with attracting additional business from existing
customers. Moreover, the Company's inability to generate additional business
upon completion of its existing contracts would also have a material adverse
effect on the Company's financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Marketing and Customers."
FLUCTUATIONS IN QUARTERLY REVENUES AND OPERATING RESULTS
Quarterly revenues and operating results have fluctuated and will
fluctuate as a result of a variety of factors. The Company can experience
long delays (i.e., between three to twelve months) before a customer executes
8
<PAGE>
a software licensing agreement. These delays are primarily due to extended
periods of software evaluation, contract review and the selection of the
computer system. In addition, following execution of the agreement, the
preparation of functional specifications, customization and installation of
TPII software products and the training by the Company of the financial
institution's personnel in the use of the TPII software products take an
average of six to twelve months, depending upon the timing of installation
and final acceptance of the EFT System by the customer. Accordingly, the
Company's revenues may fluctuate dramatically from one quarter to another,
making quarterly comparisons extremely difficult and not necessarily
indicative of any trend or pattern for the year as a whole. Additional
factors effecting quarterly results include the timing of revenue recognition
of advance payments of license fees, the timing of the hiring or loss of
personnel, capital expenditures, operating expenses and other costs relating
to the expansion of operations, general economic conditions and acceptance
and use of EFT. See "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company's success depends on Frank Pascuito and Charles Caserta, its
Chief Executive Officer and President, respectively, the loss of either of whom
could have a material adverse effect on the Company's financial condition and
results of operations. Upon completion of this offering, the Company will use
its best efforts to have each of these officers insured under key person term
life policies in the amount of $1,000,000. Upon completion of this offering,
each of these officers will be parties to employment agreements with the
Company. The Company believes that its future success also depends on its
ability to attract and retain highly-skilled technical, managerial and marketing
personnel, including, in particular, additional personnel in the areas of
research and development, technical support and project management. Competition
for personnel is intense. There can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires. See
"Management."
COMPETITION
The market for EFT software is highly competitive. The Company's TPII
software products face strong competition from proprietary (legacy) and
UNIX-based software. In the international EFT market, well established
worldwide competition includes Transaction Systems Architects, Inc., Deluxe
Data Systems, Inc., SDM International, Inc., S2 Systems, Inc., a subsidiary
of Stratus Computer, Inc. ("Stratus"), SLM Software, Inc., Consolidated
Software and Oasis Systems, whose products run on Tandem Computers
Incorporated ("Tandem") or Stratus fault-tolerant computers with proprietary
operating systems or on IBM host or industry standard computers with UNIX
operating systems. In addition, third party companies provide services for
processing EFT transactions, which eliminate the need for a financial
institution to purchase the Company's software products. Most of the
Company's current and potential competitors have significantly greater
financial, marketing, technical and other competitive resources than the
Company. See "Business -- Competition."
TECHNOLOGICAL CHANGE
The market for software in general is characterized by rapid changes in
computer and software technology and is highly competitive with respect to
the need for timely product innovation and new product introductions. If, for
example, the UNIX operating system were no longer a significant operating
system, the Company would be adversely affected if it could not adapt its
TPII software products to whatever operating system becomes dominant. The
Company believes that its future success, of which there can be no assurance,
depends upon its success in enhancing the performance of its current TPII
software products, such as the ability to handle higher volumes of card
transactions and the adaptation of its software products to smart card
technology, and developing new software products that address the
increasingly complex needs of customers. See "Business--Software Development
and Future Products."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of trade secret and copyright laws,
nondisclosure and other contractual and technical measures to protect its
proprietary rights in its software products. There can be no assurance that
these provisions will be adequate to protect its proprietary rights. In
addition, the laws of certain foreign
9
<PAGE>
countries do not protect intellectual property rights to the same extent as
the laws of the United States. Although the Company believes that its
intellectual property rights do not infringe upon the proprietary rights of
third parties, there can be no assurance that third parties will not assert
infringement claims against the Company. See "Business -- Proprietary
Rights."
BROAD DISCRETION IN USE OF PROCEEDS
Approximately 32% of the net proceeds of this offering will be applied to
working capital. In addition, the application of the balance of the proceeds
may differ considerably from the estimates set forth herein due to changes in
the economic climate and/or the Company's planned business operations or
unanticipated complications, delays and expenses. According, management of
the Company will have broad discretion over the use of proceeds.
LACK OF MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Preferred
Stock or Warrants, and only a very limited trading market for the Common
Stock. The Company intends to apply for listing of the Preferred Stock,
Warrants and Common Stock on The Nasdaq SmallCap Market effective upon
commencement of this offering. Nevertheless, there can be no assurance that
an active market in any securities of the Company will develop or be
sustained after this offering. In the absence of an active public trading
market, an investor may be unable to liquidate his or her investment. The
initial public offering prices and other terms of the Preferred Stock and
Warrants were determined by negotiations between the Company and the
Underwriter and are not necessarily related to the Company's assets,
earnings, book value per share, its results of operations or any other
generally accepted criteria of value and should not be construed as
indicative of their value. See "Underwriting."
There has been volatility in the market price of securities of technology
companies. Future announcements concerning the Company or its competitors,
including variations in financial results, changes in general market
conditions, governmental regulations or other developments may have a
significant impact on the market price of each of the Company's securities
and could cause the market price of each of the Company's securities to
fluctuate significantly. In addition, broad market fluctuations and general
economic or political conditions may adversely affect the market price of
each of the Company's securities, regardless of the Company's actual
performance.
NONPAYMENT OF DIVIDENDS
No dividends will be paid on the Preferred Stock, except that holders of
Preferred Stock will be entitled to receive dividends if dividends are
declared with respect to the Common Stock and, in such event, ratably with
the holders of the Common Stock. The Company has never declared or paid a
cash dividend on its Common Stock and does not expect to pay cash dividends
in the foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding an
aggregate of 1,200,000 shares of Preferred Stock and 1,072,365 shares of
Common Stock. All of the shares of Preferred Stock and 585,318 shares of
Common Stock will be freely tradable without restriction or further
registration under the Securities Act. Of the remaining 487,047 shares of
Common Stock outstanding, 396,892 shares are "restricted" shares that are
owned by "affiliates" of the Company as such terms are defined under the
Securities Act and 90,155 shares are "restricted" shares that are owned by
nonaffiliates of the Company. Absent registration under the Securities Act,
the sale of such shares of Common Stock is subject to Rule 144, as
promulgated under the Securities Act. In general, under Rule 144, subject to
the satisfaction of certain other conditions, a person, including an
affiliate of the Company, who has beneficially owned restricted shares of
Common Stock for at least two years is entitled to sell in brokerage
transactions, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of outstanding shares of the
same class, or if the Common Stock is quoted on The Nasdaq Stock Market or a
national stock exchange, the average weekly trading volume during the four
calendar weeks preceding the sale. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of
such shares for sale will have on the market prices of the Com-
10
<PAGE>
pany's securities prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold under Rule 144 into the
public market may adversely affect prevailing market prices for the Preferred
Stock and the Warrants and could impair the Company's ability to raise
capital in the future through the sale of equity securities. See "Shares
Eligible for Future Sale."
UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE; PENDING INVESTIGATION
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only three public offerings.
Accordingly, there can be no assurance that the Underwriter's limited public
offering experience will not affect the Company's offering of the Preferred
Stock and Warrants and subsequent development of a trading market, if any, in
such securities. In addition, the Underwriter is aware that the Commission is
investigating certain of the Underwriter's trading practices and mark-ups in
connection with the securities of an issuer whose 1995 public offering was
underwritten by the Underwriter. There can be no assurance that this
investigation will not adversely and materially affect this offering or
subsequent trading in the Preferred Stock, Warrants and/or Common Stock of
the Company. See "Underwriting."
DILUTIVE EFFECT OF OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES
Upon completion of this offering, the Company will sell to the Underwriter
warrants to purchase up to 120,000 shares of Preferred Stock and up to 170,000
Warrants. The Underwriter's Warrants will be exercisable at any time during the
four-year period commencing one year from the date of this Prospectus. In
addition, as of the date hereof, there were (i) options and warrants outstanding
to purchase an aggregate of 489,724 shares of Common Stock, with exercise prices
ranging from $.66 to $5.00 per share and which will expire on various dates
through 2007 and (ii) certain outstanding debt convertible into a maximum of
59,524 shares of Common Stock (subject to adjustment pursuant to anti-dilution
provisions). If the Underwriter's Warrants and the outstanding options and
warrants are exercised and the outstanding debt is converted, the percentage of
capital stock then held by the existing stockholders will be reduced.
Furthermore, the Underwriter's Warrants and the outstanding options and warrants
can be expected to be exercised at a time when the Company would be able to
obtain funds from the sale of Preferred Stock, Common Stock or other securities
at a price higher than the exercise prices thereof. See "Description of
Securities" and "Underwriting."
DILUTION
The initial public offering price of the Preferred Stock is substantially
higher than the net book value of the currently outstanding Common Stock.
Therefore, purchasers of the Preferred Stock will experience immediate and
substantial dilution in the net tangible book value of the capital stock of
the Company in the amount of $3.30 per share (66%) (based on an assumed
initial public offering price of $5.00 per share of Preferred Stock). See
"Dilution."
PORTION OF PROCEEDS TO REPAY DEBT
Approximately $582,000 (11%) of the net proceeds of this offering will be
used to repay a portion of outstanding debt and interest of the Company. See
"Use of Proceeds."
THE NASDAQ SMALLCAP MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE
DELISTING OF SECURITIES FROM THE NASDAQ SMALLCAP MARKET; RISKS OF LOW-PRICED
STOCKS
The Company intends to apply for listing of the Preferred Stock, Warrants
and Common Stock on The Nasdaq SmallCap Market. The Commission has approved
rules imposing criteria for listing of securities on The Nasdaq SmallCap
Market, including standards for maintenance of such listing. For continued
listing, a company, among other things, must have at least $2,000,000 in
total assets and $1,000,000 in capital and surplus, and the listed security
must have a minimum bid price of $1.00 per share. Recently, a proposal has
been made to increase the continued listing criteria on The Nasdaq SmallCap
Market. If implemented as proposed, stricter criteria for continued listing
on The Nasdaq SmallCap Market would be imposed, including the implementation
of a $2,000,000 net tangible assets test, higher public float and market
value of public float criteria and the implementation of new corporate
governance rules. No assurance can be given that such proposal will be
adopted, or, if adopted, will be adopted in its current form.
In the event that the Company is unable to satisfy the maintenance
requirements and its securities are subsequently delisted from The Nasdaq
SmallCap Market, trading of the Preferred Stock, Warrants and Common
11
<PAGE>
Stock would be conducted on the NASD's OTC Bulletin Board or in the "pink
sheets." In the absence of the Preferred Stock or Common Stock being quoted
on The Nasdaq SmallCap Market, or the Company having at least $2,000,000 in
stockholders' equity, trading in the Preferred Stock, Warrants and Common
Stock would be covered by Rule 15g-9 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), for non-Nasdaq and
non-exchange listed securities. Under such rule, broker-dealers who recommend
"penny stocks" to persons other than established customers and institutional
accredited investors must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a
transaction prior to sale. The Commission defines a "penny stock" to be any
equity security that has a market price of less than $5.00 per share, subject
to certain exceptions. Such exceptions include an equity security listed on
The Nasdaq Stock Market, or an equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than
three years, or (iii) average revenue of at least $6,000,000 for the
preceding three years.
If the Company's securities were to become subject to the regulations
applicable to penny stocks, the market liquidity for the securities would be
severely affected, limiting the ability of broker-dealers to sell the
securities and the ability of purchasers in this offering to sell their
securities in the secondary market. There is no assurance that trading in the
Company's securities will not be subject to these or other regulations that
would adversely affect the market for such securities.
CONTROL BY MANAGEMENT
Upon consummation of this offering, the Company's officers and directors will
beneficially own, in the aggregate, approximately 27.3% of the outstanding
shares of capital stock. Accordingly, such persons, acting together, will be in
a position to exercise influence over the election of the Company's Board of
Directors.
NEED FOR CURRENT PROSPECTUS; NON-REGISTRATION IN CERTAIN JURISDICTIONS OF
SHARES UNDERLYING THE WARRANTS
The Warrants are being registered pursuant to a Registration Statement
filed with the Commission under the Securities Act, of which this Prospectus
is a part. The Warrants may be exercised and their underlying shares of
Preferred Stock may be sold in any public market that may develop for the
securities commencing two years after the date hereof or earlier upon the
occurrence of certain events, but only during the period in which a current
prospectus covering such shares is in effect. Accordingly, unless the
Registration Statement is kept current by the Company and measures to qualify
or keep qualified such securities in certain states are taken, investors
holding the Warrants will not be able to exercise the Warrants or sell the
underlying shares of Preferred Stock issuable upon exercise of the Warrants
in the public market. The Company has agreed to use its reasonable best
efforts to qualify and maintain a current registration statement covering
such shares of Preferred Stock during the term of the Warrants. There can be
no assurance, however, that the Company will be able to maintain a current
registration statement. Furthermore, although the Warrants will not knowingly
be sold to purchasers in jurisdictions in which they are not registered or
otherwise qualified for sale, purchasers may buy Warrants in the aftermarket
or may move to jurisdictions in which the shares of Preferred Stock issuable
upon exercise of the Warrants are not so registered or qualified during the
period that the Warrants are exercisable. In such event, the Company would be
unable to issue shares to those persons desiring to exercise their Warrants
unless and until the shares could be registered or qualified for sale in the
jurisdiction in which such purchasers reside, or an exemption to such
qualification exists or is granted in such jurisdiction. No assurance can be
given as to the ability of the Company to effect any required registration or
qualification of the Preferred Stock in any jurisdiction in which
registration or qualification has not already been completed.Although the
Company does not presently intend to do so, the Company reserves the right to
call the Warrants for redemption whether or not a current prospectus is in
effect or such underlying shares are not, or cannot be, registered in the
applicable states. If the Company is unable to register or qualify the shares
in a particular state and no exemption to such registration or qualification
was available in such jurisdiction, in order to realize any economic benefit
from the purchase of the Warrants, a holder might have to sell the Warrants
rather than exercising them. See "Description of Securities -- Warrants."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants offered hereby are redeemable, in whole or in part, at a
price of $.10 per Warrant, commencing one year after the date of this
Prospectus and prior to their expiration with the Underwriter's consent;
provided that (i) prior notice of not less than 30 days is given to the
warrantholders; (ii) the last sale price of the Preferred Stock on each of
the 20 consecutive days of trading of the Preferred Stock ending on the third
busi-
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<PAGE>
ness day prior to the date on which the Company gives notice of redemption
has been at least $8.00 per share; and (iii) warrantholders shall have
exercise rights until the close of the business day preceding the date fixed
for redemption. Notice of redemption of the Warrants could force the holders
to exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, or to sell the Warrants at the current
market price when they might otherwise wish to hold them, or to accept the
redemption price, which may be substantially less than the market value of
the Warrants at the time of redemption. In addition, the issuance of
additional shares of Preferred Stock upon exercise of the Warrants may have
an adverse effect upon the prevailing market price of the Preferred Stock.
See "Description of Securities -- Warrants."
UNDERWRITER'S INFLUENCE ON THE MARKET
A significant number of shares of Preferred Stock and Warrants offered
hereby may be sold to customers of the Underwriter. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Underwriter. Although it has no obligation to
do so, the Underwriter intends to engage in market-making activities or
solicited broker's activities with respect to the purchase or sale of
Preferred Stock and Warrants in The Nasdaq SmallCap Market or other
over-the-counter market where such securities will trade. However, no
assurance can be given that the Underwriter will continue to participate as a
market maker in the securities of the Company or that other broker/dealers
will make a market in such securities. The Underwriter also has the right to
act as the Company's exclusive agent in connection with any future
solicitation of warrantholders to exercise their Warrants. Unless granted an
exemption by the Commission from Rule 10b-6 under the Exchange Act, the
Underwriter will be prohibited from engaging in any market-making activities
or solicited brokerage activities with regard to the Company's securities
during a period prior to the commencement of any such solicitation and ending
on the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right the Underwriter may have to
receive a fee for the exercise of the Warrants following such solicitation.
As a result, the Underwriter and soliciting broker/dealers may be unable to
continue to make a market in the Company's securities during certain periods
while the exercise of the Warrants is being solicited. Such a limitation,
while in effect, could impair the liquidity and market price of the Company's
securities. See "Underwriting."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Preferred Stock and
Warrants in this offering (assuming initial public offering prices of $5.00
per share of Preferred Stock and $.10 per Warrant) are estimated to be
approximately $5,053,000 ($5,858,185 if the over-allotment option is
exercised in full), after deducting the estimated underwriting discounts and
offering expenses payable by the Company. The Company intends to use the
proceeds as follows:
<TABLE>
<CAPTION>
Percentage of
Purpose Amount Net Proceeds
----------- ----------- ---------------
<S> <C> <C>
Expand contract capabilities by increasing personnel and
computer-related equipment $ 900,000 18%
Expand foreign marketing and licensing activities, including hiring of
personnel and increasing advertising and public relations 750,000 15%
Research and development for new and existing products 600,000 12%
Purchase and renovate new office space 600,000 12%
Repayment of debt and interest(1) 582,000 11%
Working capital (2)(3) 1,621,000 32%
----------- ---------------
TOTAL 5,053,000 100%
=========== ===============
</TABLE>
- ------
(1) Represents repayment of (i) approximately $47,000 of deferred principal
and interest payable to the North Greenbush Industrial Development Agency
(the "NG Loan"), (ii) approximately $19,000 of deferred interest payable
to the New York State Science and Technology Foundation (the "Technology
Loan") and (iii) $500,000 principal amount of notes (the "Notes") issued
in September 1996 (the "Bridge Financing") and approximately $16,000 of
accrued interest thereon payable to unrelated third parties. The NG Loan,
the principal amount of which is $220,000, was originally made in January
1989, bears interest at 7 1/2% per
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<PAGE>
annum and is payable in monthly installments of approximately $3,800
between May 1996 and April 2002. The Technology Loan, the principal
amount of which is $250,000, was originally made in July 1989, bears
interest at 7 1/2 % and is payable in installments of $80,000, $80,000
and $90,000 in April 1998, April 1999 and April 2000, respectively. The
Notes bear interest at 12% per annum and are due on the earlier of (i)
the closing of this offering or (ii) March 24, 1998. The proceeds of the
Notes were used by the Company for the payment of indebtedness, including
deferred salaries, interest and commissions, and for working capital and
general corporate purposes. See "Certain Transactions."
(2) Includes the payment of $20,000 to the Underwriter upon the consummation
of this offering for services as a financial consultant to be performed
over a period of two years commencing upon the consummation of this
offering. See "Underwriting."
(3) If all or any portion of the over-allotment option is exercised, the net
proceeds therefrom will be used for working capital.
The foregoing represents the Company's estimate of the allocation of the
net proceeds of this offering, based upon the current status of its
operations and anticipated business plans. It is possible, however, that the
application of funds will differ considerably from the estimates set forth
herein due to changes in the economic climate and/or the Company's planned
business operations or unanticipated complications, delays and expenses. Any
reallocation of the net proceeds will be at the discretion of the Board of
Directors of the Company.
Pending the foregoing uses, a portion of the net proceeds of this offering
may be invested in certificates of deposit, United States government
obligations, prime commercial paper, money market funds or similar short-
term investments.
The Company believes that the proceeds of this offering, together with
anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least 24 months
following the completion of this offering. However, since a portion of the
license fee for TPII software products is not paid until acceptance by the
customer and, as a result, the Company is required to fund a portion of the
costs of configuration and installation of such products from available
capital, any substantial increase in the number of installations or delay in
payment could create a need for additional financing. In such event, there
can be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. The Underwriter's consent is required
before the Company may complete certain types of financing. The obligation to
obtain such consent may limit the Company's ability to complete such
financing. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Underwriting."
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently quoted on the OTC Bulletin Board
under the symbol IFSE. The Common Stock is traded, if at all, on a sporadic
basis; therefore, the prices quoted below are not necessarily indicative of
market value. The following table, which is restated to reflect a 1-for-10
reverse split of the Common Stock effectuated at the close of business on
November 8, 1996, sets forth the range of the high and low bid quotations of
the Common Stock on the OTC Bulletin Board for the periods indicated.
<TABLE>
<CAPTION>
Quarter Ended High* Low*
---------------- ------- -------
<S> <C> <C>
July 31, 1994 $2.00 $1.25
October 31, 1994 $1.50 $ .63
January 31, 1995 $1.50 $ .63
April 30, 1995 $1.50 $ .63
July 31, 1995 $1.50 $1.50
October 31, 1995 $1.50 $1.50
January 31, 1996 $1.88 $1.50
April 30, 1996 $2.50 $1.88
July 31, 1996 $2.50 $2.50
October 31, 1996 $4.38 $2.50
</TABLE>
- ------
* The source of such quotations is the National Quotation Bureau, Inc.
On January 29, 1997, the closing bid price of the Common Stock was $4.50.
The above quotations reflect inter-dealer prices, without mark-up, mark-down
or commission, and may not represent actual transactions.
As of December 31, 1996, there were approximately 280 recordholders of the
Common Stock. The Company believes that there are more than 700 beneficial
owners of Common Stock.
DIVIDEND POLICY
No dividends will be paid on the Preferred Stock, except that holders of
Preferred Stock will be entitled to receive dividends if dividends are
declared with respect to the Common Stock and, in such event, ratably with
the holders of the Common Stock. The Company plans to retain any future
earnings for use in its business and, accordingly, the Company does not
anticipate paying dividends on its Common Stock and Preferred Stock in the
foreseeable future. The payment of any dividends on the Common Stock and
Preferred Stock will be at the discretion of the Company's Board of Directors
and will be dependent upon the Company's results of operations, financial
condition, capital requirements, contractual restrictions and other factors
deemed relevant by the Board of Directors.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
October 31, 1996 and (ii) as adjusted to reflect the sale of the 1,200,000
shares of Preferred Stock and 1,700,000 Warrants offered hereby, and the
application of the estimated net proceeds therefrom (assuming initial public
offering prices of $5.00 per share of Preferred Stock and $.10 per Warrant).
See "Use of Proceeds." This section should be read in conjunction with the
Company's Consolidated Financial Statements and related notes appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
October 31, 1996
------------------------------
Actual As Adjusted
------------- -------------
<S> <C> <C>
Total short-term debt, including current maturities of long term debt $ 548,886 $ 29,025
------------- -------------
Total long-term debt, less current maturities ....................... 436,394 436,394(1)
------------- -------------
Shareholders' equity (deficit):
Preferred Stock, $.001 par value; 25,000,000 shares authorized; none
issued or outstanding; 1,200,000 shares of Series A Convertible
Preferred Stock issued and outstanding as adjusted(2) .............. $ 0 $ 1,200
Common Stock, $.001 par value; 25,000,000 shares authorized;
1,059,730 shares issued and outstanding; 1,059,730 shares issued and
outstanding as adjusted(3)(4) ...................................... 1,060 1,060
Additional paid-in capital .......................................... 2,219,598 7,271,398
Accumulated deficit ................................................. (2,854,345) (2,854,345)
------------- -------------
Total shareholders' equity (deficit) ................................ $ (633,687) $ 4,419,313
============= =============
</TABLE>
- ------
(1) Exclusive of long-term debt expected to be incurred upon the financing of
the purchase of the Company's new facility. There can be no assurance
that financing will be available on terms acceptable to the Company, or
at all. See "Business -- Properties."
(2) Does not include (i) 1,700,000 shares of Preferred Stock issuable upon
exercise of the Warrants, (ii) 120,000 shares of Preferred Stock issuable
upon exercise of the Underwriter's Warrants and (iii) 170,000 shares of
Preferred Stock issuable upon exercise of the Warrants that are issuable
upon exercise of the Underwriter's Warrants.
(3) Does not include (i) 3,625,000 shares of Common Stock issuable upon
conversion of the Preferred Stock, including the Preferred Stock issuable
upon exercise of the Warrants, the Underwriter's over-allotment option
and the Underwriter's Warrants, (ii) 100,000 shares of Common Stock
issuable upon exercise of the warrants sold in the Bridge Financing,
(iii) 389,724 shares of Common Stock issuable upon exercise of
outstanding stock options and (iv) a maximum of 59,524 shares of Common
Stock issuable upon conversion of certain outstanding debt (subject to
adjustment pursuant to anti-dilution provisions).
(4) On January 10, 1997, the authorized Common Stock was increased to
50,000,000 shares.
16
<PAGE>
DILUTION
At October 31, 1996, the Company had a net tangible book value (deficit)
of $(1,128,658), or $(1.07) per share of outstanding capital stock. Net
tangible book value per share represents the Company's total tangible assets
less total liabilities, divided by the number of shares of capital stock
outstanding. After giving effect to receipt of the estimated net proceeds
from the sale of the 1,200,000 shares of Preferred Stock at an assumed
offering price of $5.00 per share (after deducting the estimated offering
expenses), the pro forma net tangible book value of the Company would have
been approximately $3,833,363, or approximately $1.70 per share of
outstanding capital stock at October 31, 1996. This represents an immediate
dilution of $3.30 per share, or 66%, to purchasers of Perferred Stock in this
offering. The following table illustrates the per share dilution to be
incurred by the public investors in this offering:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial offering price per share ..................... $5.00
Net tangible book value (deficit) per share at October 31,
1996 .................................................... $(1.07)
Increase per share attributable to shares offered hereby ... 2.77
Pro forma net tangible book value per share after this
offering ................................................... 1.70
-------
Dilution of net tangible book value per share to new investors $3.30
=======
</TABLE>
17
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data as of April 30, 1996 and for the
fiscal years ended April 30, 1996 and 1995 set forth below have been derived
from the audited consolidated financial statements included herein. Selected
consolidated financial data as of April 30, 1995 set forth below have been
derived from other audited consolidated financial statements. The selected
historical financial data for the six months ended October 31, 1996 and 1995
and as of October 31, 1996 set forth below have been derived from the
Company's unaudited consolidated financial statements included elsewhere
herein and, in the opinion of management, include all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair presentation.
The results of operations for the six months ended October 31, 1996 are not
necessarily indicative of the Company's results of operations to be expected
for the full year. This financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and notes thereto
appearing elsewhere herein.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended April 30, October 31,
-------------------- --------------------
(unaudited)
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues .................................... $2,441 $2,041 $1,587 $ 695
Cost of revenues and services ..................... 505 346 388 163
Operating expenses ................................ 1,934 1,857 1,021 922
Income (loss) from operations ..................... 2 (162) 178 (390)
Other income (expense) ............................ (50) (44) (26) (24)
Litigation settlement costs ....................... -- -- (100) --
Income (loss) before income taxes and extraordinary
item ............................................. (48) (206) 52 (414)
Income (loss) before extraordinary item ........... (48) (206) 52 (414)
Extraordinary item - gain on debt restructuring and
extinguishments .................................. -- 378 -- --
Net income (loss) ................................. (48) 172 52 (414)
Net income (loss) per common share ................ $ (.05) $ .18 $ .04 $(.41)
Weighted average shares outstanding ............... 1,002 953 1,043 998
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
April 30,
------------------
October 31,
1996 1995 1996
------- ------- ---------------
(unaudited)
<S> <C> <C> <C>
Working capital (deficit) ........... (798) (700) (874)
Total assets ........................ 1,307 1,222 2,070
Total long-term debt ................ 452 635 436
Total stockholders' equity (deficit) (728) (832) (634)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is engaged in the business of developing, marketing, and
supporting software for the EFT market. Substantially all of the Company's
revenues have resulted from the licensing of its family of TPII software
products. The preparation of functional specifications, customization and
installation of TPII software products and the training by the Company of the
financial institution's personnel in the use of the TPII software products
take an average of six to twelve months, depending upon the timing of
installation and final acceptance of the EFT System by the customer. The
customer pays 30% to 50% of the licensing fees upon execution of the
licensing agreement and also makes progress payments prior to acceptance. The
Company recognizes revenue under the percentage of completion method for
software installation contracts. The percentage of completion method is
measured by estimates of the progress towards completion as determined by
costs incurred. The Company also derives recurrent revenues from furnishing
certain maintenance services to its customers for the TPII software and may
also receive additional revenues for additional training of customer
personnel and consulting services (collectively "service revenues"). With
respect to revenues for maintenance services, the Company generally receives
annual payments at the beginning of the contract year. Such payments are
reflected as deferred revenues and are recognized ratably during such year.
The Company entered into an agreement with Visa in July 1996 for the
licensing and installation of its TPII smart card software in connection with
the operation of up to seven pilot programs. The license for each pilot
program is for a term of 24 months commencing on the date such pilot program
goes on-line. As of the date hereof, Visa has selected financial institutions
in various countries to conduct five of the pilot programs. Revenues from the
licensing of the TPII smart card software will be recognized in the same
manner as revenues from the licensing of the other TPII software products.
Occasionally, the Company resells hardware to its customers in conjunction
with its TPII software installation contracts. Since such sales are isolated
and random the Company is unable to predict the amount of any future hardware
revenues. Revenues from these occasional hardware sales are recognized when
invoiced to the customer.
RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1996 COMPARED WITH SIX MONTHS ENDED OCTOBER 31,
1995
Total revenues of $1,586,985 for the six months ended October 31, 1996
represent an increase of $892,260, or 128.4%, over total revenues of $694,725
for the six months ended October 31, 1995. This increase in total revenues
resulted primarily from a substantial increase in licensing of TPII software
products. Revenues from the licensing and installation of TPII software
products were $1,076,761 for the six months ended October 31, 1996, as
compared to $445,614 for the six months ended October 31, 1995. Service
revenues for the six months ended October 31, 1996 increased by $122,932, or
60.2%, over service revenues for the six months ended October 31, 1995. As of
October 31, 1996, the Company had approximately $177,565 of deferred
maintenance service revenues. Service revenue growth is expected to continue
as long as the number of licenses for TPII software products increases and
the customers continue to utilize such software products.
Revenues from licensing of TPII software products in countries outside the
United States accounted for 49.5% of total revenues for the six months ended
October 31, 1996 as compared to 81.6% for the six months ended October 31,
1995. The decline as a percentage of total revenues resulted primarily from
an increase in domestic software revenues. Such domestic software revenues
increased by approximately $543,000, primarily as a result of revenues
recognized from the smart card pilot programs. The Company nevertheless
expects total revenues from foreign countries to continue to be a significant
portion of its revenues in the future.
Gross profit, as expressed as a percentage of total revenues, decreased to
75.6% for the six months ended October 31, 1996, as compared to 76.5% for the
six months ended October 31, 1995. This slight decrease is
19
<PAGE>
associated with the increase in hardware revenues. Hardware revenues
typically have a lower gross margin than the Company's software products.
Hardware revenues were $127,884 for the six months ended October 31, 1996 as
compared to $35,248 for the six months ended October 31, 1995.
Operating expenses of $1,020,823 for the six months ended October 31, 1996
represent an increase of $99,213, or 10.8%, from operating expenses of
$921,610 for the six months ended October 31, 1995. This increase in
operating expenses resulted primarily from an increase in personnel. The
Company expects that operating expenses will increase following completion of
this offering as a result of the planned addition of new personnel in
anticipation of new business relating to the licensing of TPII software
products, including the TPII smart card software.
Capitalized software costs for the six months ended October 31, 1996 were
$153,983, as compared to $78,480 for the six months ended October 31, 1995.
This increase in capitalized software costs resulted primarily from costs
incurred with respect to the TPII smart card software technology. Such
capitalized costs are being amortized on a straight line basis over the
estimated five year marketing lives of the software.
Net income was $52,051 for the six months ended October 31, 1996, as
compared to a net loss of $414,325 for the six months ended October 31, 1995,
primarily as a result of substantially increased licensing of TPII software
products and increased service revenues.
FISCAL YEAR ENDED APRIL 30, 1996 COMPARED TO FISCAL YEAR ENDED APRIL 30,
1995
Total revenues of $2,440,783 for the fiscal year ended April 30, 1996
represent an increase of $399,526, or 19.6%, over total revenues of
$2,041,257 for the fiscal year ended April 30, 1995. This increase in total
revenues resulted primarily from increased licensing of TPII software
products. Revenues from the licensing and installation of TPII software
products were $1,955,657 for the fiscal year ended April 30, 1996, as
compared to $1,638,004 for the fiscal year ended April 30, 1995, representing
an increase of $317,653, or 19.4%.
Revenues from licensing of software in countries outside the United States
accounted for 82% of total revenues for the fiscal year ended April 30, 1996
as compared to 91% for the fiscal year ended April 30, 1995 primarily because
of an increase in software revenues resulting from licensing agreements with
Standard Federal Bank and Lockheed Federal Credit Union, each a United States
financial institution. However, the Company expects total revenues from
foreign countries to continue to be a significant portion of its revenues in
the future.
Service revenues were $412,743 for the fiscal year ended April 30, 1996,
as compared to $280,080 for the fiscal year ended April 30, 1995,
representing an increase of $132,663. The increased service revenues in
fiscal 1996 reflects an increase in customers utilizing licensed TPII
software products. As of April 30, 1996, the Company had $217,876 in deferred
maintenance service revenues.
Operating expenses of $1,933,652 for the fiscal year ended April 30, 1996
represent an increase of $77,023, or 4.1%, over operating expenses of
$1,856,629 for the fiscal year ended April 30, 1995. This increase resulted
primarily from an increase in technical personnel hired in anticipation of
projected licenses of TPII software products for the fiscal year ended April
30, 1996 (although the actual number of licenses for the year ended April 30,
1996 ultimately proved to be lower than projected). Upon completion of this
offering, the Company intends to increase its technical and marketing
personnel.
The Company incurred a net loss of $48,380 for the fiscal year ended April
30, 1996 as compared to net income of $172,215 for the fiscal year ended
April 30, 1995. Net income resulted from an extraordinary gain recognized in
connection with debt restructuring and extinguishments (i.e., debt
forgiveness). Without giving effect to the extraordinary gain, the Company
incurred an operating loss of $205,472 for the fiscal year ended April 30,
1995.
The Company had net operating loss carryforwards of approximately
$2,200,000 as of April 30, 1996. As a result of this offering, the use of
such net operating loss carryforwards as an offset against future taxable
income in any particular year will be significantly limited.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds has been operating revenue. Although
total revenues increased for the fiscal year ended April 30, 1996 by
approximately 19.6%, the Company's working capital deficit increased
20
<PAGE>
to $798,225 as of April 30, 1996 from $700,196 as of April 30, 1995. As a
result, the Company was not able to meet scheduled principal and interest
payments on its outstanding debt during fiscal 1996 nor pay its trade
creditors on a current basis. Although software and service revenues
increased for the six months ended October 31, 1996, the Company's net
working capital deficit as of October 31, 1996 increased to $874,445,
primarily as a result of the funding of noncurrent assets such as capitalized
software costs, the purchase of equipment and deferred offering costs. The
Company obtained approximately $500,000 from the Bridge Financing in
September 1996. The Company believes that anticipated revenues from
operations for the fiscal year ending April 30, 1997, as well as proceeds
from the Bridge Financing, will be sufficient to meet current debt service
requirements and operating costs of the Company through April 30, 1997.
Nevertheless, the Company requires additional working capital in order to
implement its plans to solicit and perform new business. The Company also
believes an improved working capital position also is necessary to attract
potential customers who are reluctant to do business with firms they perceive
to be undercapitalized.
The Company believes that the proceeds of this offering, together with
anticipated cash flow from operations, will be sufficient to finance the
Company's working capital requirements for a period of at least 24 months
following the completion of this offering. However, since a portion of the
license fee for TPII software products is not paid until acceptance by the
customer and, as a result, the Company is required to fund a portion of the
costs of configuration and installation of such products from available
capital, any substantial increase in the number of installations or delay in
payment could create a need for additional financing. In such event, there
can be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. The Underwriter's consent is required
before the Company may complete certain types of financing. The obligation to
obtain such consent may limit the Company's ability to complete such
financing.
A portion of the net proceeds will be used to satisfy past due amounts
under the NG Loan and the Technology Loan and also to repay the Notes.
QUARTER TO QUARTER SALES AND EARNING VOLATILITY
Quarterly revenues and operating results have fluctuated and will
fluctuate as a result of a variety of factors. The Company can experience
long delays (i.e., between three to twelve months) before a customer executes
a software licensing agreement. These delays are primarily due to extended
periods of software evaluation, contract review and the selection of the
computer system. In addition following execution of the agreement, the
preparation of functional specifications, customization and installation of
software products and the training by the Company of the financial
institution's personnel in the use of the TPII software products take an
average of six to twelve months, depending upon the timing of installation
and final acceptance of the EFT System by the customer. Accordingly, the
Company's revenues may fluctuate dramatically from one quarter to another,
making quarterly comparisons extremely difficult and not necessarily
indicative of any trend or pattern for the year as a whole. Additional
factors effecting quarterly results include the timing of revenue recognition
of advance payments of license fees, the timing of the hiring or loss of
personnel, capital expenditures, operating expenses and other costs relating
to the expansion of operations, general economic conditions and acceptance
and use of EFT.
INFLATION
The Company has not experienced any meaningful impact on its sales or
costs as the result of inflation.
21
<PAGE>
BUSINESS
INTRODUCTION
The Company is engaged in the business of developing, marketing and
supporting software products for the EFT market. The Company's family of
products, marketed under the name TechNique Plus II ("TPII"), serves as a
UNIX-based manager for EFT Systems. TPII software products are designed to
operate with computers utilizing the UNIX operating system, are written in C
programming language and incorporate Oracle relational database technology
and object oriented design concepts. As a result, TPII software products are
compatible with a significant portion of the industry standard computer
platforms.
An EFT System of a bank or other financial institution processes
transactions involving credit cards and debit cards (e.g., ATM cards). An EFT
System generally consists of one or more of the following in various
configurations: automatic teller machines ("ATMs"), point of sale ("POS")
terminals, a host computer of the financial institution and regional,
national and international Networks, such as CIRRUS, NYCE, MAC or PLUS. TPII
software products primarily route and authorize the processing of
transactions through an EFT System. TPII software is offered in separate
modules which perform different functions, including (i) interfacing with
ATMs, POS terminals, a financial institution's host computer and Network
computers, (ii) updating credit and debit card information, (iii) providing
stand-in authorization for transactions when the financial institution's host
computer is not operating, (iv) computing fees for transactions processed and
(v) generating reports. The TPII software products are installed generally at
the financial institution's main processing facility.
The Company's primary business objective is to become a leading world-wide
supplier of UNIX-based managers for EFT Systems. To date, the Company's TPII
software products have been primarily installed in EFT Systems of banks and
other financial institutions located in emerging countries and former Eastern
Bloc nations. As of December 31, 1996, fourteen financial institutions and
two Networks were utilizing TPII software products. Certain of such financial
institutions serve up to 200 ATMs and 1,000 POS terminals and the two
Networks serve 22 and 5 financial institutions, respectively. In addition,
agreements have been executed for the installation of TPII software products
in EFT Systems of four additional financial institutions (which excludes the
agreements relating to the smart card pilot programs referred to below under
"Visa Contract").
EFT SYSTEMS
Typically, the completion of a debit card or credit card transaction or
the "loading" of value to a smart card involves several steps through an EFT
System. First, the bank customer or a retailer inserts the customer's debit,
credit or smart card issued by the bank into an ATM, POS terminal or smart
card "load" device thereby requiring authorization of a transaction. The
request is routed to a Network or bank computer for authorization; the
authorization message is then returned to the terminal at which the
transaction was originated and the transaction then is completed. The whole
process is generally accomplished within thirty seconds or less. Most EFT
Systems operate twenty-four hours a day, seven days a week.
The routing and authorization of EFT transactions is a complex activity
due to the large number of locations and variety of devices through which
transactions can be generated, the large number of card issuers in the
market, the high transaction volumes, the geographic dispersion of the
Networks, the differing types of authorization and the varied reporting
requirements. In addition, there are many variations to an EFT System. For
example, ATMs, POS terminals or smart card "load devices" may be connected to
one or several Network computers, in which case transaction authorization can
be processed by the Network computer, with authorization and record
information transmitted to the bank computer, if appropriate. Many smaller
banks utilize processing firms for all or portion of their transactions or
several banks establish a joint venture to process credit and debit card
transactions.
THE EFT MARKET
The EFT market has expanded considerably both domestically and
internationally. In the United States, growth has occurred in all sectors of
the market, including ATMs and POS terminals. For example, as of September
1995, there were approximately 122,700 ATMs and 554,300 POS terminals in the
United States, an increase of 12.5% and 47.6%, respectively, from 1994 (Bank
Network News - EFT Network Data Book - 1995
22
<PAGE>
Edition). These ATMs and POS terminals generated in the aggregate
approximately 807.4 million and 64.6 million transactions per month,
respectively, an increase of 14.6% and 36.9%, respectively, from 1994 (Bank
Network News - EFT Network Data Book - 1995 Edition). The number of ATMs in
the United States is expected to increase to 135,000 by 1997 (Investors
Business Daily - 11/21/94). As of March 1995, there were approximately
540,000 ATMs deployed in the world, with predictions of growth to
approximately 937,000 by the year 2000 (Nilson Report - 9/94 and 3/95).
(Statistics and industry estimates referred to herein are based on certain
industry publications, which the Company relies upon in the conduct of its
business and believes are generally relied upon by other industry
participants.)
The Company expects increases in EFT transaction volume and more complex
payment systems to be major trends in the marketplace for the reasons set
forth below:
o Many regions of the world are experiencing economic growth. Moreover,
credit and debit cards are being issued to a larger portion of the
world's population, and consumer use of credit and debit technology is
increasing. Demographic factors should also contribute to EFT
transaction growth, as generations of consumers who are comfortable
with technology gain more wealth.
o Lower technology costs make it more economical to deploy devices and
create the networks necessary to implement EFT systems and move away
from traditional paper-based payment processes.
o Banks find EFT-based transactions attractive, since they provide
fee-based revenue.
o The current trend in bank consolidation may result in nationwide
expansion in ATMs and POS terminals.
o Alternatives to banking at the financial institution's facilities (such
as the Internet) will offer consumers additional ways to access banking
services. This is consistent with efforts of financial institutions to
move transactions from branches to less expensive, unmanned electronic
points of delivery such as "self- service banking" and home banking.
The emergence of smart cards with the stored value option should
further increase the volume of electronic transactions, including the
ability to load value to a card from devices in the home, as well as at
the existing ATM base.
TPII SOFTWARE PRODUCTS
The TPII software products are EFT Systems managers. Such software
products primarily route and authorize the processing of transactions through
an EFT System, thereby enabling the system to interface or communicate with
other systems and Networks, as well as to provide other functions. TPII
software products generally can be configured to (i) act as a front-end to a
financial institution's host computer, (ii) perform as a switch connected to
multiple financial institutions' host computers and Networks or (iii) act as
an authorization-only system for financial transactions.
As a front-end system, TPII software products can intercept transactions
from a financial institution's terminals and route them to the institution's
host computer. This eliminates expenses that may be charged by data
processing facilities or Networks. For example, a transaction initiated by
the customer of a bank at the bank's ATM that is part of a larger shared
Network generally is initially routed to the Network computer for a fee
before it is routed back to the bank's host computer, typically referred to
as an "on-us" transaction. The TPII front-end system, however, routes the
"on-us" transaction directly to the bank for processing, thereby bypassing
the Network.
As a switch, TPII software products can route transactions between
multiple host computers of financial institutions for authorization of
transactions. In this environment, ATMs, POS terminals and smart card
"loading" devices of a financial institution are on-line to such financial
institution's host computer and such host computer is on-line to the TPII
software. If such financial institution's host computer receives a
transaction request from an ATM, POS terminal or smart card "loading" device
requiring an authorization from another financial institution which is part
of the Network, then the request is transmitted to the Network utilizing the
TPII software and the TPII software routes the request to the proper
financial institution's host computer for authorization, which then transmits
the authorization response back to the Network. The TPII software then routes
the authorization response to the original requesting financial institution.
In this environment, the TPII software can also authorize the transaction if
the financial institution from which the authorization is requested is
unavailable.
23
<PAGE>
As an authorization-only system, TPII software products receive
authorization requests from various Network switches. In this environment,
the TPII software is installed at the financial institution's main office,
but is not interfaced with any of that institution's ATMs, POS terminals or
smart card load devices. Instead, it will authorize transactions initiated by
credit cards, debit cards and/or smart cards issued by the institution to its
customers when the customers utilize terminals and devices owned by other
financial institutions. In this environment, a transaction request
originating at another financial institution's ATM, POS terminal or smart
card "loading" device by the customer is transmitted to a Network switch and
the Network switch will route the transaction request to the TPII software.
The TPII software will then route the transaction to the host computer of the
financial institution utilizing TPII software for authorization. If such
institution's host computer is unavailable, then the TPII software will
authorize the transaction and transmit the response back to the proper
Network switch.
TPII software products can be installed at the financial institution's
main office, a branch or at a data processing facility. TPII software
products permit 7-day, 24-hour remote banking by storing customer balance
files and communicating with the customers' in-house computer(s) or data
center(s) on a continuous (real time) or batch (delayed) basis with no
changes required to existing host application software. TPII software
products are capable of sending or receiving messages from ATMs, POS
terminals, Networks and host computers. Such products may authorize
transactions without the necessity of interfacing with the host computer and
can periodically input the transactions into the host computer.
TPII software is offered in separate modules depending on the function to
be performed. Set forth below is a description of the various modules of the
Company's TPII software products:
ATM, POS, Smart Card, Host and Network Interfaces each provide for the
access to and messages between a financial institution's or Network's EFT
System and its associated terminals or processors.
The Card Management Module is responsible for the updating and
maintenance of a relational database of card data. This module is capable
of maintaining the day-to-day history of the existing card base and is
used for both the ordering of new cards and the replacement of lost or
damaged cards.
The Stand-In Module is primarily responsible for the logging of
transactions whenever communications are not available between the EFT
System and the host due to host failure or scheduled host downtime. When
communications are re-established the Stand-In Module is responsible for
sending stand-in transactions to the host.
The Settlement Processing Module is responsible for the computation of
fees for both the Network and issuer transactions processed on an EFT
System and is responsible for generating operational and statistical
reports in industry standard format for terminals, banks and Networks.
The Authorization Module provides, if required, transaction
authorization using various methods.
The Software Distribution Module is responsible for the down-line
loading of various configuration parameters to the ATM terminals and to
encrypt and decrypt the personal identical number (PIN) portion of the
message to or from ATMs. The encryption and decryption processes are
performed by the connected Host Security Module on behalf of the Software
Distribution program.
The Device Monitor Module is responsible for supplying the ATM Network
manager with real time device status monitoring. When the device monitor
module determines the need to inform the manager of a particular
condition, it will send a warning message indicating the problem.
VISA CONTRACT
The Company has adapted its TPII software to manage EFT Systems that
process transactions involving the "loading" of value on smart cards. A smart
card is a plastic card with an electronic chip that acts as a small computer.
These cards can include a stored value feature, which enables the holder to
"load" a fixed amount of purchasing power or cash equivalent on the card as
authorized. As a result, the holder can purchase items or services without
the necessity of carrying cash or entering into a credit card transaction.
For example, the smart card may be activated with $60.00 of purchasing power
by inserting the smart card into a smart card terminal
24
<PAGE>
(i.e. a "loading" device). The card holder then uses the smart card to
purchase a product for $12.00, which reduces the purchasing power of the
smart card to $48.00. The stored value on the card can be changed at a
participating ATM or other terminal. This system is not yet operational.
The Company has developed software for Visa to manage an EFT System that
facilitates the "loading" of value on a smart card through a bank's
terminals. As a result of a successful test of the Company's TPII smart card
software, Visa entered into an agreement with the Company in July 1996 for
the licensing and installation of this software in connection with the
operation of up to seven pilot programs for the purposes of evaluating the
TPII smart card software and other aspects of the smart card system. The
license for each pilot program is for a term of 24 months commencing on the
date such pilot program goes on-line. As of the date hereof, Visa has
selected financial institutions in the following countries to conduct five of
the pilot programs: the United States, the United Kingdom, Japan, Germany and
Italy. The Company anticipates that the first pilot program that will become
operational will be in Germany during the first calendar quarter of 1997.
Although there can be no assurance, the Company anticipates that revenues
from its agreement with Visa will have a material impact on its financial
position during the next 9-12 months.
The Company is also negotiating with a financial institution to implement
the "loading" of value to a smart card adapted for use with that
institution's MasterCard. There can be no assurance that the Company and the
financial institution will enter into an agreement.
LICENSING, SERVICES AND TRAINING
The Company licenses its TPII software products pursuant to a
non-exclusive perpetual licensing agreement. Under these agreements, the
customer receives the non-exclusive right to use one copy of the software
product on designated equipment upon payment of a one-time fixed license fee.
Each financial institution's computer requires a separate copy of the TPII
software and the license portion of the fee is incurred for each copy of the
software installed. The Company trains the financial institution's personnel
in the use of the TPII software products.
The TPII software products generally involve customization to enable the
TPII software to interface with a customer's unique host software and to meet
the particular needs of the customer. For example, each financial institution
has different software operating various ATMs or POS terminals, as well as
bank and Network computers, requiring modification to configure with the
Company's TPII software. Licenses for TPII software products generally begin
at $180,000 and average approximately $300,000 per contract depending upon
the modules selected. Payments under these types of contracts are usually
made in several stages commencing with signing of the license agreement and
then as certain milestones are completed. Following this offering, the
Company intends to evaluate the feasibility of licensing its TPII software
products on a fee-per-transaction basis in addition to, or in lieu of, the
one-time licensing fee structure currently used.
The Company generally warrants its TPII software products for 90 days.
Subsequent to the warranty period of the TPII software products, the Company
provides maintenance services with respect to such software products. Yearly
service fees are typically 15% of the original TPII software license fee,
subject to annual increases based on changes in the Consumer Price Index in
the United States, and are generally payable annually in advance. During the
period of service, the customer receives copies of the Company's latest
standard releases and any software enhancements that the Company considers to
be logical improvements. These releases and enhancements are accompanied by
documentation updates as necessary.
For an additional fee, the Company will provide additional training of
customer personnel. Depending on the complexity of the customer's system,
training can take from 2-4 days to 2-4 weeks.
Oracle Corporation has granted the Company, in exchange for the payment of
royalties to Oracle, a nonexclusive license to use, and grant sublicenses
with the respect to, the Oracle relational database software which is
incorporated into the TPII software products.
SPECIAL DEVELOPMENT CONTRACTS
The Company performs specialized software modifications or enhancements to
its TPII software for its customers, such as enhancing the TPII software to
issue postage stamps at an ATM terminal. The Company generally receives a fee
for the modification and has all proprietary rights to the software developed
and may then include the modification in its standard TPII software products.
The Company finds these contracts to be beneficial because of the resulting
enhancements to its base software products.
25
<PAGE>
MARKETING AND CUSTOMERS
TPII software products generally have been primarily installed in EFT
Systems of banks and other financial institutions located in emerging
countries and former Eastern Bloc nations which operate or are members of
geographically-distributed EFT Systems or Networks servicing large volumes of
transactions through many types of devices. They include the following:
Budapest Bank, Budapest, Hungary; Ceska Sporitelna, Prague, Czech Republic;
Slovak State Savings Bank, Bratislava, Slovak Republic; and Trustee's Saving
Bank, Cork, Ireland. Certain of such financial institutions serve up to 200
ATMs and 1,000 POS terminals. In addition, the Company has recently licensed
its TPII software products to two United States financial institutions,
Standard Federal Bank, Detroit, Michigan and Lockheed Federal Credit Union,
Burbank, California.
In 1994, the Company entered into a strategic alliance with DEC, pursuant
to which such computer manufacturer agreed to market on a nonexclusive basis
TPII software products in connection with DEC's world-wide sale of its
computers for EFT Systems. In connection with DEC's sale of computers for EFT
Systems, DEC, rather than the financial institutions, is generally the
licensee of the Company's TPII software products. For the fiscal years ended
April 30, 1995 and 1996 and the six months ended October 31, 1996,
approximately 19%, 14% and 23%, respectively, of the Company's total revenues
were derived pursuant to this relationship. The Company is, therefore,
dependent upon this relationship and would be adversely affected by the loss
of such relationship. The Company has a similar agreement with Unisys for
Europe and Africa, but as of the date hereof, the Company has not derived any
revenues pursuant to its relationship with Unisys. In addition, pursuant to
an informal arrangement with IBM Thailand, the Company licensed its TPII
software products, through IBM Thailand, to two Asian financial institutions
utilizing IBM computers for their EFT Systems. Revenues from such licenses
represented approximately 19% of the Company's total revenues during the
fiscal year ended April 30, 1996. The Company is currently seeking to enter
into alliances with additional computer manufacturers.
The Company also markets its products directly through Charles J. Caserta,
President of the Company, and Simon J. Theobald, Director of the Sales and
Marketing Division in the Company's European office based in London. The
Company intends to hire additional sales personnel after this offering.
The Company's software product information is disseminated internally
within DEC through in-house newsletters and other promotional tools. Products
are also advertised, to a limited extent, in user publications and at various
trade shows. Upon completion of the offering, the Company intends to engage
an advertising agency to implement a marketing campaign, including
advertising in publications targeted for financial institutions.
BACKLOG AND DEFERRED MAINTENANCE SERVICE REVENUES
BACKLOG
As of October 31, 1996 and 1995, the Company had backlog of approximately
$942,000 and $1,182,000, respectively, in software license fees. The backlog
was higher as of October 31, 1995 as the Company had more license agreements
in process at that date as compared to October 31, 1996. Additionally, the
stages of completion on contracts in process as of October 31, 1995 were
generally less than the stages of completion on contracts in process as of
October 31, 1996. The Company includes in its backlog all license fees not
included as revenues under the percentage of completion method to the extent
that the Company contemplates recognition of the related revenues within one
year. Between November 1, 1996 and December 31, 1996, the Company entered
into a new license agreement with a financial institution for an additional
$303,500 in software license fees. There can be no assurance that the
contracts included in backlog will actually generate the specified revenues
or that the actual revenues will be generated within the one year period.
DEFERRED MAINTENANCE SERVICE REVENUES
As of October 31, 1996 and 1995, the Company had deferred maintenance
service revenues of approximately $178,000 and $120,000, respectively. As
more TPII software products are installed, maintenance service revenues are
expected to increase.
26
<PAGE>
COMPETITION
The development and marketing of software for financial institutions is
highly competitive. The Company encounters both direct and indirect
competition from several different sources which vary depending on the
particular product or services involved and the size of the customer served.
Many of these competitors have greater financial resources than the Company.
In addition, many of the larger financial institutions have developed their
own systems internally. However, the Company believes its TPII software
products will continue to be competitive based on cost and technology.
The Company's TPII software products face strong competition from
proprietary (legacy) and UNIX-based software. In the international EFT
market, well established worldwide competition includes Transaction Systems
Architects, Inc., Deluxe Data Systems, Inc., SDM International, Inc., S2
Systems, Inc., a subsidiary of Stratus, SLM Software, Inc., Consolidated
Software and Oasis Systems, whose products run on Tandem or Stratus fault-
tolerant computers with proprietary operating systems or on IBM host or
industry standard computers with UNIX operating systems.
The Company also encounters competition from original equipment
manufacturers such as NCR Corporation, Interbold, Fujitsu and Omron; EFT
software system integrators such as Kirchman Corporation, Hogan Systems,
Inc., ARKSYS (formerly known as Arkansas Systems), Jack Henry and Diebold,
Incorporated; and EFT shared regional networks such as NYCE, MAC and HONOR.
Price competition is considerable, with discounting from list used as an
inducement to buy software and mainframes or to become members of the
Networks.
The Company is aware of only a limited number of companies primarily
marketing UNIX-based products for EFT Systems. The Company is also aware that
S2 Systems, Inc. has developed its own UNIX-based transaction processing
package and Transaction Systems Architects, Inc. has begun to market a
UNIX-based product, TRANS 24.
There are numerous companies which offer EFT outsourcing services. These
third party providers primarily drive ATMs belonging to financial
institutions. A significant portion of all of ATM transactions are processed
by these third party providers. The principal companies in this area are:
Electric Data Systems (EDS), Deluxe Data Corporation, Affiliated Computer
Services, Inc., Fiserv, Inc., Money Access Services (MAC), Information
Services and First Data Corporation.
The retail POS market is rapidly growing and numerous participants are
positioning themselves to capture various segments of the market. Most of
these companies are well established, have greater financial resources than
the Company and an established customer base. There can be no assurance that
the Company can make any inroads in this highly competitive marketplace or
that its efforts will be successful.
In the smart card market, the Company is aware of other financial
institutions attempting to develop their own smart card technology and is
unable to predict which technology, if any, will become the industry
standard.
SOFTWARE DEVELOPMENT AND FUTURE PRODUCTS
In an effort to license TPII software products to larger financial
institutions, the Company will test its software for use in managing EFT
Systems with a greater number of ATMs and POS terminals than in the EFT
Systems currently utilizing the Company's TPII software products.
Establishing this capability will permit the Company to market TPII software
products to financial institutions with larger EFT Systems which may be
reluctant to use the Company's TPII software without proof of its
capabilities in that environment.
Competition, technological advances, changes in customer requirements,
deregulation and other regulatory changes affecting financial institutions
necessitate an ongoing enhancement and development effort to meet the
comprehensive processing needs of banks and other financial institutions. As
a result, the Company will continue ongoing expenditures for enhancement of
the Company's existing software products that take advantage of technological
advances and respond to the increasingly sophisticated requirements of its
customers. Enhancements to existing customers are delivered as add-ons to the
licensing agreements for additional license fees.
The Company may devote a portion of the net proceeds of this offering to
further develop products and services relating to the "loading" of value on
the smart card. Financial institutions utilizing smart cards must
27
<PAGE>
provide for the personalization of the smart cards as well as a purchase
terminal system, a collection system and a clearing system. The Company may
consider developing, itself or jointly, one or all of these products and
services and may also explore the possibility of providing a turnkey or
single vendor solution for financial institutions in this area.
The Company believes that its TPII software products can be adapted for
telephone and Internet/computer banking. The Company intends to evaluate the
potential for these markets upon the completion of this offering.
The Company will also attempt to market additional services to the EFT
industry. Such services will include custom services, as well as facilities
management services. Facilities management services entail the operation on a
fee-basis of an EFT System by the Company's personnel at the customer's
facility.
PROPRIETARY RIGHTS
The Company does not own any patents or registered copyrights. The Company
relies on a combination of trade secret and copyright laws, nondisclosure and
other contractual provisions and technical measures to protect its
proprietary rights. The Company distributes its TPII software products under
software license agreements which typically grant customers nonexclusive
licenses to use the products. Use of the software products is usually
restricted to designated computers at specified locations and is subject to
terms and conditions prohibiting unauthorized reproduction or transfer of the
software products. The Company also seeks to protect the source code of its
software products as a trade secret. The Company also obtains confidentiality
agreements from its employees, customers and others who have access to its
software products. Despite these precautions, there can be no assurance that
misappropriation of the Company's software products and technology will not
occur.
Although the Company believes that its intellectual property rights do not
infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company. Further, there can be no assurance that intellectual property
protection will be available for the Company's products in certain foreign
countries.
REGULATIONS
The Company's applications are utilized primarily by financial
institutions. Such institutions are subject to state, federal or foreign
regulation. Hence, it is possible that banking regulations may have a
material effect on the Company's operations. In addition, the TPII software
products are subject to export regulations, including regulations relating to
encrypted software, which require prior approval of the licensing of the
software to customers located in foreign countries. To date, however, the
Company has not experienced problems complying with these regulations.
EMPLOYEES
As of October 31, 1996, the Company had thirty-seven employees,
thirty-five of whom were full time. Two employees comprise the direct sales
force; twenty-seven employees are involved in product development, technical
support and services and eight employees are involved in office
administration. Additionally, the Company engages various consultants from
time to time to assist with product development and enhancements to existing
products.
The Company believes it can continue to attract skilled personnel for all
areas and has been able to keep turnover to a minimum. However, the
competition to employ skillful professionals is intense. None of the
employees are covered by a collective bargaining agreement and there have
been no work stoppages. Management believes that relations with its employees
are good.
PROPERTIES
The Company's current headquarters, which consist of approximately 8,500
square feet of leased office space, is located at 185 Jordan Road, Rensselaer
Technology Park, Troy, New York. The term of this lease expires on July 31,
1999. The Company has the option to renew the lease at a mutually agreeable
rental at least
28
<PAGE>
30 days prior to expiration. The current annual base rental amount is
$82,476. In addition to base rent, the Company pays a pro-rata share of
operating costs.
In order to have sufficient space for its projected expanded operations,
the Company entered into a Purchase and Sale Agreement as of December 17,
1996 for the acquisition of a ground lease expiring on May 25, 2083 and a
building with approximately 35,000 square feet of space located at 300 Jordan
Road, Rensselaer Technology Park, Troy, New York. The Company intends to use
approximately 20,000 square feet of this new facility for its operations. The
purchase price of such facility is $995,000, of which an initial deposit of
$20,000 has been paid. An additional deposit of $30,000 is due on February
28, 1997 and the balance is due on March 14, 1997 on the satisfaction of
certain matters. The Company estimates that an additional $400,000 will be
necessary for the renovation of such facility. The Company intends to use
approximately $600,000 of the net proceeds to fund such purchase and
renovation with the balance to be funded by a mortgage. There can be no
assurance that a mortgage will be available on terms acceptable to the
Company, or at all. If the Company is unable to obtain a mortgage for this
facility, it would not proceed with the purchase. In such event, it would
forfeit any deposits paid towards such purchase. If the Company acquires and
moves into this new facility, the landlord of the Company's current lease has
agreed to terminate such lease without any further obligations by the
Company.
The Company's European Sales and Marketing office is also leased and is
located at Salamander Quay (West), Park Lane, Harefield, Uxbridge, Middlesex,
UB9 6NZ, England. This office consists of approximately 890 square feet. The
term of this lease expires in June 1999. The current annual base rental
amount is approximately $22,000.
LEGAL PROCEEDINGS
On June 15, 1989 the Company commenced an action against SLM Software,
Inc. ("SLM"), a competitor of the Company, in the Supreme Court of the State
of New York. The action sought money damages from SLM for fraud and breach of
contract, and further sought rescission of a certain contract between the
parties. Thereafter, SLM commenced a separate action against the Company in
the civil trial courts of the province of Ontario, Canada. All litigation
between the parties was settled on December 4, 1996 with the Company paying
$100,000 to SLM.
The Company is not aware of any other legal proceedings.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------- ----- -----------------------------------------------------------------
<S> <C> <C>
Frank A. Pascuito . 40 Chairman of the Board, Chief Executive Officer and Director
Charles J. Caserta 40 President and Director
Simon J. Theobald . 33 Director of Sales and Marketing for the London office and Director
Carmen A. Pascuito 37 Controller and Secretary
Jerald Tishkoff ... 59 Director
Arnold Wells ...... 77 Director
</TABLE>
Frank A. Pascuito has been the Chief Executive Officer and Chairman of the
Board of the Company since 1989. Mr. Pascuito co-founded the Company's
predecessor company, IFS International, Inc. (formerly named Avant-Garde
Computer Systems, Inc.), a New York corporation engaged in the development
and marketing of software (the "Predecessor"), in 1981 and served as its
President until November 1987 and as its Vice President of Product Planning
until 1989. Prior to 1981, he was employed by NCR Corporation's ATM software
development team. As a consultant to NCR in 1979, he assisted in the
development and performed the installation of the first on-line/off-line ATM
system for NCR in the United States. Mr. Pascuito has over ten years of
operating and marketing experience in EFT system design, sales and service.
Mr. Pascuito is a graduate of the State University of New York at Potsdam
with a B.S. degree in Computer Science. He is active in several area
organizations dealing with technology, software, and world trade.
Charles J. Caserta has been the President and a director of the Company
since 1989. Mr. Caserta co-founded the Predecessor in 1981 and served as its
Chairman until November 1987 and as its Vice President of Sales until 1989.
Mr. Caserta has over ten years of consulting and marketing experience in EFT
system design, sales and service. Mr. Caserta is a graduate of Villanova
University with a B.A. degree in English.
Simon J. Theobald has been a director of the Company since December 1994
and has been the Director of Sales and Marketing of the European Division
based in London since 1992. From 1986 to April 1992, he was employed by
Applied Communications Inc., a subsidiary of Transaction Systems Architects,
Inc. Mr. Theobald has more than fifteen years experience in the electronic
funds transfer industry. Mr. Theobald is a graduate of De-Havilland College
with a degree in computer studies and technology.
Carmen A. Pascuito has been Secretary of the Company since December 1996
and its Controller since 1989. Mr. Pascuito joined the Predecessor in 1985 as
a staff accountant and became its controller in 1988. Mr. Pascuito is a
graduate of Siena College with a B.B.A. degree in Accounting.
Jerald Tishkoff has been a director of the Company since May 1994. Since
1991, Mr. Tishkoff has been Director of Marketing and a member of the Board
of Directors of Allen Technologies, Inc., a private company that provides
interactive television networks to schools and hospitals. Between 1967 and
1991, he was Director of Marketing of Wells National Services, a provider of
interactive television networks to hospitals. He serves on the Advisory Board
of the Jewish Federation, a charitable organization. He is a graduate of
Western Reserve University of Cleveland with a B.B.A. degree and attended
Western Reserve University Law School.
Arnold Wells has been a director of the Company since 1986. Since 1976,
Mr. Wells has been a private investor and consultant in the health and
communications fields. Mr. Wells organized Wells Television (subsequently
named Wells National Services). In 1978, Mr. Wells formed WellsArt Limited, a
company which is engaged in the publishing and licensing work of prominent
artists. Mr. Wells is a graduate of Western Reserve University with a B.A.
degree.
<PAGE>
Frank A. Pascuito and Carmen A. Pascuito are brothers.
Pursuant to the terms of the Underwriting Agreement, the Underwriter will
have the right to nominate a member of the Board of Directors and the Company
will use its best efforts to have such nominee elected to the Board. As of
the date hereof, the Underwriter has not nominated any such person. See
"Underwriting."
Promptly after the consummation of this offering, the Company will appoint
an audit committee. One of the members of such committee will be the
director, if any, who is designated by the Underwriter and another member of
such committee will be an independent director.
30
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid or
accrued by the Company or its subsidiary for services rendered during the
fiscal years ended April 30, 1996, 1995 and 1994 to the Company's Chief
Executive Officer. No executive officer had total annual compensation which
exceeded $100,000 during such fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Other All
Annual Restricted Securities Other
Name and Fiscal Compen- Stock Underlying LTIP Compen-
Principal Position Year Salary(1) Bonus sation Award(s) Option(s) Payouts sation
----------------------- -------- ------------ ------- --------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank Pascuito ........ 1996 $88,000 $-0- $-0- $-0- -0- -0- $-0-
Chief Executive Officer 1995 $88,000 $-0- $-0- $-0- -0- -0- $-0-
1994 $78,454(2) $-0- $-0- $-0- -0- -0- $-0-
</TABLE>
- ------
(1) Does not include accrued interest of $5,706, $5,336 and $4,669 for the
fiscal years ended April 30, 1996, 1995 and 1994, respectively, for
salaries earned but deferred. The interest rate on such deferred salaries
is 12% per annum. See "Certain Transactions."
(2) Includes deferred salary in the amount of $6,769.
Set forth below with respect to Frank Pascuito is further information
concerning options to purchase Common Stock under the Company's stock option
plan.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Number of Shares Underlying Unexercised In-the-Money
of Common Stock Options as of April 30, 1996 Options as of April 30, 1996(1)
Acquired on ------------------------------- -------------------------------
Name Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
------------------------ ---------------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Frank Pascuito,
Chief Executive Officer 0 0 50,773 0 $86,623 $0
</TABLE>
- ------
(1) Based on a market price of $2.50 per share at April 30, 1996.
EMPLOYMENT AGREEMENTS
Upon the completion of this offering, Frank A. Pascuito and Charles J.
Caserta will each enter into a three year employment agreement with the
Company, effective as of January 1, 1997, which will provide for their
employment as Chairman of the Board and President, respectively. Under their
respecive agreements, Messrs. Pascuito and Caserta will each receive a base
salary of $110,000 per year for each of the first two years and an amount to
be determined by the Board of Directors for the third year. In addition,
Messrs. Pascuito and Caserta each will be generally entitled to commissions of
8% on revenues during any fiscal year in excess of $425,000 pursuant to
licenses agreements generated by their respective sales efforts. The Board of
Directors may in its discretion grant bonuses to Messrs. Pascuito and
Caserta. Pursuant to these employment agreements and not pursuant to any
option plan, Messrs. Pascuito and Caserta also will each receive options to
purchase 75,000 shares of Common Stock at an exercise price of $5.00 per
share. Each agreement contains a restrictive covenant requiring the executive
not to compete with the Company for the term of the agreement, for two years
following termination for cause or for one year if such executive's employment
agreement is not renewed by the Company. Each agreement provides for a car
allowance.
STOCK OPTION PLANS
The Company has two option plans: the 1996 Stock Option Plan (the "1996
Plan") and the 1988 Stock Option Plan (the "1988 Plan").
The 1996 Plan provides for the granting of options which are intended to
qualify either as incentive stock options ("Incentive Stock Options") within
the meaning of Section 422 of the Internal Revenue Code of 1986 or as options
which are not intended to meet the requirements of such section
("Nonstatutory Stock Options"). The total number of shares of Common Stock
reserved for issuance under the 1996 Plan is 300,000. Options to purchase
shares may be granted under the 1996 Plan to persons who, in the case of
Incentive Stock Options, are
31
<PAGE>
key employees (including officers) of the Company or any subsidiary of the
Company, or, in the case of Nonstatutory Stock Options, are key employees
(including officers) or nonemployee directors of, or nonemployee consultants
to, the Company or any subsidiary of the Company.
The 1996 Plan provides for its administration by the Board of Directors or
a committee chosen by the Board of Directors, which has discretionary
authority, subject to certain restrictions, to determine the number of shares
issued pursuant to Incentive Stock Options and Nonstatutory Stock Options and
the individuals to whom, the times at which and the exercise price for which
options will be granted.
The exercise price of all Incentive Stock Options granted under the 1996
Plan must be at least equal to the fair market value of such shares on the
date of the grant or, in the case of Incentive Stock Options granted to the
holder of more than 10% of the Company's Common Stock, at least 110% of the
fair market value of such shares on the date of the grant. The maximum
exercise period for which Incentive Stock Options may be granted is ten years
from the date of grant (five years in the case of an individual owning more
than 10% of the Company's Common Stock). The aggregate fair market value
(determined at the date of the option grant) of shares with respect to which
Incentive Stock Options are exercisable for the first time by the holder of
the option during any calendar year shall not exceed $100,000.
As of the date hereof, no options have been granted pursuant to the 1996
Plan.
The 1988 Plan provides for the issuance of options to purchase Common Stock
to key employees, officers, directors and consultants. As of the date hereof,
there were options outstanding to purchase 239,724 shares of Common Stock under
the 1988 Plan. All options are exercisable at prices ranging from $.66 to $3.50
per share and expire in various years between 1997 - 2006. As of the date
hereof, options to purchase 8,819 shares of Common Stock were available for
grant under the 1988 Plan.
The exercise price of all future option grants will be at least 85% of the
fair market value of the Common Stock on the date of grant.
32
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of January 15, 1997 by (i) each stockholder
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company and (ii) all
directors and executive officers as a group. No director, executive officer
or 5% or greater stockholder is the beneficial owner of any shares of
Preferred Stock. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole investment and voting power with respect
to such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Name and Address of Number Of Shares Percentage
Beneficial Owner Beneficially Owned of Class
---------------------------------------------------------- ------------------ ------------
<S> <C> <C>
Frank Pascuito ........................................... 307,757(1) 25.7%
Rensselaer Technology Park
185 Jordan Road
Troy, NY 12180
Charles J. Caserta ....................................... 307,757(2) 25.7%
Rensselaer Technology Park
185 Jordan Road
Troy, NY 12180
Simon J. Theobald ........................................ 44,604(3) 4.0%
Little Elms, 12 Green Lane,
Croxley Green, Rickmansworth,
Hertfordshire, WD3 3HR England
Jerald Tishkoff .......................................... 37,486(4) 3.5%
2620 S. Glen
University Heights, Ohio 44122
Arnold Wells ............................................. 5,500(5) .5%
1100 Madison Avenue
New York, NY 10028
All directors and executive officers as a group (5
persons) ............................................... 703,104(6) 51.1%
</TABLE>
- ------
(1) Includes 123,751 shares issuable upon exercise of stock options.
(2) Includes 123,751 shares issuable upon exercise of stock options.
(3) Includes 44,584 shares issuable upon exercise of stock options.
(4) Includes 7,486 shares issuable upon exercise of stock options.
(5) Includes 5,000 shares issuable upon exercise of stock options.
(6) Includes 304,211 shares issuable upon exercise of stock options.
CERTAIN TRANSACTIONS
Frank Pascuito deferred salaries for the five fiscal years ended April 30,
1995 in the aggregate amount of $60,765. Such deferred salaries bore interest
at the rate of 12% per annum until September 30, 1996, which interest
aggregated $31,013 as of such date and was also deferred. As of December 31,
1996, the Company had repaid $36,396 of deferred salaries and anticipates
that the balance of the deferred salaries and interest will be paid prior to
the commencement of this offering.
Charles Caserta deferred salaries for the five fiscal years ended April
30, 1995 in the aggregate amount of $62,439. Such deferred salaries bore
interest at the rate of 12% per annum until September 30, 1996, which
interest aggregated $34,464 as of such date and was also deferred. As of
December 31, 1996, the Company had repaid all of the deferred interest and
anticipates that the deferred salaries will be paid prior to the commencement
of this offering.
33
<PAGE>
Simon J. Theobald, Director of Sales and Marketing for the London office
of the Company, receives a base salary of $81,000 and a commission in the
amount of 8% of gross revenues of any licensing agreement for which he
provides sales and marketing services. During the fiscal years ended April
30, 1995 and 1996 and the six months ended October 31, 1996, Mr. Theobald
earned $154,592, $115,500 and $84,133, respectively, in salaries and
commissions.
In September 1996, the Company, as part of the Bridge Financing, sold to
unrelated third parties $500,000 principal amount of the Company's Notes for
$500,000 and warrants to purchase 100,000 shares of Common Stock for $5,000.
The Notes bear interest at 12% per annum and are due on the earlier of March
24, 1998 or closing of this offering. The warrants are exercisable at $2.50
per share, subject to adjustment, at any time until September 24, 2001.
The Company believes that all transactions with officers were made on
terms no less favorable to the Company than those available from unaffiliated
parties. All future transactions between the Company and its officers,
directors and 5% shareholders will be on terms no less favorable than could
be obtained by independent third parties and will be approved by a majority
of the independent disinterested directors of the Company.
DESCRIPTION OF SECURITIES
The following descriptions of the Company's securities are qualified in
all respects by reference to the Certificate of Incorporation and By-laws of
the Company, the Certificate of Designation of the Preferred Stock and the
warrant agreement (the "Warrant Agreement"), dated as of _________, 1997, by
and between the Company, American Stock Transfer & Trust Company (the
"Warrant Agent") and the Underwriter, copies of which are filed as Exhibits
to the Registration Statement of which this Prospectus is a part. The
Certificate of Incorporation of the Company authorizes the Company to issue
up to 50,000,000 shares of Common Stock, par value $.001 per share, and
25,000,000 shares of preferred stock, par value $.001 per share.
COMMON STOCK
As of the date hereof, there were 1,072,365 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
Subject to preferential rights with respect to future outstanding preferred
stock, holders of Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of preferential
rights and have no rights to convert their Common Stock into any other
securities. All shares of Common Stock have equal, non-cumulative voting
rights, and have no preference, exchange, preemptive or redemption rights.
PREFERRED STOCK
Prior to the date hereof, there were no shares of preferred stock
outstanding. The Company's Certificate of Incorporation authorizes the
issuance of the preferred stock with designations, rights and preferences
determined from time to time by its Board of Directors. The Board of
Directors has adopted a resolution that 20,000,000 shares of the preferred
stock be designated as Series A Convertible Preferred Stock (the "Preferred
Stock"). The holders of Preferred Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
All such matters require approval of the Preferred Stock, voting separately
as a class, except that with respect to the election of directors, the
Preferred Stock and Common Stock vote together as one class. No dividends
will be paid on the Preferred Stock, except that holders of Preferred Stock
will be entitled to receive dividends if dividends are declared with respect
to the Common Stock and, in such event, ratably with the holders of Common
Stock.
Each share of Preferred Stock is convertible at the option of the holder
into one share of Common Stock, subject to adjustment, during the five-year
period commencing on the date hereof; provided that the Preferred
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Stock must be converted on the earlier of (i) _____________, 2002 or (ii) the
consummation date of a merger or acquisition of the Company in which the then
outstanding securities of the Company are surrendered or exchanged for cash,
property or securities of another entity if the consideration received in any
such transaction is not less than $5.00 per share on a fully-diluted basis.
The number of shares of Common Stock into which the Preferred Stock is
convertible is subject to adjustment in certain circumstances, including a
stock dividend on, or a stock split, subdivision, combination or
recapitalization of, the Common Stock or the issuance or sale of Common Stock
or securities convertible into or exchangable for Common Stock at less than
$5.00 per share, except in certain circumstances.
In the event of liquidation, dissolution or winding up of the Company,
holders of Preferred Stock are entitled, after payment of liabilities and
satisfaction of any then existing preferential rights of any holders of
capital stock, to receive up to $5.00 per share of the remaining assets of
the Company before payment is made to the holders of Common Stock. After
payment of $5.00 per share to the holders of the Preferred Stock, the holders
of the Preferred Stock are entitled to share with the holders of the Common
Stock in the remaining assets of the Company available for distribution to
its stockholders.
All shares of Preferred Stock have equal, non-cumulative voting rights and
have no preemptive or redemption rights.
The remaining 5,000,000 shares of preferred stock, which have not been
designated as Series A Convertible Preferred Stock (the "Shares"), may be
issued in series, and Shares of each series will have such rights and
preferences as are fixed by the Board of Directors in the resolutions
authorizing the issuance of that particular series. In designating any series
of Shares, the Board of Directors may fix the number of Shares constituting
that series and fix the dividend rights, dividend rate, conversion rights,
voting rights (which may be greater or lesser than the voting rights of the
Common Stock and Preferred Stock), rights and terms of redemption (including
any sinking fund provisions) and the liquidation preferences of the series of
Shares. It is possible, without any action of the stockholders of the
Company, that the holders of any series of Shares, when and if issued, will
have priority claims to dividends and to any distributions upon liquidation
of the Company and that they may have other preferences over the holders of
the Common Stock. The Board of Directors may issue series of Shares without
action of the stockholders of the Company, except that no series of Shares
may be issued with liquidation preferences greater than the liquidation
preferences of the Preferred Stock or with dividend rights on a parity with
or having a preference over the dividend rights of the Preferred Stock
without approval of the holders of the Preferred Stock.
The issuance of Shares may be used as an anti-takeover device without
further action on the part of the stockholders. Furthermore, the issuance of
preferred stock may dilute the voting power of holders of the Common Stock
and Preferred Stock (such as by issuing preferred stock with super-voting
rights) and may render more difficult the removal of current management, even
if such removal may be in the stockholders' best interests. The Company has
no current plans to issue any of the remaining Shares.
The Company has agreed with the Underwriter not to sell or issue any
Preferred Stock or Shares for a period of 36 months commencing with the
consummation of this offering.
WARRANTS
Each Warrant entitles the registered holder thereof to purchase one share
of Preferred Stock at a price of $6.25 per share, subject to adjustment as
set forth below, for a period of three years commencing on ________, 1999,
except that if the Warrants are called for redemption, or the Preferred Stock
is required to be converted prior to ________, 1999, the Warrants will be
exercisable from the date on which notice of such redemption or mandatory
conversion is given by the Company.
The Warrants are redeemable by the Company, with the prior consent of the
Underwriter, at any time commencing on __________, 1998, at a price of $.10
per Warrant, provided that the last sale price of the Preferred Stock, for a
period of 20 consecutive days of trading of the Preferred Stock ending not
more than three days prior to the date of any redemption notice equals or
exceeds at least $8.00 per share, subject to adjustment. The Warrants shall
be exercisable until the close of the business day preceding the date fixed
for redemption. Such notice of redemption will be mailed at least 30 days,
but not more than 45 days, prior to the date fixed for redemption.
The Warrants will be issued pursuant to the Warrant Agreement and will be
evidenced by warrant certificates in registered form.
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The exercise price of the Warrants and the number of shares of Preferred
Stock or other securities and property issuable upon exercise of the Warrants
are subject to adjustment in certain circumstances, including a stock
dividend on, or a stock split, subdivision, combination or recapitalization
of, the Common Stock, and will also be subject to adjustment upon the sale or
issuance of Common Stock or securities convertible into or exchangeable for
Common Stock at less than $6.25 per share, except in certain circumstances.
However, the Warrants are not subject to adjustment for issuances of
Preferred Stock at a price below the exercise price of the Warrants.
Additionally, an adjustment will be made upon the sale of all or
substantially all of the assets of the Company in order to enable holders of
Warrants to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable in such event by a holder
of the number of shares of Preferred Stock that might otherwise have been
purchased upon exercise of the Warrant.
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company.
Warrants may be exercised upon surrender of the Warrant certificate
evidencing those Warrants on or prior to the expiration date (or earlier
redemption date) of the Warrants at the offices of the Warrant Agent with the
form of "Election to Purchase" on the reverse side of the warrant certificate
completed and executed as indicated, accompanied by payment of the full
exercise price (by certified check payable to the order of the Warrant Agent)
for the number of Warrants being exercised.
No Warrant will be exercisable or redeemable unless at the time of
exercise the prospectus covering the shares of Preferred Stock issuable upon
exercise of the Warrant is current and the issuance of shares has been
registered or qualified or is deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the
holder of the Warrant. The Company has undertaken to use its best efforts to
maintain a current prospectus relating to the issuance of shares of Preferred
Stock upon the exercise of the Warrants until the expiration of the Warrants,
subject to the terms of the Warrant Agreement. While it is the Company's
intention to maintain a current prospectus, there is no assurance that it
will be able to do so. The Company anticipates that the Registration
Statement, of which this Prospectus forms a part, will remain effective for
nine months following the date hereof. See "Risk Factors - Need for Current
Prospectus; Non-Registration in Certain Jurisdictions of Shares Underlying
Warrants."
No fractional shares will be issued upon exercise of the Warrants.
However, if a Warrantholder exercises all Warrants then owned of record by
him or her, the Company will pay to that Warrantholder, in lieu of the
issuance of any fractional share which is otherwise issuable, an amount in
cash based on the market value of the Preferred Stock on the last trading day
prior to the exercise date.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company will be subject to Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in a
wide range of specified transactions with any interested stockholder, defined
to include, among others, any person or entity who in the previous three
years obtained 15% or more of any class or series of stock entitled to vote
in the election of directors, unless, among other exceptions, the transaction
is approved by (i) the Board of Directors prior to the date the interested
stockholder obtained such status or (ii) the holders of two-thirds of the
outstanding shares of each class or series owned by the interested
stockholder. The Company's Certificate of Incorporation and By-laws contain
certain additional provisions which may have the effect of delaying or
preventing a change in control of the Company. Such provisions include blank
check preferred stock (the terms of which may be fixed by the Board of
Directors without stockholder approval). Accordingly, the Company's Board of
Directors is empowered, without stockholder approval, to issue preferred
stock, other than the Preferred Stock, with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of the Preferred Stock and/or Common
Stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company.
TRANSFER AND WARRANT AGENT
The transfer agent for the Preferred Stock and Common Stock and the
warrant agent for the Warrants is American Stock Transfer & Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding an
aggregate of 1,200,000 shares of Preferred Stock and 1,072,365 shares of
Common Stock. All of the shares of Preferred Stock and 585,318 shares of
Common Stock will be freely tradable without restriction or further
registration under the Securities Act. Of the remaining 487,047 shares of
Common Stock outstanding, 396,892 shares are "restricted" shares that are
owned by "affiliates" of the Company as such terms are defined under the
Securities Act and 90,155 shares are "restricted" shares that are owned by
nonaffiliates of the Company.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the
meaning of Rule 144 ("Restricted Shares") for at least two years, including
the holding period of any securities which converted into the Restricted
Shares and including the holding period of any prior owner except an
affiliate of the Company, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock or the average weekly trading volume of
the Common Stock reported during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about
the Company. Any person (or persons whose shares are aggregated with such
person) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who has beneficially owned
shares for at least three years (including any period of ownership of
preceding non-affiliated holders), would be entitled to sell such shares
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
The Company has filed a registration statement under the Securities Act to
register shares of Common Stock to be issued upon exercise of the Bridge
Financing warrants, thus permitting the resale of such shares by non-
affiliates in the public market without restriction under the Securities Act.
The Company also has granted registration rights to the Underwriter with
respect to the Underwriter's Warrants and the securities issuable upon
exercise thereof and to the holder of the Technology Loan with respect to the
shares of Common Stock issuable upon the conversion thereof.
UNDERWRITING
Duke & Co., Inc. (the "Underwriter") has agreed, subject to the terms and
conditions contained in the Underwriting Agreement, to purchase 1,200,000 shares
of Preferred Stock and 1,700,000 Warrants. The Underwriter is committed to
purchase and pay for all of the Preferred Stock and Warrants offered hereby if
any of such securities are purchased. The shares of Preferred Stock and Warrants
are being offered by the Underwriter subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Preferred Stock and Warrants to the public at the public offering prices set
forth on the cover page of this Prospectus. The Underwriter may allow to
certain dealers who are members of the National Association of Securities
Dealers, Inc. concessions not in excess of $_____ per share of Preferred
Stock and $______ per Warrant.
The Company has granted to the Underwriter an option exercisable for 45
days from the date of this Prospectus, to purchase up to 180,000 additional
shares of Preferred Stock and 255,000 additional Warrants at the public
offering prices set forth on the cover page of this Prospectus, less the
underwriting discounts. The Underwriter may exercise this option in whole or,
from time to time, in part solely for the purpose of covering overallotments,
if any, made in connection with the sale of the shares of Preferred Stock and
Warrants offered hereby. The Company has also agreed to pay all expenses in
connection with qualifying the shares of Preferred Stock and Warrants offered
hereby for sale under the laws of such states as the Underwriter may
designate, including expenses of counsel retained for such purposes by the
Underwriter.
The Company has agreed to pay the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of this offering, including the
proceeds of the over-allotment option, if and to the extent exercised.
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The Company has agreed to sell to the Underwriter and its designees, for an
aggregate of $290, warrants (the "Underwriter's Warrants") to purchase up to
120,000 shares of Preferred Stock at an exercise price of $6.25 per share and/or
up to 170,000 Warrants at an exercise price of $1.6875 per Warrant. The
Underwriter's Warrants may not be sold, transferred, assigned or hypothecated
for one year from the effective date of the Registration Statement of which this
Prospectus forms a part, except to the officers and partners of the Underwriter,
co-underwriters, selling group members and their officers or partners, and are
exercisable during the four-year period commencing one year from the effective
date of the Registration Statement of which this prospectus forms a part (the
"Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the
Underwriter's Warrants are given, at nominal cost, the opportunity to profit
from a rise in the market prices of the Preferred Stock and the Warrants. To the
extent that the Underwriter's Warrants are exercised, dilution to the interests
of the Company's shareholders will occur. Further, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected, since the holders of the Underwriter's Warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in the Underwriter's Warrants. Any profit realized by the Underwriter
on the sale of the Underwriter's Warrants, the underlying shares of Preferred
Stock or the underlying Warrants, or the shares of Preferred Stock issuable upon
the exercise of such underlying Warrants, may be deemed additional underwriting
compensation. The exercise price and number of shares of Preferred Stock or the
other securities issuable on exercise of the Underwriter's Warrants are subject
to adjustment in certain circumstances, including in the event of a stock
dividend, subdivision, reclassification, reorganization, merger or
recapitalization. An adjustment will also be made in the case of a distribution
to holders of Preferred Stock of evidence of the Company's indebtedness or
assets or subscription rights or warrants. Subject to certain limitations and
exclusions, the Company has agreed, at the request of the holders of a majority
of the Underwriter's Warrants, at the Company's expense, to register under the
Securities Act the Underwriter's Warrants, the shares of Preferred Stock and
Warrants underlying the Underwriter's Warrants, and the shares of Preferred
Stock issuable upon exercise of the underlying Warrants on one occasion during
the four-year period commencing one year from the effective date of the
Registration Statement of which this Prospectus forms a part, and to include, on
one occasion, such Underwriter's Warrants and such underlying securities in an
appropriate registration statement which is filed by the Company during the
Warrant Exercise Term.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation by the Underwriter (commencing one year from the
date of this Prospectus), to pay to the Underwriter a fee of 5% of the
exercise price for each Warrant exercised; provided, however, that the
Underwriter will not be entitled to receive such compensation in Warrant
exercise transactions in which (i) the market price of Preferred Stock at the
time of exercise is lower than the exercise price of the Warrants; (ii) the
Warrants are held in any discretionary account; (iii) disclosure of
compensation arrangements is not made, in addition to disclosure provided in
this Prospectus, in documents provided to holders of the Warrants at the time
of exercise; (iv) the exercise of Warrants is unsolicited by the Underwriter;
or (v) the solicitation of exercise of the Warrants was in violation of Rule
10b-6 promulgated under the Exchange Act.
The Company has agreed, for a period of five years from the consummation
of this offering, to engage the designee of the Underwriter as a non-voting
advisor to the Company's Board of Directors or, at the Underwriter's request,
to nominate and use its best efforts to elect a reasonably acceptable
designee of the Underwriter as a director of the Company. The Underwriter has
not yet exercised its right to designate such person.
The Company has also agreed that it will not, during a period of 24 months
following this offering, issue or sell any securities of the Company or issue or
sell any additional Preferred Stock or Shares for a period of 36 months
commencing with the consummation of this Offering without the prior consent of
the Underwriter, except in certain circumstances.
In addition, the Company has agreed to enter into a consulting agreement
to retain the Underwriter as a financial consultant for a period of two years
following the consummation of this offering at a fee of $10,000 per year, the
entire $20,000 payable in full immediately upon the consummation of this
offering. The consulting agreement will not require the Underwriter to devote
a specific amount of time to the performance of its duties thereunder. It is
anticipated that these consulting services will be provided by principals of
the Underwriter and/or members of the Underwriter's corporate finance
department who, however, have not been desig-
38
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nated as of the date hereof. In the event that the Underwriter originates a
financing or a merger, acquisition, joint venture or other transaction to
which the Company is a party, the Underwriter will be entitled to receive a
finder's fee in consideration for origination of such transaction.
The Company has agreed to indemnify the Underwriter against certain civil
liabilities, including liabilities under the Securities Act. The Company has
also agreed to reimburse the Underwriter and its counsel for travel expenses
incurred in connection with this offering. It is anticipated that this amount
will not exceed $500.
Prior to this offering, there has been no public trading market for the
Preferred Stock or Warrants, and only a very limited trading market for the
Common Stock. Consequently, the initial public offering prices of the
Preferred Stock and Warrants and the exercise price of the Warrants have been
determined by negotiations between the Company and the Underwriter. Among the
factors considered in determining the initial public offering prices and
other terms of the securities were the Company's financial condition and
prospects, management, market prices of similar securities of comparable
publicly-traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the
general condition of the securities markets.
Although it has no obligation to do so, the Underwriter intends to engage
in market-making activities or solicited brokerage activities with respect to
the purchase or sale of the Preferred Stock and Warrants in The Nasdaq
SmallCap Market or other over-the-counter market where such securities may
trade. However, no assurance can be given that the Underwriter will continue
to participate as a market maker for the securities of the Company or that
other broker/dealers will make a market in such securities. The Underwriter
has the right to act as the Company's exclusive agent in connection with any
future solicitation of holders of the Warrants to exercise their Warrants.
Unless granted an exemption by the Securities and Exchange Commission from
Rule 10b-6 under the Exchange Act, the Underwriter will be prohibited from
engaging in any market-making activities or solicited brokerage activities
with regard to the Company's securities during a period prescribed by Rule
10b-6 before the solicitation of the exercise of any Warrant until the later
of the termination of such solicitation activity or the termination by waiver
or otherwise of any right the Underwriter may have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Underwriter and soliciting broker/dealers may be unable to continue to make a
market for the Company's securities during certain periods while the Warrants
are exercisable. Such a limitation, while in effect, could impair the
liquidity and market prices of the Company's securities.
While certain of the officers of the Underwriter have significant
experience in corporate financing and the underwriting of securities, the
Underwriter has previously underwritten only three public offerings.
Accordingly, there can be no assurance that the Underwriter's limited public
offering experience will not affect the Company's offering of the Preferred
Stock and Warrants and subsequent development of a trading market, if any.
The Underwriter has become aware that there is a formal order of
investigation by the Commission relating to the Underwriter's trading
practices and mark-ups in connection with securities of a corporation whose
January 1995 public offering was underwritten by the Underwriter. Since the
issuance of the formal order in June 1996, no charges have been brought. The
Underwriter believes that it has violated no laws or regulations in
connection with this matter. The Underwriter intends to vigorously defend
itself against any claims which may be asserted by the Commission, but there
can be no assurance that the pendency of the investigation or any proceeding
which may thereafter be instituted or any remedies granted in connection
therewith would not adversely and materially affect this offering or
subsequent trading in the Preferred Stock, the Warrants and/or the Common
Stock of the Company.
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby will be passed upon for the Company by Parker Duryee Rosoff & Haft,
New York, New York. Zimet, Haines, Friedman & Kaplan, New York, New York, has
served as counsel for the Underwriter in connection with this offering.
EXPERTS
The consolidated financial statements of the Company as of April 30, 1996
and for each of the two years in the period ended April 30, 1996 included in
this Prospectus, have been audited by Urbach Kahn & Werlin PC, independent
certified public accountants, and are included herein and in the Registration
Statement in reliance upon such reports given upon the authority of said firm
as experts in auditing and accounting.
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GLOSSARY
ATM -- Abbreviation for automated teller machine. Computers that perform
banking transactions without human intervention.
C Programming language -- One of several computer languages that tells a
computer what functions to perform.
Cirrus -- A national ATM Network owned by Mastercard
Configuration -- The process of entering data specific to the customer's
needs and requests.
Credit Card -- A card issued by a financial institution or credit
provider. A sum corresponding to a purchase is charged to the cardholder's
account. The customer may elect to pay in full each month or revolve the
balance with a rate of interest fixed by a bank or credit provider.
Debit Card -- Generally any payment card, issued by a financial
institution, the use of which results in a debit to the cardholder's account
often within a few seconds of the purchase (online).
Fault Tolerance -- When duplicate computer hardware and/or software are
used to provide computer processing.
Interface -- The communication between two systems that allow them to
exchange information.
Issuer -- A financial institution that provides cards to its customers.
MAC -- An EFT Network of United States banks, primarily located in the
mid-Atlantic region.
Module -- A group of software commands that perform a specific function.
Network -- Generally owned by a group of banks or non-bank entities.
Networks may vary in size and configuration. A Network generates revenue by
charging fees for use of the Network for transaction processing.
NYCE -- An EFT Network of United States banks, primarily located in the
Northeast.
Object oriented design concepts -- Advanced software development technique
for developing software applications.
Open System -- Computers that can run on various operating systems, as
well as utilize several different types of software programs.
Oracle relational database -- Software, developed and distributed by
Oracle Corporation, that permits access to data from multiple sources and
then transforms such data into information that can be used for a specific
purpose. Oracle 7 is the current release which runs with TPII software
products.
PLUS -- A national ATM Network owned by VISA.
POS -- Abbreviation for point of sale. POS terminals are generally used in
retail outlets to process debit and credit card transactions.
Proprietary (legacy) system -- Systems that are vendor specific and do not
conform to software and hardware industry standards.
Smart Cards -- A smart card is a plastic card which contains an electronic
chip. This can be a memory chip with a programmable logic array, or a
microprocessor chip. There are two types of smart card, rechargeable or
non-rechargeable. Rechargeable smart cards are normally microprocessor smart
cards which may also serve as traditional credit or debit cards, except
instead of a magnetic stripe they have a microprocessor chip embedded in the
card. A non-rechargeable or disposable smart card is typically a memory smart
card with a logical security mechanism or a programmable logical array; the
most popular use for this card is by public telephone networks.
Switch -- EFT Systems designed to link together multiple hosts of
financial institutions and multiple Network systems.
UNIX operating system -- Software, originally developed by AT&T's Bell
Laboratories in 1969, that acts as the primary interface to the physical
components of a computer by controlling the operation of such components.
40
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IFS INTERNATIONAL, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
INDEPENDENT AUDITOR'S REPORT .................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets ............................. F-3
Statements of operations ................... F-4
Statements of shareholders' equity (deficit) F-5
Statements of cash flows ................... F-6
Notes to consolidated financial statements . F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
IFS International, Inc.
We have audited the accompanying consolidated balance sheet of IFS
International, Inc. and subsidiary as of April 30, 1996, and the related
consolidated statements of operations, shareholders' equity (deficit), and
cash flows for each of the two years in the period ended April 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IFS
International, Inc. and subsidiary at April 30, 1996, and the results of
their operations and their cash flows for each of the two years in the period
ended April 30, 1996, in conformity with generally accepted accounting
principles.
The consolidated financial statements referred to above have been prepared
assuming that IFS International, Inc. and subsidiary will continue as a going
concern. As discussed in Note 14 to the consolidated financial statements,
the Company has a working capital deficiency and a shareholders' deficit at
April 30, 1996, that raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 14. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
URBACH KAHN & WERLIN PC
Albany, New York
July 17, 1996, except for the second paragraph of
Note 14, for which the date is August 6, 1996 and
Note 15, for which the date is January 6, 1997.
F-2
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
October 31,
April 30, 1996
1996 (Unaudited)
------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ......................................................... $ 137,462 $ 596,504
Trade accounts receivable, net of allowance for doubtful
accounts of $7,900 ......................................... 144,669 399,752
Other receivables ............................................ 42,519 22,810
Costs and estimated earnings in excess of billings on
uncompleted contracts ...................................... 432,173 301,077
Prepaid expenses and other current assets .................... 27,549 72,442
------------- ---------------
Total current assets .................................... 784,372 1,392,585
------------- ---------------
PROPERTY, EQUIPMENT, AND IMPROVEMENTS, net ........................ 136,231 182,181
------------- ---------------
OTHER ASSETS
Software license ............................................. 9,082 7,883
Capitalized software costs, net .............................. 377,482 425,067
Deferred offering costs ...................................... -- 62,021
------------- ---------------
Total other assets ...................................... 386,564 494,971
------------- ---------------
$ 1,307,167 $ 2,069,737
============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable ................................................ $ -- $ 500,000
Current maturities of long-term debt ......................... 38,329 48,886
Current portion of capital lease obligations ................. 2,733 --
Accounts payable and other liabilities ....................... 587,170 265,138
Accrued salary, commissions, and other expenses .............. 702,515 823,236
Billings in excess of costs and estimated earnings on
uncompleted contracts ...................................... 32,524 354,705
Deferred revenue and customer deposits ....................... 219,326 275,065
------------- ---------------
Total current liabilities ............................... 1,582,597 2,267,030
------------- ---------------
LONG-TERM LIABILITIES
Long-term debt, less current maturities ...................... 439,831 423,879
Other ........................................................ 12,515 12,515
------------- ---------------
Total long-term liabilities ............................. 452,346 436,394
------------- ---------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; 25,000,000 shares
authorized, no shares issued or outstanding ................ -- --
Common stock $.001 par value; 25,000,000 shares authorized,
1,009,361 and 1,059,730 shares issued and outstanding ...... 1,010 1,060
Additional paid-in capital ................................... 2,177,611 2,219,598
Accumulated deficit .......................................... (2,906,397) (2,854,345)
------------- ---------------
Total shareholders' equity (deficit) .................... (727,776) (633,687)
------------- ---------------
$ 1,307,167 $ 2,069,737
============= ===============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1995 AND
SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended October 31
April 30 (Unaudited)
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Software license and installation contract
fees ................................... $1,982,192 $1,729,284 $1,131,931 $ 455,239
Hardware sales ........................... 45,848 31,893 127,884 35,248
Service and maintenance revenue .......... 412,743 280,080 327,170 204,238
------------- ------------- ------------- -------------
2,440,783 2,041,257 1,586,985 694,725
------------- ------------- ------------- -------------
Cost of software license and installation
contract fees ............................... 238,130 213,885 171,878 52,818
Cost of hardware sales ........................ 16,611 23,232 105,359 12,710
Cost of service and maintenance revenue ....... 250,020 108,659 110,482 97,809
------------- ------------- ------------- -------------
504,761 345,776 387,719 163,337
------------- ------------- ------------- -------------
Gross profit .................................. 1,936,022 1,695,481 1,199,266 531,388
------------- ------------- ------------- -------------
Operating expenses:
Research and development ................. 397,976 276,026 241,134 235,092
Salaries ................................. 679,271 770,352 358,226 320,295
Other .................................... 22,727 19,854 12,227 10,878
Rent ..................................... 88,405 109,041 62,435 42,914
Selling, general, and administrative ..... 745,273 681,356 346,801 312,431
------------- ------------- ------------- -------------
1,933,652 1,856,629 1,020,823 921,610
------------- ------------- ------------- -------------
Income (loss) from operations ................. 2,370 (161,148) 178,443 (390,222)
Other income (expense):
Litigation settlement costs .............. -- -- (100,000) --
Interest expense ......................... (52,453) (53,608) (29,267) (26,701)
Other income ............................. 1,703 9,284 2,875 2,598
------------- ------------- ------------- -------------
Income (loss) before income taxes and
extraordinary item .......................... (48,380) (205,472) 52,051 (414,325)
Provision for income taxes .................... -- -- -- --
------------- ------------- ------------- -------------
Income (loss) before extraordinary item ....... (48,380) (205,472) 52,051 (414,325)
Extraordinary item - gain on debt restructuring
and extinguishments ......................... -- 377,687 -- --
------------- ------------- ------------- -------------
Net income (loss) ............................. $ (48,380) $ 172,215 $ 52,051 $(414,325)
============= ============= ============= =============
Attributable to common shares:
Income (loss) before extraordinary item .. $ (0.05) $ (0.21) $ 0.04 $ (0.41)
Extraordinary item ....................... 0.00 0.39 0.00 0.00
------------- ------------- ------------- -------------
Net income (loss) per common share ............ $ (0.05) $ 0.18 $ 0.04 $ (0.41)
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED APRIL 30, 1996 AND 1995 AND
SIX MONTHS ENDED OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
-------------------------- Additional
Shares Par Paid-in Accumulated
Outstanding Value Capital Deficit Total
------------- --------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at April 30, 1994 ...... 921,287 $ 922 $1,887,110 $(3,030,232) $(1,142,200)
Issuance of common stock ........ 71,388 71 137,469 -- 137,540
Net income ...................... -- -- -- 172,215 172,215
------------- --------- ------------- -------------- --------------
Balances at April 30, 1995 ...... 992,675 993 2,024,579 (2,858,017) (832,445)
Issuance of common stock ........ 16,686 17 153,032 -- 153,049
Net loss ........................ -- -- -- (48,380) (48,380)
------------- --------- ------------- -------------- --------------
Balances at April 30, 1996 ...... 1,009,361 1,010 2,177,611 (2,906,397) (727,776)
Issuance of common stock
(unaudited) .................... 50,369 50 36,987 -- 37,037
Issuance of common stock warrants
(unaudited) .................... -- -- 5,000 -- 5,000
Net income (unaudited) .......... -- -- -- 52,052 52,052
------------- --------- ------------- -------------- --------------
Balances at October 31, 1996
(unaudited) .................... 1,059,730 $1,060 $2,219,598 $(2,854,345) $ (633,687)
============= ========= ============= ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1995 AND
SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended October 31
April 30 (Unaudited)
--------------------------- ---------------------------
1996 1995 1996 1995
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ............................. $ (48,380) $ 172,215 $ 52,051 $(414,325)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization .............. 205,015 164,969 134,302 97,115
Extraordinary gain on debt restructuring and
extinguishments .......................... -- (377,687) -- --
Changes in:
Trade accounts receivable, net ........... 202,530 (105,169) (255,081) 202,099
Other receivables ........................ (7,226) (27,553) 19,709 23,801
Costs, estimated earnings and billings on
uncompleted contracts ................. (179,770) 17,973 453,277 328,057
Other current assets ..................... (5,876) 1,057 (44,893) (15,883)
Accounts payable and other liabilities ... 143,790 64,497 (322,032) 1,368
Accrued salary, commissions, and expenses 112,475 199,342 120,721 35,406
Deferred revenue and customer deposits ... 47,288 58,078 55,739 (47,839)
Other liabilities ........................ -- (4,210) -- --
------------ ----------- ----------- ------------
Net cash provided by operating
activities .......................... 469,846 163,512 213,793 209,799
------------ ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment ......................... (62,537) (42,534) (71,989) (17,867)
Capitalized license costs ..................... (2,157) (2,635) (666) (2,158)
Capitalized software costs .................... (160,117) (151,662) (153,983) (78,480)
------------ ----------- ----------- ------------
Net cash used in investing activities . (224,811) (196,831) (226,638) (98,505)
------------ ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital lease obligations ......... (15,081) (14,056) (2,733) (6,189)
Principal payments on long-term debt .......... (103,624) (63,228) (5,395) (99,693)
Proceeds from short-term borrowing ............ -- -- 500,000 --
Deferred offering costs ....................... -- -- (62,021) --
Proceeds from issuance of stock ............... 3,049 65,666 37,036 --
Proceeds from issuance of warrants ............ -- -- 5,000 --
------------ ----------- ----------- ------------
Net cash provided by (used in)
financing activities ................ (115,656) (11,618) 471,887 (105,882)
------------ ----------- ----------- ------------
Increase/(decrease) in cash ..................... 129,379 (44,937) 459,042 5,412
Cash:
Beginning of year ............................. 8,083 53,020 137,462 8,083
------------ ----------- ----------- ------------
End of period ................................. $ 137,462 $ 8,083 $ 596,504 $ 13,495
============ =========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED APRIL 30, 1996 AND 1995 AND
SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended October 31
April 30 (Unaudited)
-------------------------- ---------------------
1996 1995 1996 1995
----------- ----------- --------- --------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest ............................... $ 29,042 $ 50,167 $40,239 $2,319
=========== =========== ========= ========
Income taxes ........................... $ 7,476 $ -- $ -- $ --
=========== =========== ========= ========
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND FINANCING TRANSACTIONS
Notes payable, salary obligations, and
accounts payable restructured and/or
extinguished ........................... $ -- $377,687 $ -- $ --
=========== =========== ========= ========
Long-term debt converted to common stock
(150,000 shares in 1996, 259,673 in
1995) .................................. $150,000 $ 71,875 $ -- $ --
=========== =========== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
IFS INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
IFS International, Inc. was incorporated in Delaware in September 1986
under the name Wellsway Ventures, Inc. The Company was formed with limited
assets as a blind pool to obtain proceeds from a public offering and then to
acquire an existing business entity. The Company utilized proceeds from the
blind pool to acquire its operating subsidiary, IFS International, Inc., a
New York corporation.
IFS International, Inc. is engaged in the design and development of
computer software for use with automatic teller machines (ATMs), electronic
fund transfers (EFTs), and point of sale (POS) systems used by financial
institutions and retailers. The Company also provides its customers with
support and maintenance services for such systems.
Commencing in 1993, a significant portion of the Company's sales and
revenues were derived from financial institutions and other customers located
outside of the United States (see Note 12). The Company extends credit to its
customers and generally requires deposits upon execution of software
development contracts. With respect to foreign customers, collection may be
more difficult upon default.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of IFS
International, Inc. (formerly Wellsway Ventures, Inc.) and its wholly-owned
subsidiary, IFS International, Inc. (formerly Avant-Garde Computer Systems,
Inc.). All significant intercompany accounts and transactions have been
eliminated.
PRESENTATION OF INTERIM FINANCIAL STATEMENTS:
The accompanying unaudited consolidated financial statements include all
adjustments which management believes necessary for a fair presentation of
the Company's financial position at October 31, 1996, and the results of its
operations and its cash flows for the six months ended October 31, 1996 and
1995. All adjustments are of a normal recurring nature.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION:
Revenue from software installation contracts is recognized on the
percentage-of-completion method, measured by the ratio of costs incurred to
date to management's estimates of total anticipated costs. This method is
used because management considers costs incurred to be the best available
measure of progress on software installation contracts. Because of the
inherent uncertainties in estimating contracts, it is at least reasonably
possible that the Company's estimates of costs and revenues will change in
the near term. Uncertainty inherent in initial estimates is reduced
progressively as work on the contract nears completion. Deposits received in
advance for hardware sales are deferred and recognized as revenue upon
installation and acceptance of the system. Amounts received on service
contracts are initially deferred and recognized ratably over the life of the
contract, generally one year. All revenues derived outside of the United
States are received in U.S. dollars.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1. Organization and Significant Accounting Policies - (Continued)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Bad debts are provided for on the allowance method based upon historical
experience and management's estimation of collection losses on outstanding
accounts receivable.
PROPERTY, EQUIPMENT AND IMPROVEMENTS:
Property, equipment and improvements are stated at cost, with related
depreciation provided by the declining-balance and straight-line methods over
the estimated useful lives of the related assets, generally five years. For
income tax purposes, the accelerated cost recovery system and the modified
accelerated cost recovery system are utilized. Assets recorded under capital
leases are depreciated over the terms of the lease under methods which are
consistent with the Company's depreciation policy for owned assets.
CAPITALIZED SOFTWARE COSTS:
The cost of adding new functions and features (i.e., enhancements) to
existing systems and the cost of development of new systems, for which
technological feasibility has been established and which are not covered by
outside funding, are capitalized. Costs incurred in the establishment of
technological feasibility of new systems are expensed as incurred.
Capitalized software costs are reported at the lower of unamortized cost
or net realizable value. Amortization is recorded over the estimated
five-year marketing lives of the software and is computed on the greater of
the percent-of-revenue method, based on the total estimated future revenues
expected to be derived from sales of the software, or the straight-line
method.
INCOME TAXES:
Current or deferred tax liabilities are recognized for the tax
consequences of all events recognized in the financial statements. Deferred
taxes are computed on the differences between the financial reporting and the
tax reporting basis of assets and liabilities. The Company has not recognized
the benefit of any net operating loss carryforwards due to the uncertainty of
the realizability of such carryforwards.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHARES:
Net income (loss) attributable to common shares is based on the weighted
average number of shares, as adjusted to reflect a 1 for 10 reverse split
(Note 15), outstanding during the respective years (approximately 1,002,000
in 1996 and 953,000 in 1995). The effect of the assumed exercise of options
and warrants outstanding is anti-dilutive or not material.
NOTE 2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Expenditures on uncompleted contracts $ 245,285
Estimated earnings thereon ........... 1,546,947
-----------
1,792,232
Less billings to date ................ 1,392,583
-----------
$ 399,649
===========
</TABLE>
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2. Costs and Estimated Earnings on Uncompleted Contracts - (Continued)
Included in the accompanying balance sheet under the following captions:
<TABLE>
<CAPTION>
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted contracts .............................. $432,173
Billings in excess of costs and estimated earnings on
uncompleted contracts .............................. (32,524)
----------
$399,649
==========
</TABLE>
NOTE 3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment .................. $391,827
Equipment under capital leases ........... 54,103
Furniture and fixtures ................... 74,780
Leasehold improvements ................... 17,046
----------
537,756
Less accumulated depreciation ............ 401,525
----------
Property, equipment and improvements, net $136,231
==========
</TABLE>
Amortization related to equipment under capital leases was $10,821 for the
years ended April 30, 1996 and 1995, respectively.
Depreciation related to property, equipment, and improvements was $36,917
and $28,528 for the years ended April 30, 1996 and 1995, respectively.
NOTE 4. CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Capitalized software costs ................................... $ 848,878
Less accumulated amortization ................................. (471,396)
-----------
$ 377,482
===========
</TABLE>
Amortization expense approximated $154,000 and $123,000 for the years
ended April 30, 1996 and 1995, respectively.
NOTE 5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Restructured note payable, government agency,
interest only payments of $1,375 per month through
April 1996 and principal and interest payments of
$3,804 per month, thereafter, including interest
at 7.5%, due April 2002. This note is unsecured
and subordinated to all other debt. ........................... $220,000
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5. Long-Term Debt - (Continued)
<TABLE>
<CAPTION>
<S> <C>
Restructured convertible subordinated debentures
payable to a governmental agency due in
installments of $80,000, $80,000, and $90,000 in
April 1998, 1999, and 2000, respectively.
Interest is payable quarterly at 7.5%. The
debentures are convertible into shares of common
stock at rates ranging from $4.20 per share to
$5.70 per share through July, 1997. At April 30,
1996, 59,524 shares of common stock were
issuable under this conversion feature. ........ 250,000
Other ........................................... 8,160
----------
478,160
Less current portion ............................ 38,329
----------
$439,831
----------
</TABLE>
Certain of the Company's long-term debt obligations require compliance
with financial and non-financial covenants. As of April 30, 1996, the Company
was not in compliance with several of these requirements, however, covenant
violation waivers have been received.
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending April 30
--------------------
<S> <C>
1997 ................................................... $ 38,329
1998 ................................................... 112,511
1999 ................................................... 115,035
2000 ................................................... 127,755
2001 ................................................... 40,686
Thereafter ............................................. 43,844
----------
$478,160
==========
</TABLE>
NOTE 6. CAPITAL LEASE OBLIGATIONS
The Company is the lessee of computer equipment and a telephone system
under capital leases expiring in various years through 1997. The assets and
liabilities under capital leases are recorded at the lower of the present
value of the minimum lease payment or the fair value of the asset. The assets
are depreciated/amortized over the lesser of their related lease terms or
their estimated productive lives.
Assets recorded under capital leases include the following:
<TABLE>
<CAPTION>
<S> <C>
Computer and telephone equipment ................................. $54,103
Accumulated depreciation ......................................... 43,589
---------
Net capitalized computer and telephone
equipment .................................................... $10,514
=========
</TABLE>
Minimum future lease payments under capital leases as of April 30, 1996,
are not material.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7. OPERATING LEASE COMMITMENTS
The Company has operating lease agreements, which begin to expire October
1997, for the rental of its operating facilities and an automobile. Future
minimum lease payments on these noncancellable operating lease arrangements
with terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Year Ending April 30
--------------------
<S> <C>
1997 ..................................................... $138,403
1998 ..................................................... 90,180
1999 ..................................................... 85,935
2000 ..................................................... 21,548
----------
$336,066
==========
</TABLE>
NOTE 8. INCOME TAXES
The provision for income taxes for the years ended April 30, 1996 and 1995
differs from the amount obtained by applying the U.S. federal income tax to
pretax income due to the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Federal income tax benefit at statutory rates ......... $(23,000) $(80,100)
State income tax benefit, net of federal benefits ..... (3,400) (10,200)
Change in valuation allowance for net operating losses 26,400 90,300
----------- -----------
Provision for income taxes ............................ $ -- $ --
=========== ===========
</TABLE>
At April 30, 1996, the Company has net operating loss carryforwards of
approximately $2,200,000, which begin to expire in 2004 to offset future
federal taxable income.
Because of the uncertainty as to realizability, the deferred tax benefit
attributable to net operating loss carryforwards at April 30, 1996 and 1995
of approximately $816,000 and $790,000, respectively, has been offset by an
equivalent valuation allowance.
NOTE 9. STOCK OPTION PLAN
The Company has a stock option plan which provides for the granting of
either options intended to qualify as "incentive stock options" under the
Internal Revenue Code or "supplemental stock options" not intended to
qualify. An aggregate of 332,779 shares of common stock have been reserved in
this connection. The Board of Directors determines the exercise and
expiration dates of the options which may not be later than 10 years from the
date of the grant. The purchase prices of the shares under option must be at
least equal to the fair market value of the common stock at the date of
grant. Options outstanding at April 30, 1996, may be exercised at prices
ranging from $.66 to $2.50 per share. At April 30, 1996, options to acquire
50,896 common shares were available for future issuance. (See Note 15).
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 9. Stock Option Plan - (Continued)
The following table summarizes option activity during 1996 and 1995:
<TABLE>
<CAPTION>
Shares Under Option
Year Ended April 30
------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Outstanding beginning of year ...... 269,212 260,115
Granted ............................ 18,000 23,500
Exercised ($1.00 to $2.50 per share) (1,686) (5,421)
Canceled ........................... (3,742) (8,983)
--------- ---------
Outstanding end of year ............ 281,884 269,212
========= =========
Exercisable ........................ 257,077 246,128
========= =========
</TABLE>
NOTE 10. CONTINGENCIES
In June 1989, the Company commenced an action against a software
manufacturer, seeking various remedies in connection with an agreement which
gave the Company certain rights to produce and market an application software
package developed by the manufacturer. In July 1989, subsequent to the
commencement of the action, the Company was named defendant in a lawsuit
filed by the manufacturer alleging breach of contract and claiming
approximately $5,000,000 in damages, interest, and costs and a permanent
injunction, which, if granted, would restrain the Company from marketing
certain computer applications. The Company vigorously contests the merits of
the claim. (See Note 15)
NOTE 11. RELATED PARTY TRANSACTIONS
Included in accrued salary, commissions and other expenses is
approximately $197,000 due to officers/directors for accrued salary and
commissions, including amounts earned in prior years, and related interest,
calculated at 12%. Other long-term liabilities represent amounts due to
officers/directors under a previous compensation plan. These balances earn
interest at 12% which is included in accrued expenses. Included in accounts
payable is approximately $73,000 due to officers/directors.
NOTE 12. EXPORT SALES, MAJOR CUSTOMERS, CERTAIN CONCENTRATIONS
One foreign customer accounted for approximately 12% of total revenues for
the year ended April 30, 1996. There were no outstanding amounts due from
this customer at April 30, 1996. Another foreign customer accounted for
approximately 12% of total revenues for the year ended April 30, 1995.
Total revenues considered export sales approximated $2,008,000 and
$1,862,000, or 82% and 91%, for the years ended April 30, 1996 and 1995,
respectively. Such revenues were derived primarily from customers located in
eastern Europe and the Far East.
Approximately 14% and 19% of the Company's total revenues for the years
ended April 30, 1996 and 1995, respectively, were derived pursuant to a
relationship with one computer manufacturer.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting
principally of accounts receivable, long- term debt, accounts payable and
accrued expenses has been estimated to approximate their carrying amounts.
NOTE 14. MANAGEMENT PLANS
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern and do not include any adjustments
relating to the recoverability and classification of reported asset amounts
or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. A substantial
portion of the accumulated deficit at April 30, 1996 is
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14. Management Plans - (Continued)
attributable to losses from operations in several consecutive fiscal years
prior to 1993. These losses were principally attributable to the Company's
then existing products becoming antiquated, the write off ($1,040,000) of
software development costs in fiscal year 1991, and incurring the research
and development costs associated with its latest software product, TPII.
Management believes that cash flows from operations will be sufficient to
meet debt service requirements and to maintain a current status with its
trade creditors during 1997. Operating cash flows for fiscal year 1997 are
expected to be principally attributable to the anticipated revenues to be
derived from sales of TPII and similar products. Further, in August 1996 the
Company signed a letter of intent with an underwriter to effect a firm
commitment equity offering with minimum gross proceeds of $5 million. There
can be no assurances that the proposed offering will be successful. (See Note
15)
In September 1995, the Company fully converted a note payable to common
stock. Terms of other notes have been modified to delay or extend the
repayment periods and in some cases forgive accrued interest.
As a result of the Company's efforts to enter joint marketing
relationships, the Company signed a prime contracting agreement with Digital
Equipment Corporation in 1994. This agreement has led to several sales for
TPII. The Company has and will continue to market to distributors of Digital
Equipment Corporation around the world. The Company has also entered into a
re-licensing agreement with a Digital distributor, Prime Systems Plus, Inc.
in the Philippines.
NOTE 15. SUBSEQUENT EVENTS
PUBLIC OFFERING:
The Company has filed a registration statement with the U.S. Securities
and Exchange Commission in connection with a proposed public offering of
1,200,000 shares of Series A Convertible Preferred Stock and 1,700,000
Redeemable Series A Convertible Preferred Stock Purchase Warrants. The
preferred stock will be convertible, at the option of the holder, into one
share of the Company's common stock for a period of five years. Each warrant
will entitle the holder to purchase one share of preferred stock for a period
of three years. If successful, net proceeds from the offering will
approximate $5,000,000.
In October and November 1996, in connection with the proposed public
offering, the Company approved a 1 for 10 reverse common stock split,
increased the number of preferred shares authorized to 25,000,000, and
designated 20,000,000 of the preferred shares as Series A Convertible. Issued
and outstanding shares of common stock and all share related and per share
amounts have been restated to give retroactive effect to the split.
In September 1996, the Company borrowed $500,000 in bridge financing
pursuant to a private placement. This debt bears interest at 12% and is due
at the earlier of the closing of the proposed public offering or in March
1998. The bridge financing lenders also acquired warrants to purchase 100,000
shares of common stock at a price of $2.50 per share.
CONTINGENCIES:
In December 1996, the litigation matters referred to in Note 10 were
settled, resulting in the Company paying the software manufacturer $100,000.
1996 STOCK OPTION PLAN:
In December 1996, the Board of Directors of the Company adopted a second
stock option plan (the "1996 Plan") to provide for the granting of options
which are intended to qualify either as "incentive stock options" under the
Internal Revenue Code or "nonstatutory stock options" not intended to
qualify. 300,000 shares of Common Stock have been reserved for issuance under
the 1996 Plan which will be administered by the Board of Directors. The 1996
Plan is subject to stockholder approval.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15. Subsequent Events - (Continued)
PURCHASE COMMITTMENT:
In December 1996, the Company entered into an agreement for the purchase
of real estate. The agreement provides for deposits of $50,000 to be paid by
the Company, with the balance of the purchase price ($945,000) due upon
closing. The Company intends to renovate the real estate and ultimately house
its operations at this location. A substantial portion of the purchase cost
is expected to be financed through borrowing arrangements.
F-15
<PAGE>
=============================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities, to any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since the date
hereof.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Prospectus Summary ................................................ 3
Risk Factors ....................................................... 7
Use of Proceeds ................................................... 13
Price Range of Common Stock ....................................... 15
Dividend Policy ................................................... 15
Capitalization .................................................... 16
Dilution .......................................................... 17
Selected Financial Data ........................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operation ........................................................ 19
Business .......................................................... 22
Management ........................................................ 30
Principal Stockholders ............................................ 33
Certain Transactions .............................................. 33
Description of Securities ......................................... 34
Shares Eligible for Future Sale ................................... 37
Underwriting ...................................................... 37
Legal Matters ..................................................... 39
Experts ........................................................... 39
Glossary .......................................................... 40
Index to Financial Statements ..................................... F-1
</TABLE>
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Company's securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their unsold allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
IFS INTERNATIONAL, INC.
LOGO
1,200,000 SHARES OF SERIES A
CONVERTIBLE PREFERRED STOCK
1,700,000 REDEEMABLE SERIES A
CONVERTIBLE PREFERRED STOCK
PURCHASE WARRANTS
------
PROSPECTUS
------
[LOGO]
DUKE & CO., INC.
, 1997
=============================================================================
<PAGE>
[ALTERNATE PAGE FOR SELLING STOCKHOLDER PROSPECTUS]
SUBJECT TO COMPLETION, DATE ____________________, 1997
PROSPECTUS
IFS INTERNATIONAL, INC.
100,000 SHARES OF COMMON STOCK
This Prospectus relates to 100,000 shares (the "Selling Stockholders'
Shares") of Common Stock, $.001 par value per share (the "Common Stock"), of
IFS International, Inc. (the "Company"), which are being offered for sale by
certain selling stockholders (the "Selling Stockholders"). The Selling
Stockholders may not sell or otherwise dispose of any of such securities for
a period of 12 months. See "Selling Stockholders and Plan of Distribution."
The Company will not receive any of the proceeds from the sales of the
Selling Stockholders' Shares by the Selling Stockholders. The Selling
Stockholders' Shares may be offered from time to time by the Selling
Stockholders, their pledgees and/or their donees, through ordinary brokerage
transactions in the over-the-counter market, in negotiated transactions or
otherwise, at market prices prevailing at the time of sale at negotiated
prices.
The Selling Stockholders, their pledgees and/or their donees, may be
deemed to be "underwriters" as defined in the Securities Act of 1933, as
amended (the "Securities Act"). If any broker-dealers are used by the Selling
Stockholders, their pledgees and/or their donees, any commissions paid to
broker-dealers and, if broker- dealers purchase any Selling Stockholders'
Shares as principals, any profits received by such broker-dealers on the
resale of the Selling Stockholders' Shares may be deemed to be underwriting
discounts or commissions under the Securities Act. In addition, any profits
realized by the Selling Stockholders, their pledgees and/or their donees, may
be deemed to be underwriting commissions. All costs, expenses and fees in
connection with the registration of the Selling Stockholders' Shares will be
borne by the Company except for any commission paid to broker-dealers.
The Selling Stockholders' Shares offered by the Prospectus may be sold
from time to time by the Selling Stockholders, their pledgees and/or their
donees. No underwriting arrangements have been entered into by the Selling
Stockholders. The distribution of the Selling Stockholders' Shares by the
Selling Stockholders, their pledgees and/or their donees, may be effected in
one or more transactions that may take place on the over-the- counter market,
including ordinary broker's transactions, privately-negotiated transactions
or through sales to one or more dealers for resale of such shares as
principals, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Stockholders, their pledgees and/or their donees, in
connection with sales of the Selling Stockholders' Shares.
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering of 1,200,000
shares of Series A Convertible Preferred Stock (the "Preferred Stock") and
1,700,000 Redeemable Series A Convertible Preferred Stock Purchase Warrants
(the "Warrants") was declared effective by the Securities and Exchange
Commission. In connection with the offering of the Preferred Stock and
Warrants, the Company granted Duke & Co., Inc., the underwriter of the public
offering (the "Underwriter"), a warrant (the "Underwriter's Warrant") to
purchase up to 120,000 shares of Preferred Stock and up to 170,000 Warrants.
------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 7 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
[ALTERNATE PAGE FOR SELLING STOCKHOLDER PROSPECTUS]
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Registered (1) ... 100,000 shares of Common Stock. See "Description of Securities" and "Selling
Stockholders and Plan of Distribution."
Risk Factors ................ This offering involves a high degree of risk. See "Risk Factors."
</TABLE>
- ------
(1) The 100,000 shares of Common Stock are issuable upon exercise of warrants
sold to the Selling Stockholders in a private offering.
<PAGE>
[ALTERNATE PAGE FOR SELLING STOCKHOLDER PROSPECTUS]
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
Upon the exercise of warrants sold to the Selling Stockholders in a
private offering, the Selling Stockholders may resell up to 100,000 shares of
Common Stock issuable upon exercise of such warrants pursuant to this
Prospectus. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." The Selling
Stockholders have advised the Company that sales of the shares of Common
Stock may be effected from time-to-time by themselves, their pledgees and/or
their donees, in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Common Stock, or a combination of such methods of sale, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, or at negotiated prices. The Selling Stockholders, their pledgees
and/or their donees, may effect such transactions by selling Common Stock
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of shares of Common Stock for whom such broker-dealers may acts as
agents or to whom they sell as principals, or both.
The Selling Stockholders, their pledgees and/or their donees, any
broker-dealers that act in connection with the sale of the shares of Common
Stock and Class A Warrants as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the shares of Common Stock
as principals might be deemed to be underwriting discounts and commissions
under the Securities Act. The Selling Stockholders' Shares being registered
on behalf of the Selling Stockholders are restricted securities while held by
the Selling Stockholders and the resale of such securities by the Selling
Stockholders is subject to prospectus delivery and other requirements of the
Act. The Selling Stockholders, their pledgees and/or their donees, may agree
to indemnify any agent, dealer or broker-dealer who participates in
transactions involving sales of the shares of Common Stock against certain
liabilities, including liabilities arising under the Securities Act. The
Company will not receive any proceeds from the sales of the Selling
Stockholders' Shares by the Selling Stockholders. Sales of the Selling
Stockholders' shares by the Selling Stockholders, or even the potential of
such sales, would likely have an adverse effect on the market price of the
Company's securities.
At the time a particular offer of the securities is made by or on behalf
of the Selling Stockholders, to the extent required, a prospectus supplement
will be distributed which will set forth the number of shares being offered
and the terms of the offering, including the name or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter
for shares purchased from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereto, any person engaged in distribution of
Company securities offered by this prospectus may not simultaneously engage
in market-making activities with respect to Company securities during the
applicable "cooling off" period prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation, Rules
10b-6 and 10-b-7, in connection with transactions in the shares, which
provisions may limit the timing of purchases and sales of the Company
securities by the Selling Stockholders.
<PAGE>
[ALTERNATE PAGE FOR SELLING STOCKHOLDER PROSPECTUS]
The following table sets forth certain information with respect to persons
for whom the Company is registering the Selling Stockholders' Shares for
resale to the public. The Company will not receive any of the proceeds from
the sale of the Selling Stockholders' Shares. Beneficial ownership of the
Selling Stockholders' Shares by such Selling Stockholders after this offering
will depend on the number of Selling Stockholders' Shares sold by each
Selling Stockholder. The securities held by the Selling Stockholders are
restricted securities while held by such Selling Stockholders and the resale
of such securities by the Selling Stockholders is subject to prospectus
delivery and other requirements of the Act. The Selling Stockholders' Shares
offered by the Selling Stockholders are not being underwritten by the
Underwriter.
<TABLE>
<CAPTION>
Beneficial
Beneficial Total Number Ownership After this
Selling Ownership Prior to of Shares Offering if all Shares
Stockholder(1) this Offering Being Registered are Sold
-------------------- ------------------ ---------------- ----------------------
<S> <C> <C> <C>
Twinvalley, Inc. ... 65,000 65,000 0
Phil Lifschitz ..... 20,000 20,000 0
Roseann Wexler ..... 10,000 10,000 0
Wei Ying Wong ...... 5,000 5,000 0
------------------ ---------------- ----------------------
Total .............. 100,000 100,000 0
================== ================ ======================
</TABLE>
- ------
(1) None of such Selling Stockholders has had any material relationship with
the Company.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article NINTH of the Certificate of Incorporation of IFS International,
Inc. ("Registrant") provides that no director shall have any personal
liability to Registrant or its stockholders for monetary damages for breach
of fiduciary duty as a director, except with respect to (1) a breach of the
director's duty of loyalty to Registrant or its stockholders, (2) acts or
omissions not in good faith which involve intentional misconduct or a knowing
violation of law, (3) liability under Section 174 of the Delaware General
Corporation Law or (4) a transaction from which the director derived an
improper personal benefit. Article TENTH of the Certificate of Incorporation
of Registrant provides that Registrant shall indemnify, to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law, as amended
from time to time, any and all persons whom it shall have power to indemnify
under such section.
Reference is made to Section 6 of the Underwriting Agreement, which
provides for indemnification of the officers and directors of Registrant
under certain circumstances.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering. Other
than the SEC registration fee, NASD filing fee and the non-accountable
expense allowance of Duke & Co., Inc. (the "Underwriter"), amounts set forth
below are estimates:
than underwriting commissions and expenses, are estimated below.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee .................... $ 6,456
NASD filing fee ......................... 2,631
Underwriter's nonaccountable expense
allowance ............................. 185,100*
Nasdaq Stock Market listing fee ......... 10,000
Boston Stock Exchange listing fee ....... 10,000
Blue sky legal fees ..................... 35,000
Printing and engraving expenses ......... 75,000
Legal fees .............................. 125,000
Accounting fees ......................... 25,000
Transfer and Warrant Agent fees ......... 3,500
Miscellaneous expenses .................. 22,313
----------
$500,000
==========
</TABLE>
- ------
* Assumes no exercise of the Underwriter's over-allotment option.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all securities of
Registrant sold within the past three years without registering the
securities under the Securities Act of 1933, as amended (the "Securities
Act"):
On November 22, 1994, Registrant issued an aggregate of 30,000 shares of
Common Stock to two non- affiliated persons and 10,000 shares of Common Stock
to Jerald Tishkoff, a director of Registrant, for an aggregate consideration
$60,000, or $1.50 per share.
On June 15, 1994, Registrant issued 350 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $1.50 per share,
or an aggregate of $525.
On July 13, 1994, Registrant issued 71 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.00 per share,
or an aggregate of $142.
On February 6, 1995, Registrant issued 5,000 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $1.00 per share,
or an aggregate of $5,000.
II-1
<PAGE>
In June 1995, New York State Science and Technology Foundation converted
$71,875 prinicpal amount of debentures into 25,967 shares of Common Stock.
On November 13, 1995, Registrant issued 15,000 shares of Common Stock to a
non-affiliate upon conversion of a note payable in the amount of $150,000.
On January 11, 1996, Registrant issued 778 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $1.00 per share,
or an aggregate of $778.
On March 12, 1996, Registrant issued 909 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.50 per share,
or an aggregate of $2,272.
On June 25, 1996, Registrant issued 1,562 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.00 per share,
or an aggregate of $3,124.
On July 23, 1996, Registrant issued 22,401 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $.66 per share,
or an aggregate of $14,785.
On July 24, 1996, Registrant issued 26,405 shares of Common Stock to
Seymour Pearlman, a former director of Registrant, pursuant to the exercise
of options at $.66 per share, or an aggregate of $17,428.
On September 25, 1996, Registrant issued notes in the aggregate principal
amount of $500,000 to four non-affiliated persons and warrants to purchase an
aggregate of 100,000 shares of Common Stock at $2.50 per share, subject to
adjustments, to the same four non-affiliated persons for an aggregate
consideration of $5,000, or $.05 per warrant.
On November 26, 1996, Registrant issued 2,000 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.00 per share, or
an aggregate of $4,000.
On December 16, 1996, Registrant issued 393 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $2.00 per share,
or an aggregate of $786.
On December 23, 1996, Registrant issued 286 shares of Common Stock to a
non-affiliate person pursuant to the exercise of options at $1.50 per share,
or an aggregate of $429.
On January 8, 1997, Registrant issued 4,978 shares of Common Stock to each of
Frank A. Pascuito, Chief Executive Officer of Registrant, and Charles J.
Caserta, President of Registrant, pursuant to the exercise of options at $.66
per share, or an aggregate of $6,571 for 9,956 shares.
Exemption from registration under the Securities Act is claimed for the
sales of Common Stock referred to above in reliance upon the exemption
afforded by Section 4(2) of the Securities Act for transactions not involving
a public offering. Each certificate evidencing such shares of Common Stock
bears an appropriate restrictive legend. None of these sales involved
participation by an underwriter or a broker-dealer.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1* Form of Underwriting Agreement between Registrant and the Underwriter
3.1* Certificate of Incorporation and amendments thereto of Registrant
3.2 By-laws, as amended, of Registrant
4.1 Certificate of Designation of the Series A Convertible Preferred Stock
4.2* Form of certificate evidencing shares of Preferred Stock
4.3* Form of certificate evidencing Warrants
4.4* Form of certificate evidencing shares of Common Stock
4.5* Form of Warrant Agreement between Registrant and the Underwriter
4.6* Form of Warrant Agreement between Registrant and American Stock Transfer and Trust Company, as Warrant
agent
4.7* Debenture Investment Agreement, dated July 6, 1989, between Registrant and New York State Science
and Technology Foundation, and amendments thereto
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.8* Loan Agreement, dated January 11, 1989, between Registrant and North Greenbush Industrial Development
Agency and amendments thereto
5.1 Opinion of Parker Duryee Rosoff & Haft A Professional Corporation
10.1* 1996 Stock Option Plan
10.2* Lease Agreement, dated October 1, 1986 between Registrant and Renssalaer Polytechnic Institute and
amendment thereto (the "Lease Agreement")
10.3* Digital Prime Contracting Agreement, dated June 6, 1994, between Registrant and Digital Equipment
International BV
10.4* Software Development and License Agreement, dated July 8, 1996, between Registrant and Visa International
Service Association
10.5 Form of Employment Agreement, dated as of January 1, 1997, between Registrant and Frank A. Pascuito.
10.6 Form of Employment Agreement, dated as of January 1, 1997, between Registrant and Charles J. Caserta.
10.7* Purchase and Sale Agreement, dated as of December 17, 1996, between Registrant and Trustee Bank,
National Association.
10.8* Addendum A to the Lease Agreement, dated January 6, 1997.
10.9* Form of Consulting and Investment Banking Agreement between Registrant and the Underwriter.
10.10 Warrant Agreement, dated as of September 25, 1996, between Registrant and the bridge financing investors.
10.11 1988 Stock Option Plan.
21.1* Subsidiaries of Registrant
23.1 Consent of Urbach Kahn & Werlin PC
23.2 Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5.1)
24.1* Power of Attorney (included on the signature page of Part II of this Registration Statement)
</TABLE>
- ------
* Previously filed with this Registration Statement.
ITEM 28. UNDERTAKINGS
Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the secur- ities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
II-3
<PAGE>
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of Registrant pursuant to Item 24 of this Part II to the Registration
Statement, or otherwise, Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a director,
officer or controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against the
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, in the City of Troy, State of New York, on the 28th day of
January, 1997.
IFS INTERNATIONAL, INC.
By: /s/ Frank A. Pascuito
---------------------------
Frank A. Pascuito
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
-------------------------- ------------------------------------------------------- --------------------
<S> <C> <C>
/s/ Frank A. Pascuito Chairman of the Board, Chief Executive Officer, January 28, 1997
- ------------------------- Director (Principal Executive and Financial Officer)
Frank A. Pascuito
/s/ Charles J. Caserta President, Director January 28, 1997
- -------------------------
Charles J. Caserta
* Director of Sales and Marketing for the January 28, 1997
- ------------------------- London Office, Director
Simon J. Theobald
/s/ Carmen A. Pascuito Controller, Secretary (Principal Accounting Officer) January 28, 1997
- -------------------------
Carmen A. Pascuito
Director
- --------------------------
Arnold Wells
* Director January 28, 1997
- --------------------------
Jerald Tishkoff
</TABLE>
- ------
* Frank A. Pascuito, pursuant to the Powers of Attorney, (executed by each of
the officers and directors listed above and indicated as signing above, and
filed with the Securities and Exchange Commission), by signing his name
hereto does hereby sign and execute this Amendment to the Registration
Statement on behalf of each of the persons referenced above.
/s/ Frank A. Pascuito
-------------------------
Frank A. Pascuito
January 28, 1997
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Item 27. Exhibits
1.1* Form of Underwriting Agreement between Registrant and the Underwriter
3.1* Certificate of Incorporation and amendments thereto of Registrant
3.2 By-laws, as amended, of Registrant
4.1 Certificate of Designation of the Series A Convertible Preferred Stock
4.2* Form of certificate evidencing shares of Preferred Stock
4.3* Form of certificate evidencing Warrants
4.4* Form of certificate evidencing shares of Common Stock
4.5* Form of Warrant Agreement between Registrant and the Underwriter
4.6* Form of Warrant Agreement between Registrant and American Stock Transfer and Trust Company, as Warrant
agent
4.7* Debenture Investment Agreement, dated July 6, 1989, between Registrant and New York State Science and
Technology Foundation, and amendments thereto
4.8* Loan Agreement, dated January 11, 1989, between Registrant and North Greenbush Industrial Development
Agency and amendments thereto
5.1 Opinion of Parker Duryee Rosoff & Haft A Professional Corporation
10.1* 1996 Stock Option Plan
10.2* Lease Agreement, dated October 1, 1986 between Registrant and Renssalaer Polytechnic Institute and amendment
thereto (the "Lease Agreement")
10.3* Digital Prime Contracting Agreement, dated June 6, 1994, between Registrant and Digital Equipment International
BV
10.4* Software Development and License Agreement, dated July 8, 1996, between Registrant and Visa International
Service Association
10.5 Form of Employment Agreement, dated as of January 1, 1997, between Registrant and Frank A. Pascuito.
10.6 Form of Employment Agreement, dated as of January 1, 1997, between Registrant and Charles J. Caserta.
10.7* Purchase and Sale Agreement, dated as of December 17, 1996, between Registrant and Trustee Bank, National
Association.
10.8* Addendum A to the Lease Agreement, dated January 6, 1997.
10.9* Form of Consulting and Investment Banking Agreement between Registrant and the Underwriter.
10.10 Warrant Agreement, dated September 25, 1996, between Registrant and the bridge financing investors.
10.11 1988 Stock Option Plan
21.1* Subsidiaries of Registrant
23.1 Consent of Urbach Kahn & Werlin PC
23.2 Consent of Parker Duryee Rosoff & Haft (included in Exhibit 5.1)
24.1* Power of Attorney (included on the signature page of Part II of this Registration Statement)
</TABLE>
- ------
* To be filed by Amendment to this Registration Statement.
** Previously filed with this Registration Statement.
<PAGE>
BY-LAWS
- OF -
IFS INTERNATIONAL, INC.
(a Delaware Corporation)
<PAGE>
ARTICLE I
MEETING OF SHAREHOLDERS
SECTION 1. Annual Meeting. The Annual Meeting of the Shareholders of the
Corporation shall be held on the second Tuesday of September in each year or, if
such day is a legal holiday, on the next business day, or such date and hour as
may be fixed by the Board of Directors and named in the Notice of Meeting. At
such meeting, the Shareholders shall elect Directors and shall transact such
other business as may properly be brought before such meeting.
SECTION 2. Special Meetings. Special Meetings of the Shareholders of the
Corporation may be held at any time in the interval between Annual Meetings.
Special Meetings may be called by the Chairman or President of the Corporation,
or by the Board of Directors, or by a Committee of the Board of Directors which
has been duly designated by the Board of Directors and whose powers and
authority include the power to call such meetings, or by Shareholders of the
Corporation beneficially owning at least 10% of the outstanding shares of
capital stock of the Corporation entitled to vote at a Shareholders meeting of
the Corporation. The request for a Special Meeting shall state the purpose or
purposes of the Meeting and matters proposed to be acted upon thereat.
SECTION 3. Place of Meetings. Annual and Special Meetings of the Shareholders of
the Corporation shall be held at the principal office of the Corporation or at
such other place within or without the State of Delaware as the Board of
Directors may from time to time determine.
SECTION 4. Notice of Meetings. Written or printed notice of the date, time and
place of all meetings of the Shareholders shall be given personally, or by first
class mail, not less than ten (10) days nor more than sixty (60) days before the
day fixed for the meeting, to each Shareholder entitled to vote at said meeting,
and, unless the meeting is an annual meeting, such notice must also state the
purpose or purposes for which the meeting is called and must indicate that it is
being issued by or at the direction of the person or persons calling the
meeting. Such notice must also be given to any Shareholder who, by reason of any
action proposed at such meeting, would be entitled to have his stock appraised,
if such action were taken, and such notice must specify the proposed action and
state the fact that if the action is taken, the dissenting Shareholder shall
have appraisal rights. Such notice shall be given to the Shareholder by leaving
the same with him at his residence or usual place of business or by mailing it,
postage prepaid and addressed to him at his address as it appears on the books
of the Corporation, unless he shall have filed with the Secretary of the
Corporation a written request that notices intended for him be mailed to some
other address, in which event it shall be mailed to the address designated in
such request. The notices, as provided for in this Section, are not required to
be given to any Shareholder who submits a signed waiver of notice, in person or
by proxy, whether before or after the meeting. The attendance of any Shareholder
at a meeting, in person or by proxy, without protesting prior to the conclusion
of the meeting the lack of notice of such
<PAGE>
meeting, shall constitute a waiver of notice by him. No notice of an adjourned
meeting of Shareholders need be given, unless the Board of Directors fixes a new
record date for the adjourned meeting.
SECTION 5. Record Dates. For the purposes of determining the Shareholders
entitled to notice of or to vote at a Shareholders' meeting or any adjournment
thereof, the Board of Directors may fix a date of record which shall not be more
than sixty (60) days nor less than ten (10) days before said meeting date. For
the purpose of determining Shareholders entitled to express consent to or
dissent from any proposal without a meeting, or for determining Shareholders
entitled to receive payment of a dividend or the allotment of any rights, or for
any other action, the Board of Directors may fix a date of record which shall
not be more than sixty (60) days prior to such action.
SECTION 6. Quorum. At all meetings of Shareholders, except as otherwise provided
by law, a quorum of Shareholders of each class of stock entitled to vote shall
exist if there is present in person or represented by proxy, Shareholders owning
a majority of each class of stock in number of the shares of the Corporation
issued and outstanding and entitled to vote thereat, in order to constitute a
quorum; but if there be no quorum, the holders of such shares so present or
represented may by majority vote to adjourn the meeting from time to time, but
not for a period of over thirty (30) days at any one time, without notice other
than by announcement at the meeting, until a quorum shall attend. At any such
adjournment of the meeting, which a quorum shall attend, any business may be
transacted which might have been transacted at the meeting as originally called.
When a quorum is once present, it is not broken by the subsequent withdrawal of
any Shareholder.
SECTION 7. Voting. At all meetings of the Shareholders, each Shareholder
entitled to vote thereat may vote in person or by proxy, and shall have one (1)
vote for each share standing in his name on the books of the Corporation as of
the Record Date fixed for the meeting, unless otherwise provided in the
Certificate of Incorporation or any amendments thereto. Upon demand of the
Shareholders holding ten percent (10%) in interest of the shares, present in
person or by proxy and entitled to vote, voting shall be by ballot. A plurality
of votes cast shall be sufficient to elect Directors, and a majority of votes
cast shall be sufficient to take any other corporate action, except as otherwise
provided by law or these By-Laws.
SECTION 8. Proxies. Every proxy shall be in writing, subscribed by the
Shareholder or his duly authorized attorney and dated. No proxy which is dated
more than three (3) years before the meeting at which it is offered shall be
accepted, unless such proxy shall, on its face, name a longer period for which
it is to remain in force.
SECTION 9. Conduct of Meetings. Meetings of the Shareholders shall be presided
over by the Chairman of the Board of Directors, if any, or, in his absence, by
the Vice Chairman of the Board, if any, or in his absence, by the President of
the Corporation or, in his absence, by an Executive Vice President, if any, or,
in the absence of all such officers, by
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<PAGE>
a Chairman to be chosen at the Meeting. The Secretary of the Corporation shall
act as Secretary of the Meeting, if present.
SECTION 10. Action Without a Meeting. Whenever Shareholders are required or
permitted to take any action by vote, such action may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Such consent shall be delivered
to the Corporation by delivery to its principal place of business or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Election and Powers. The Board of Directors shall have the management
and control of the affairs and business of the Corporation. The Directors shall
be elected by the Shareholders at each annual meeting of Shareholders and each
Director shall serve until his successor is elected or appointed and qualified,
unless his directorship be theretofore vacated by resignation, death, removal or
otherwise.
SECTION 2. Qualification. A director must be a shareholder, but need not be a
citizen of the United States, or a resident of the State of Delaware.
SECTION 3. Number. The number of Directors constituting the entire Board of
Directors shall be five but such number may be increased or decreased to not
less than three (3) or more than fifteen (15), as shall be designated by
resolution of the Board of Directors adopted by a majority of the entire Board.
The "entire Board", as used in this Article, shall mean the total number of
Directors which the Corporation would have if there were no vacancies.
Notwithstanding the provisions of this Section, where all of the shares are
owned beneficially and of record by less than three (3) Shareholders, the number
of Directors may be less than three (3), but not less than the number of
Shareholders. Regardless of the number of directors, a majority of the Board
shall be composed of members who are not employees of the Corporation.
SECTION 4. Vacancies. Vacancies in the Board of Directors (including any
resulting from an increase in the number of Directors) created for any reason
may be filled by vote of the Board of Directors. If, however, the number of
Directors then in office is less than a quorum, vacancies may be filled by a
vote of a majority of the Directors then in office. A Director elected by the
Board of Directors to fill a vacancy under this Section shall hold office until
the next meeting of shareholders at which the election of directors is in the
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<PAGE>
regular order of business, and until his successor has been duly elected or
appointed and qualified.
SECTION 5. Removal. At any meeting of the Shareholders duly called, any Director
may, by vote of the holders of a majority of the shares entitled to vote in the
election of Directors, be removed from office, with cause.
SECTION 6. Meetings. Regular Meetings of the Board of Directors shall be held at
such times as the Directors may from time to time determine. Special Meetings of
the Board of Directors shall be held at any time, upon call from the Chairman of
the Board, the President, any Vice President, the Secretary, or by any member of
the Board of Directors.
SECTION 7. Place of Meetings. Regular and Special Meetings of the Board of
Directors shall be held at the principal office of the Corporation or at such
other place, within or without the State of Delaware, as the Board of Directors
may from time to time determine.
SECTION 8. Notice of Meeting. Notice of the place, day and hour of every regular
and special meeting shall be given to each Director by delivering the same to
him personally or sending the same to him by facsimile transmission or
telegraph, or leaving the same at his residence or usual place of business, at
least one (1) day before the meeting, or shall be mailed to each Director,
postage prepaid and addressed to him at the last known Post Office address
according to the records of the Corporation, at least three (3) business days
before the meeting. No notice of any adjourned meeting of the Board of Directors
need to be given other than by announcement at the meeting, subject to the
provisions of Section 9 of this Article.
SECTION 9. Waiver of Notice. Notice of a meeting need not be given to any
Director who submits a signed written waiver thereof, whether before, during or
after the meeting, nor to any Director who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him.
SECTION 10. Quorum. A majority of the entire Board shall be necessary to
constitute a quorum for the transaction of business at each meeting of the Board
of Directors; but if at any meeting there be less than a quorum present, a
majority of those present may adjourn the meeting from time to time without
notice other than by announcement at the meeting, until a quorum shall attend.
At any such adjournment, at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally called.
SECTION 11. Action Without a Meeting. Any action required or permitted to be
taken by the Board of Directors or any committee thereof at a duly held meeting
may be taken without a meeting if all members of the Board of Directors or the
committee consent in writing to the adoption of a resolution authorizing the
action. Such resolution and the written consents thereto by the members of the
Board of Directors or committee shall be filed with the minutes of the
proceedings of the Board of Directors or the committee.
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<PAGE>
SECTION 12. Personal Attendance by Conference Communication Equipment. Any one
or more members of the Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at the meeting.
SECTION 13. Compensation. Directors as such shall receive compensation and
expense reimbursements for their services, as fixed by the Board of Directors.
Nothing in this Section will be construed to preclude a Director from serving
the Corporation in any other capacity and from receiving compensation therefor.
SECTION 14. Executive Committee and Other Committees. The Board of Directors
may, in its discretion, by an affirmative vote of a majority of the entire
Board, appoint an Executive Committee, or any other committee, to consist of one
or more Directors as the Board of Directors may from time to time determine. Any
Committee shall have, and may exercise between meetings of the Board of
Directors, all the powers of the Board of Directors in the management of the
business and affairs of the Corporation as conferred upon them by the Board of
Directors, except that no committee shall have power:
(a) To submit to Shareholders any action requiring Shareholder
approval;
(b) To fill vacancies in the Board of Directors or in any committee
thereof;
(c) To fix compensation of Directors for service on the Board of
Directors or any committee thereof;
(d) To repeal, amend or adopt by-laws;
(e) To amend or repeal any Board resolution which is not, by its
terms, amendable or repealable by such committee;
(f) Any power the Corporation's Board of Directors may not otherwise
delegate by law.
In the absence of any member of the Executive Committee or of any other
committee, the members thereof present at any meeting may appoint a member of
the Board of Directors previously designated by the Board of Directors as a
committee alternate to act in place of such absent member. The Board of
Directors shall have the power at any time to change the membership of any
committee, to fill vacancies in it, or dissolve it. The Executive Committee and
any other committee may make rules for the conduct of its business, and may
appoint such committees and assistants as may from time to time be necessary,
unless the Board of Directors shall provide otherwise. A majority of the members
of the Executive Committee and of any other committee shall constitute a quorum.
5
<PAGE>
ARTICLE III
OFFICERS
SECTION 1. Election of Officers. The Board of Directors, at any duly held
meeting thereof, shall elect a President, a Secretary and a Treasurer or Chief
Financial Officer of the Corporation, and shall also elect a Chairman or
Co-Chairmen of the Board from among the Directors of the Corporation, one or
more Vice Presidents and any other officers. Each such officer shall serve at
the pleasure of the Board of Directors or until his successor shall have been
duly elected or appointed and qualified, or until he shall have resigned, shall
have deceased or shall have been removed in the manner provided in Section 3 of
this Article. Any two offices may be held by the same person, except that no
person shall hold the office of President and Secretary concurrently.
Notwithstanding the foregoing, if all of the stock of the Corporation shall ever
be owned by one person, such person may hold all or any combination of offices.
Any vacancies in the above offices shall be filled by the Board.
SECTION 2. Assistant and Subordinate Officers. The Board of Directors (or the
Executive Committee) may elect one or more Assistant Treasurers, one or more
Assistant Secretaries and such other subordinate officers or agents as it may
deem proper from time to time, who shall hold office at the pleasure of the
Board of Directors (or the Executive Committee). The Board of Directors may from
time to time authorize the President to appoint and remove such assistant and
subordinate officers and agents and prescribe the powers and duties thereof.
SECTION 3. Removal. Any officers of the Corporation may be removed with or
without cause by a vote of the majority of the entire Board of Directors of the
Corporation then in office at a meeting called for that purpose whenever in its
judgment the best interests of the Corporation may be served thereby.
SECTION 4. Compensation. The Board of Directors shall fix the compensation of
all officers of the Corporation who are elected or appointed by the Board of
Directors. The Chief Operating Officer shall fix the compensation of such
assistant and subordinate officers and agents as he is authorized to appoint and
remove.
SECTION 5. Chairman of the Board. The Chairman or Co-Chairmen of the Board shall
preside at all meetings of the Board of Directors and shall perform such other
duties as the Board of Directors may direct. The Chairman of the Board shall be
the Chief Executive Officer (CEO) of the Corporation. The Chairman of the Board
shall preside at all meetings of the Shareholders. The Board of Directors may
elect more than one Chairman, in which case the persons so elected shall serve
as Co-Chairmen and Co-Chief Executive Officers.
SECTION 6. President. The President shall be the Chief Operating Officer of the
Corporation and, together with the Chairman, shall, subject to the direction of
the Board of
6
<PAGE>
Directors (or the Executive Committee), have the general management of the
affairs of the Corporation. If there be no Chairman of the Board, or in his
absence or inability to act, the President shall perform all duties of the
Chairman of the Board, subject, however, to the control of the Board of
Directors (or the Executive Committee).
SECTION 7. Vice Presidents. Any one or more of the Vice Presidents may be
designated by the Board of Directors (or the Executive Committee) as an
Executive Vice President. At the request of the President, or in his absence or
during his disability, the Executive Vice President shall perform the duties and
exercise the functions of the President. If there be no Executive Vice
President, or if there be more than one (1), the Board of Directors (or the
Executive Committee) may determine which one or more of the Vice Presidents
shall perform any of such duties or exercise any of such functions; if such
determination is not made by the Board of Directors (or the Executive
Committee), the President may make such determination; otherwise, any of the
Vice Presidents may perform any of such duties or exercise any of such
functions. Each Vice President shall have such other powers and duties as may be
properly designated by the Board of Directors (or the Executive Committee) and
the President. The Board of Directors may also designate one or more senior vice
presidents, assistant vice presidents, or such other type of vice president as
the board may deem appropriate.
SECTION 8. Secretary. The Secretary shall keep full minutes of all meetings of
the Shareholders and of the Board of Directors in books provided for that
purpose. He shall see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law. He shall be the custodian of
the records and of the Seal or Seals of the Corporation. He shall affix the
Corporate Seal to all documents, the execution of which on behalf of the
Corporation, under the Seal, is duly authorized by the Board of Directors (or
Executive Committee), and when so affixed may attest the same. He shall have
such other powers and duties as may be properly designated by the Board of
Directors (or the Executive Committee) and the President.
SECTION 9. Treasurer or Chief Financial Officer. The Treasurer shall keep
correct and complete books and records of account for the Corporation. Subject
to the control and supervision of the Board of Directors (or the Executive
Committee) and the President, or such other officer as the President may
designate, the Treasurer shall establish and execute programs for the provision
of the capital required by the Corporation, including negotiating the
procurement of capital and maintaining adequate sources for the Corporation's
current borrowing from lending institutions. He shall maintain banking
arrangements to receive, have custody of and disburse the Corporation's moneys
and securities. He shall invest the Corporation's funds as required, establish
and coordinate policies for investment in pension and other similar trusts, and
provide insurance coverage as required. He shall direct the granting of credit
and the collection of accounts due the Corporation, including the supervision of
special arrangements for financing sales, such as time payments and leasing
plans. He shall have such other powers and duties as may be properly designated
by the Board of Directors (or the Executive Committee) and the President.
7
<PAGE>
Section 10. Authority. All officers of the corporation shall have such authority
and perform such duties in the management and operation of the corporation as
shall be prescribed in the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties as are
incident to their office except to the extent that the resolutions may be
inconsistent therewith.
ARTICLE IV
SHARE CERTIFICATES
SECTION 1. Form and Signatures. The interest of each Shareholder of the
Corporation shall be evidenced by certificates for shares in such form not
inconsistent with the law or the Certificate of Incorporation, and any
amendments thereof, as the Board of Directors may from time to time prescribe.
The share certificates shall be signed by the President or a Vice President and
by the Secretary or an Assistant Secretary, and may be sealed with the seal of
the Corporation. Where any share certificate is countersigned by a transfer
agent or registered by a registrar, other than the Corporation itself or its
employee, or if the shares are listed on a registered national security
exchange, the signatures of any such President, Vice President, Secretary, or
Assistant Secretary, may be facsimiles engraved or printed. In case any officer
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before the share certificate is
issued, such certificate may be issued by the Corporation with the same effect
as if such person had not ceased to be such officer.
SECTION 2. Transfer of Shares. The shares of the Corporation shall be
transferred on the books of the Corporation by the Registered holder thereof, in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with a proper assignment and powers of transfer
endorsed thereon or attached thereto, duly signed by the person appearing by the
certificate to be the owner of the shares represented thereby, with such proof
of the authenticity of the signature as the Corporation, or its agents, may
reasonably require. Such certificate shall have affixed thereto all stock
transfer stamps required by law. The Board of Directors shall have power and
authority to make all such other rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the Corporation.
SECTION 3. Mutilated, Lost, Stolen or Destroyed Certificates. The holder of any
certificates representing shares of the Corporation shall immediately notify the
Corporation of any mutilation, loss, theft or destruction thereof, and the Board
of Directors may, in its discretion, cause one or more new certificates, for the
same number of shares in aggregate, to be issued to such holder upon the
surrender of the mutilated certificate, or, in case of an alleged loss, theft or
destruction of the certificate, upon satisfactory proof of such loss, theft or
destruction and the deposit of indemnity, by way of bond or otherwise, in such
form and amount and with such sureties as the Board of Directors may require, to
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<PAGE>
indemnify the Corporation and transfer agent and registrar, if any, against loss
or liability by reason of the issuance of such new certificates; but the Board
of Directors may, in its discretion, refuse to issue such new certificates save
upon the order of some court having jurisdiction in such matters.
SECTION 4. Stock Ledgers. The Stock Ledgers of the Corporation containing the
names and addresses of the Shareholders and the number of shares held by them
respectively shall be maintained at the principal office of the Corporation, or
if there be a transfer agent, at the office of such transfer agent, as the Board
of Directors shall determine.
SECTION 5. Transfer Agents and Registrars. The Corporation may have one or more
transfer agents and one or more registrars of its stock or of any class or
classes of its shares whose respective duties the Board of Directors may from
time to time determine.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of May in each
year and shall end on the thirtieth day of April next following, unless
otherwise determined by the Board of Directors.
ARTICLE VI
CLASSES OF STOCK
Whenever the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series of any such partly
paid stocks shall set forth thereon the statements prescribed by the General
Corporation Law. Any restrictions on the transfer or registration of transfer of
any shares of stock of any class or series shall be noted conspicuously on the
certificates representing such shares.
ARTICLE VII
FINANCES
SECTION 1. Dividends. Subject to law and to the provisions of the Certificate of
Incorporation, and any amendments thereof, the Board of Directors may declare
dividends
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<PAGE>
on the stock of the Corporation, payable upon such dates as the Board of
Directors may designate.
SECTION 2. Reserves. Before payment of any dividends, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums, as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall deem conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
SECTION 3. Bills, Notes, Etc. All checks or demands for money and notes or other
instruments evidencing indebtedness or obligations of the Corporation shall be
made in the name of the Corporation and shall be signed by such officer or
officers or such other person or persons as the Board of Directors may from time
to time designate.
ARTICLE IX
AMENDMENTS
SECTION 1. Power to Amend. The Board of Directors shall have the power to adopt,
amend or repeal the By-Laws of the Corporation by a majority vote of the entire
Board at any meeting. However, any By-Laws adopted by the Board of Directors may
be amended or repealed at any meeting of Shareholders by a majority of the votes
cast at such meeting by the holders of shares entitled to vote thereon. Any
by-law provision adopted by the Shareholders may only be amended by the
Shareholders.
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<PAGE>
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS,
AND OTHER DISTINGUISHING CHARACTERISTICS OF
SERIES A PREFERRED STOCK
OF
IFS INTERNATIONAL, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation" or
the "Company") is IFS INTERNATIONAL, INC.
2. The certificate of incorporation of the Corporation authorizes the
issuance of 25,000,000 shares of Preferred Stock, par value $.001 per share, and
expressly vests in the Board of Directors of the Corporation the authority
provided therein to issue any or all of said shares in one or more series and by
resolution or resolutions to establish the designation, number, full or limited
voting powers, or the denial of voting powers, preferences and relative,
participating, optional, and other special rights and the qualifications,
limitations, restrictions, and other distinguishing characteristics of each
series to be issued.
3. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series A issue of Preferred Stock:
RESOLVED, that Twenty Million (20,000,000) of the Twenty-Five Million
(25,000,000) authorized shares of Preferred Stock of the Corporation shall be
designated Series A Convertible Preferred Stock (the "Series A Preferred Stock")
and shall possess the rights and privileges set forth below:
A. Dividends. No dividends or distributions shall be paid on
the Series A Preferred Stock; except that if and when dividends are declared by
the Board of Directors of the Corporation with respect to the holders of issued
and outstanding shares of Common Stock, out of assets at the time legally
available for such purpose, the holder of each issued and outstanding share of
Series A Preferred Stock shall be entitled to receive dividends ratably (on the
basis of the number of shares of Common Stock into which such share of Series A
Preferred Stock is then convertible) with the holders of Common Stock when, as
and if paid.
B. Liquidation Preference.
1. In the event of any liquidation, dissolution or
winding-up of the Corporation, either voluntary or involuntary (a
"Liquidation"), the holders of shares of the Series
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A Preferred Stock then issued and outstanding shall be entitled to be paid out
of the assets of the Corporation available for distribution to its stockholders,
whether from capital, surplus or earnings, before any payment shall be made to
the holders of shares of the Common Stock or upon any other series of Preferred
Stock of the Corporation with a liquidation preference subordinate to the
liquidation preference of the Series A Preferred Stock, an amount equal to five
dollars ($5.00) per share ("Liquidation Value"), subject to adjustment as set
forth in Section B.3 of this Designation. If, upon any Liquidation of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of the Series A
Preferred Stock and the holders of shares of any other series or class of
Preferred Stock with a liquidation preference on a parity with the liquidation
preference of the Series A Preferred Stock, the holders of all such shares of
each such series or class of Preferred Stock, including the Series A Preferred
Stock, shall share ratably in the total assets available for distribution in
proportion to the respective aggregate Liquidation Value of each series and
class (i.e., the product of the per share liquidation value of the shares of
such series or class and the total number of shares of such series or class
issued and outstanding at the time of Liquidation) bears to the aggregate
liquidation value of all such classes or series. After payment shall have been
made to the holders of shares of the Series A Preferred Stock of the full amount
to which they shall be entitled, as aforesaid, the holders of shares of the
Series A Preferred Stock (on the basis of the number of shares of Common Stock
into which the shares of Series A Preferred Stock is then convertible) and the
holders of shares of the Common Stock shall be entitled to share in all
remaining assets of the Corporation available for distribution to its
stockholders to the same extent as the holders of Common Stock.
2. A merger or consolidation of the Corporation with
or into any other corporation, or a sale, lease, exchange, or transfer of all or
any part of the assets of the Corporation which shall not in fact result in the
liquidation (in whole or in part) of the Corporation and the distribution of its
assets to its stockholders shall not be deemed to be a voluntary or involuntary
liquidation (in whole or in part), dissolution, or winding-up of the
Corporation.
3. If, prior to a Liquidation, the number of
outstanding shares of Series A Preferred Stock is increased by a stock split,
stock dividend, or similar event, the liquidation preference of the Series A
Preferred Stock shall be proportionately decreased, or if the number of
outstanding shares of Series A Preferred Stock is decreased by a combination,
reverse stock split or reclassification of shares, or similar event, the
liquidation preference of the Series A Preferred Stock shall be proportionately
increased.
C. Conversion of Series A Preferred Stock.
The holders of Series A Preferred Stock shall have the
following conversion rights:
1. Right to Convert. Each share of Series A Preferred Stock
shall be convertible, during the Conversion Period and at the Conversion Number
set forth below, into fully paid and nonassessable shares of Common Stock.
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2. Mechanics of Conversion. Each holder of Series A Preferred
Stock who desires to convert the same into shares of Common Stock shall provide
notice ("Conversion Notice") to the transfer agent of the Series A Preferred
Stock (the "Transfer Agent"). The Conversion Notice and the certificate or
certificates representing the Series A Preferred Stock for which conversion is
elected, duly endorsed (the "Series A Certificates"), shall be delivered to the
Transfer Agent via first class mail or courier. The date upon which a Conversion
Notice and the Series A Certificates are properly received by the Transfer Agent
shall be a "Notice Date."
The Transfer Agent shall use all reasonable efforts to issue
and deliver within three (3) business days after the Notice Date, to such holder
of Series A Preferred Stock at the address of the holder on the stock books of
the Corporation, a certificate or certificates for the number of shares of
Common Stock to which the holder shall be entitled as aforesaid; provided that
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of the close of business on the Notice
Date.
3. Conversion Period. The Series A Preferred Stock shall
become convertible into shares of Common Stock at any time during the five-year
period (the "Conversion Period") commencing on the date of the definitive
prospectus included within the registration statement previously filed on Form
SB-2 (File No. 333-11653) with the Securities and Exchange Commission (the
"Registration Statement"), which, among other things registers the issuance of
the Series A Preferred Stock, pursuant to the Securities Act of 1933, as amended
(the "Prospectus Date") subject to earlier automatic conversion as provided in
Section C.5. below.
4. Conversion Number. Each share of Series A Preferred Stock
shall be convertible into such number of shares of Common Stock as shall equal
the Conversion Number, at the time of conversion. The Conversion Number shall
equal one share, subject to adjustment as set forth in Section C.8 of this
Designation.
5. Mandatory Conversion. Each share of Series A Preferred
Stock automatically shall be converted into Common Stock on the earlier of (a)
the opening of business on the fifth anniversary of the Prospectus Date or (b)
the opening of business on the first business day following the date of
consummation of a merger or acquisition of the Corporation (the "Business
Combination") in which the outstanding capital stock of the Corporation are
exchanged for either cash, property or securities (the "Consideration") of
another entity if the Consideration received in the Business Combination for
each share of the Common Stock is $5.00 or greater per share on a fully diluted
basis. If part or all of the Consideration is other than cash, the amount of the
Consideration other than cash shall be deemed to be the value as determined in
good faith by the Board of Directors. The date of such automatic conversion
shall be deemed to be the Notice Date with respect to such conversion.
6. Fractional Shares. No fractional share shall be issued upon
the conversion of any shares, share or fractional share of Series A Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of shares (or fractions thereof) of Series A Preferred Stock by a
holder thereof shall be aggregated upon such conversion for purposes of
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determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the closing sale price of the
Corporation's Common Stock on the Notice Date multiplied by such fraction.
7. Reservation of Stock Issuable Upon Conversion. 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 A Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all then outstanding shares of the Series A 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 A Preferred Stock, the Corporation will take such corporate 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.
8. Adjustment to Conversion Number and Stated Price.
(a)(1) As used herein "Excepted Security" includes
(i) any security of the Company described in or covered by the Registration
Statement including options to be issued pursuant to the Company's stock option
plans in effect on the date of filing of this Certificate, options issued or to
be issued to executives pursuant to employment agreements with Charles Caserta
and Frank Pascuito as described in the Registration Statement and warrants or
convertible notes, (ii) options issued pursuant to any new stock option plan
approved by the Company's shareholders after the filing of the Designation or
(iii) Common Stock or other securities issued pursuant to the terms of any
security described in sections 8(a)(1)(i) and 8(a)(1)(ii) of this Section C or
for which an adjustment was previously made pursuant to Section C.8.(f).
(2) As used herein, "Stated Price" shall
initially mean $5.00, and shall be subject to adjustment as provided in this
Section C.8.
(b) If, prior to the conversion of all shares of
Series A Preferred Stock, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event, the
Conversion Number shall be proportionately increased and the Stated Price
decreased, or if the number of outstanding shares of Common Stock is decreased
by a combination, reverse stock split or reclassification of shares, or other
similar event, the Conversion Number shall be proportionately decreased and the
Stated Price increased.
(c) In case the Corporation shall at any time after
the filing date of this Designation issue or sell any shares of Common Stock
(other than an Excepted Security or an issuance pursuant to Section 8(b)) for a
consideration per share less than the Stated Price (as defined in Section
C.8(a)(2)) on the date immediately prior to the issuance or sale of such shares,
or without consideration, then forthwith upon such issuance or sale, the Stated
Price shall (until another such issuance or sale) be decreased to the price
(calculated to the nearest full cent) equal to the quotient derived by dividing
(A) an amount equal to the sum of (X) the product of (i) the
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total number of shares of Common Stock outstanding immediately prior to the
issuance or sale of such shares, multiplied by (ii) the Stated Price on the date
immediately prior to the issuance or sale of such shares, plus (Y) the aggregate
amount of consideration, if any, received by the Corporation upon the issuance
or sale of such shares, by (B) the total number of shares of Common Stock
outstanding immediately after the issuance or sale of such shares; provided,
however, that in no event shall the Stated Price be adjusted pursuant to this
computation to an amount in excess of the Stated Price in effect immediately
prior to such computation. Whenever an adjustment is made to the Stated Price as
provided in this Section C.8.(c), the Conversion Number shall be correspondingly
increased in the ratio that the Stated Price existing immediately prior to the
adjustment bears to the Stated Price existing immediately after such adjustment.
(d) For purposes of any computation to be made in
accordance with Section C.8(c) and (f), the following provisions shall be
applicable:
i) In case of the issuance or sale of shares
of Common Stock for a consideration part or all of which shall be cash, the
amount of the cash consideration therefore shall be deemed to be the amount of
cash received by the Corporation for such shares before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar services, or any
expenses incurred in connection therewith.
ii) In case of the issuance or sale
(otherwise than as a dividend or other distribution of any stock of the
Corporation) of shares of Common Stock for a consideration part or all of which
shall be other than cash, the amount of the consideration therefor other than
cash shall be deemed to be the value of such consideration as determined in good
faith by the Board of Directors of the Corporation.
iii) Shares of Common Stock issuable by way
of dividend or other distribution on any stock of the Corporation shall be
deemed to have been issued immediately after the opening of business on the day
following the record date for the determination of stockholders entitled to
receive such dividend or other distribution and shall be deemed to have been
issued without consideration.
iv) The reclassification of securities of
the Corporation other than shares of Common Stock into securities including
shares of Common Stock shall be deemed to involve the issuance of such shares of
Common Stock for a consideration other than cash immediately prior to the close
of business on the date fixed for the determination of security holders entitled
to receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii) of
this Section C.8(d).
(e) As used in this Section C of this
Designation, "Derivative Securities" shall include any security exercisable for
or convertible or exchangeable into shares of Common Stock and shall include
warrants, options, convertible or exchangeable securities or rights. The number
of shares of Common Stock at any one time outstanding shall include the
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aggregate number of shares issued or issuable (subject to readjustment upon the
actual issuance thereof) of any exercisable, convertible or exchangeable
Derivative Securities.
(f) In case the Corporation shall at any time after
the filing date of this Designation issue or sell any Derivative Securities,
other than Excepted Securities, for a consideration per share less than the
Stated Price immediately prior to the issuance of such Derivative Securities, or
without consideration, the Stated Price and Conversion Number in effect
immediately prior to the issuance of such Securities, as the case may be, shall
be adjusted to a price and to a number, respectively, determined by making a
computation in accordance with the provisions of Section C.8(c) hereof, provided
that:
i) In case the Corporation shall in any
manner issue or sell Derivative Securities and the price per share for which
such shares are issuable or deliverable upon the exercise, conversion or
exchange of such Derivative Securities (determined by dividing (I) the total
amount, if any, received or receivable by the Corporation as consideration for
the issue or sale of such exercise, conversion or exchange, plus the total
minimum amount of additional consideration payable to the Corporation upon the
exercise, conversion or exchange by (II) the total maximum number of shares
issuable or deliverable upon the exercise, conversion or exchange of such
Derivative Securities) shall be less than the Stated Price in effect immediately
prior to the time of the issue or sale of such Derivative Securities, then the
issue or sale of such Derivative Securities shall be deemed to be an issue or a
sale (as of the date of the issue or sale of such Derivative Securities) and the
amount received or receivable by the Corporation as consideration for the issue
or sale of such Derivative Securities, plus the aggregate amount of additional
consideration payable to the Corporation upon the exercise, conversion or
exchange of such Derivative Securities, shall be deemed to be the consideration
actually received by the Corporation (as of the date of the issue or sale of
such Derivative Securities) for the issue or sale of such shares of Common
Stock;
ii) If the exercise price or the rate of
conversion or exchange of any Derivative Securities shall decrease at any time
while any shares of Series A Preferred Stock remain outstanding, whether by
reason of provisions with respect thereto designed to protect against dilution
or otherwise, then in case of delivery of Common Stock upon the exercise,
conversion or exchange of any such Derivative Securities, the Stated Price shall
forthwith be decreased to such Stated Price as would have been obtained had the
adjustment made upon the issuance of such Derivative Securities been made upon
the basis of the issuance of (and the total consideration received for) the
shares of Common Stock so delivered which in case is less than such
consideration utilized in making any adjustment pursuant to Section 8(f)(i).
iii) Upon expiration or cancellation of any
such Derivative Securities an adjustment shall be made to the Stated Price and
the Conversion Number to account for the number of shares of Common Stock no
longer subject to issuance as a result of such expiration or cancellation.
(g) Except as set forth in Section C.5 of this
Designation, if prior to the conversion of all shares of Series A Preferred
Stock, there shall be any merger, consolidation,
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exchange of shares, recapitalization, reorganization, or other similar event, as
a result of which shares of Common Stock of the Corporation shall be exchanged
into the same or a different number of shares of the same or another class or
classes of stock or securities of the Corporation or another entity and/or shall
be exchanged in whole or in part for cash, then the holders of Series A
Preferred Stock shall thereafter have the right to purchase and receive upon
conversion of shares of Series A Preferred Stock, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock, cash
and/or securities as may be issued or payable with respect to or in exchange for
the number of shares of Common Stock immediately theretofore purchasable and
receivable upon the conversion of shares of Series A Preferred Stock held by
such holders had such merger, consolidation, exchange of shares,
recapitalization or reorganization not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of the Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Number and Stated Price) shall thereafter be applicable, as nearly as
may be practicable, in relation to any shares of stock or securities thereafter
deliverable upon the exercise hereof. The Corporation shall not effect any
transaction described in this subsection unless the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the holders of the Series A Preferred Stock such shares
of stock, other securities and/or cash as, in accordance with the foregoing
provisions, the holders of the Series A Preferred Stock may be entitled to
purchase.
(h) Except to the extent that Section A may be
applicable, in the event that the Corporation shall at any time prior to the
conversion of all of the Series A Preferred Stock declare a dividend (other than
a dividend consisting solely of shares of Common Stock, in which even the
provisions of Section C.8(b) shall apply) or otherwise distribute to its holders
of Common Stock any assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the
Corporation or by another, or any other thing of value, the holders of the
unconverted Series A Preferred Stock shall thereafter be entitled, in addition
to the shares of Common Stock or other securities and property receivable upon
the conversion thereof, to receive, upon the conversion of such Series A
Preferred Stock, the same property, assets, rights, evidences of indebtedness,
securities or any other thing of value that they would have been entitled to
receive at the time of such dividend or distribution as if the Series A
Preferred Stock had been converted immediately prior to such dividend or
distribution. At the time of any such dividend or distribution, the Corporation
shall make appropriate reserves to ensure the timely performance of the
provisions of this Section C.8(h).
D. Voting. Except as otherwise provided by the General Corporation Law
of the State of Delaware, the holders of the Series A Preferred Stock shall have
one vote per share of Series A Preferred Stock. All matters requiring a vote of
the stockholders of the Corporation shall require approval of the Series A
Preferred Stock, voting separately as a class, except that with respect to the
election of the directors of the Corporation, the Series A Preferred Stock and
Common Stock shall vote together as one class.
E. Protective Provisions. So long as shares of Series A Preferred Stock
are outstanding, the Corporation shall not without first obtaining the approval
(by vote or written
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consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock:
(1) alter or change the rights, preferences or privileges of
the shares of Series A Preferred Stock so as to affect adversely the Series A
Preferred Stock;
(2) create any new class or series of stock being on a parity
with or having a preference over the Series A Preferred Stock with respect to
dividends or distributions or, to payments upon Liquidation (as provided for in
Section B of this Designation); or
(3) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
F. Status of Converted Stock. In the event any shares of Series A
Preferred Stock shall be converted as contemplated by this Designation, the
shares so converted shall be canceled, shall return to the status of authorized
but unissued Preferred Stock of no designated class or series, and shall not be
issuable by the Corporation as Series A Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series A Preferred Stock and
fixing the number, powers, preferences and relative, optional, participating,
and other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the Certificate of
Incorporation of the Corporation pursuant to the provisions of Section 151 of
the General Corporation Law of the State of Delaware.
Signed on January 31, 1997.
IFS INTERNATIONAL, INC.
By:
---------------------------------
Frank A. Pascuito,
Chief Executive Officer
Attest:
By:
--------------------------------
Carmen Pascuito, Secretary
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January 28, 1997
IFS International, Inc.
185 Jordan Road
Troy, New York
Re: Registration Statement on Form SB-2
Under the Securities Act of 1933
------------------------------------
Gentlemen:
In our capacity as counsel to IFS International, Inc., a Delaware
corporation (the "Company"), we have been asked to render this opinion in
connection with the registration statement on Form SB-2, as amended (File No.
333-11653), heretofore filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement"), covering (i) 1,200,000 shares of Series A Convertible Preferred
Stock (the "Firm Stock"), par value $.001 per share (the "Preferred Stock"),
(ii) 1,700,000 Redeemable Series A Convertible Preferred Stock Purchase Warrants
(the "Firm Warrants") to purchase an identical number of shares of Preferred
Stock (the "Warrants"), (iii) 1,700,000 shares of Preferred Stock issuable upon
exercise of the Firm Warrants (the "Warrant Stock"), (iv) 180,000 shares of
Preferred Stock (the "Over-Allotment Stock"), (v) 225,000 Warrants (the
"Over-Allotment Warrants") to purchase an identical number of shares of
Preferred Stock, (vi) 225,000 shares of Preferred Stock issuable upon exercise
of the Over-Allotment Warrants (the "Over-Allotment Warrant Stock"), (vii)
290,000 warrants issuable to the underwriter named in the Registration Statement
(the "Underwriter's Warrants") to purchase (A) 120,000 shares of Preferred Stock
(the "Underwriter's Stock") and (B) 170,000 Warrants (the "Underwriter's Public
Warrants") to purchase an identical number of shares of Preferred Stock, (viii)
170,000 shares of Preferred Stock issuable upon exercise of the Underwriter's
Public Warrants (the "Underwriter's Warrant Stock"), (ix) 3,625,000 shares of
Common Stock (the "Common Shares"), par value $.001 per share (the "Common
Stock"), issuable upon conversion of 3,625,000 shares of Preferred Stock and (x)
100,000 shares of Common Stock that have been included in the Registration
Statement for the accounts of certain selling stockholders named therein (the
"Selling Stockholders' Shares").
In that connection , we have examined the Certificate of Incorporation
of the Company, and the amendments thereto, the By-Laws of the Company, the
Registration Statement, corporate
<PAGE>
IFS International, Inc.
January 28, 1997
Page 2
proceedings of the Company relating to the issuance of the Firm Stock, Firm
Warrants, Warrant Stock, Over-Allotment Stock, Over-Allotment Warrants,
Over-Allotment Warrant Stock, Underwriter's Warrants, Underwriter's Stock,
Underwriter's Public Warrants, Underwriter's Warrant Stock, the Common Shares,
the Selling Stockholders' Shares, respectively, and such other instruments and
documents as we have deemed relevant under the circumstances.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us as original or photostatic copies. We have also assumed that the
corporate records furnished to us by the Company include all corporate
proceedings taken by the Company to date.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of
Delaware.
2. The Firm Stock, Warrant Stock, Over-Allotment Stock, Over-Allotment
Warrant Stock, Underwriter's Stock, Underwriter's Warrant Stock and
Common Stock have each been duly and validly authorized and, when
issued and paid for as described in the Registration Statement,
will be duly and validly issued, fully paid and non-assessable.
3. The Firm Warrants, Over-Allotment Warrants, Underwriter's Warrants
and Underwriter's Public Warrants have each been duly and validly
authorized and, when issued and paid for as described in the
Registration Statement, will be duly and validly issued.
4. The Selling Stockholder's Shares have been duly and validly
authorized and are issued and outstanding, fully paid and
non-assessable.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
PARKER DURYEE ROSOFF & HAFT
By: /s/ Michael DiGiovanna
------------------------------
A Member of the Firm
<PAGE>
FORM OF
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as of January
1, 1997 by and between IFS International, Inc., a Delaware corporation (the
"Company"), and Frank A. Pascuito, residing at 1 Feather Foil Way, Ballston Spa,
New York 12020 (the "Executive").
The Executive is being employed by the Company as an executive officer.
The parties desire to enter into an employment agreement and to set forth herein
the terms and conditions of the Executive's continued employment by the Company
and its subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and the mutual benefits to be derived herefrom, the Company and
the Executive agree as follows:
1. Employment.
a. Duties. The Company shall employ the Executive, on the
terms set forth in this Agreement, as its Chairman of the Board of Directors.
The Executive accepts such employment with the Company and shall perform and
fulfill such duties as are assigned to him hereunder consistent with his status
as a senior executive of the Company, devoting his best efforts and entire
professional time and attention to the performance and fulfillment of his duties
and to the advancement of the interests of the Company, subject only to the
direction, approval, control and directives of the Company's Board of Directors
(the "Board"). Nothing contained herein shall be construed, however, to prevent
the Executive from trading in or managing, for his own account and benefit, in
stocks, bonds, securities, real estate, commodities or other forms of
investments (subject to law and Company policy with respect to trading in
Company securities). Without any additional consideration, Executive shall also
continue to serve as an employee and officer of any or all subsidiaries of the
Company. Unless otherwise indicated by the context, the term "Company" shall
include the Company and all its subsidiaries.
b. Place of Performance. In connection with his employment by
the Company, the Executive shall be based at the Company's principal place of
business in the Albany metropolitan area except when required for travel on
Company business.
2. Term. The Executive's employment under this Agreement shall commence
as of January 1, 1997 (the "Commencement Date") and shall, unless sooner
terminated in accordance with the provisions hereof, continue uninterrupted
until December 31, 1999 (the "Term"). As used herein "Year" shall refer to a
twelve month period ending December 31st. Unless notice of nonrenewal is given
by either party at least sixty (60) days prior to the end of the Term or prior
to the end of any Year thereafter, the Term of this Agreement shall be
automatically extended for an additional period of one year.
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3. Compensation.
a. Base Salary. During the first two (2) Years of the Term,
the Executive shall be entitled to receive an annual salary (the "Base Salary")
of One Hundred Ten Thousand Dollars ($110,000) payable in installments at such
times as the Company customarily pays its other executive officers (but in any
event not less often than monthly). For each Year thereafter, the Company shall
increase the Base Salary by an amount to be determined by the Board of
Directors.
b. Commissions. Except as described hereinafter or in Schedule
A, during each year, Executive shall also receive a commission of 8% of revenues
in excess of $425,000 derived from installations of the Company's products
pursuant to license agreements obtained hereinafter through the efforts of
Executive. The board of directors shall resolve any dispute with Executive
concerning whether commissions shall be credited to Executive as a result of his
efforts in obtaining any license agreement. The maximum commission payable to
all personnel of the Company on revenues derived from any agreement shall not
exceed 8% of such revenues.
c. Bonus. The Board of Directors may at its sole discretion
grant bonuses to the Executive.
d. Health Insurance and Other Benefits. During the Term, the
Executive shall be entitled to all employee benefits generally offered by the
Company to its executive officers and key management employees, including,
without limitation, all pension, profit sharing, retirement, stock option,
salary continuation, deferred compensation, disability insurance,
hospitalization insurance, major medical insurance, medical reimbursement,
survivor income, life insurance or any other benefit plan or arrangement
established and maintained by the Company, subject to the rules and regulations
then in effect regarding participation therein.
4. Reimbursement of Expenses. The Executive shall be reimbursed for all
items of travel, entertainment and miscellaneous expenses that the Executive
reasonably incurs in connection with the performance of his duties hereunder,
provided the Executive submits to the Company such statements and other evidence
supporting said expenses as the Company may reasonably require.
5. Automobile Allowance. The Executive shall be reimbursed for the
expenses of owning or leasing an automobile suitable for his position and
consistent with Company practices during 1996, including the expenses of
operating, insuring and parking such automobile, provided the Executive submits
to the Company such statements and other evidence supporting such expenses as
the Company may require.
6. Vacation. The Executive shall be entitled to not less than three (3)
weeks of vacation in any calendar year.
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7. Termination of Employment.
a. Death or Total Disability. In the event of the death of the
Executive during the Term, this Agreement shall terminate as of the date of the
Executive's death. In the event of the Total Disability (as that term is defined
below) of the Executive for sixty (60) days in the aggregate during any
consecutive nine (9) month period during the Term, the Company shall have the
right to terminate this Agreement by giving the Executive thirty (30) days'
prior written notice thereof, and upon the expiration of such thirty (30) day
period, the Executive's employment under this Agreement shall terminate. If the
Executive shall resume his duties within thirty (30) days after receipt of such
a notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary and other benefits, and the notice
of termination shall be considered null and void and of no effect. Upon
termination of this Agreement under this Paragraph 7(a), the Company shall have
no further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be, (i) the portion, if
any, that remains unpaid of the Base Salary for the Year in which termination
occurred, but in no event less than six (6) months' Base Salary; and (ii) the
amount of any expenses reimbursable in accordance with Paragraph 4 above, and
any automobile allowance due under Paragraph 5 above; and (iii) any amounts due
under any Company benefit, welfare or pension plan. Any stock options not vested
at the time of the termination of this Agreement under this Paragraph 7(a) shall
immediately become fully vested.
The term "Total Disability," as used herein, shall
mean a mental or physical condition which in the reasonable opinion of an
independent medical doctor selected by the Company renders the Executive unable
or incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement at the time the disabling condition was incurred.
In the event the Executive disagrees with such opinion, the Executive may, at
his sole expense, select an independent medical doctor and, in the event that
doctor disagrees with the opinion of the doctor selected by the Company, they
shall select a third independent medical doctor, and the three doctors shall, by
majority vote, determine whether the employee has suffered Total Disability. The
expense of the third doctor shall be shared equally by the Company and the
Executive. Notwithstanding the foregoing, if the Executive is covered under any
policy of disability insurance under Paragraph 3(d) above, under no
circumstances shall the definition of Total Disability be different from the
definition of that term in such policy.
b. Discharge for Cause. The Company may discharge the
Executive for "Cause" upon notice and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement the Company
shall have "Cause" to terminate the Executive's employment if the Executive, in
the reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this Agreement and has not cured such
breach or commenced in good faith to correct such breach within thirty (30) days
after notice; (ii) fails
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to carry out a lawful directive of the Board; (iii) embezzles or converts to his
own use any funds of the Company or any client or customer of the Company; (iv)
converts to his own use or unreasonably destroys, intentionally, any property of
the Company, without the Company's consent; (v) is convicted of a crime; (vi) is
adjudicated an incompetent; or (vii) is habitually intoxicated or is diagnosed
by an independent medical doctor to be addicted to a controlled substance (any
disagreement of Executive shall be resolved using the procedure provided in
Paragraph 7(a) above).
c. Termination by Executive. Executive may terminate this
Agreement for the failure by the Company to comply with the material provisions
of this Agreement which failure is not cured within thirty (30) days after
notice ("Good Reason").
8. Restrictive Covenant.
a. Competition. Executive undertakes and agrees that during
the term of this Agreement and for a period of two (2) years after the date of
termination of this Agreement pursuant to Section 7(b) or for a period of one
(1) year after the date of termination if this Agreement is not renewed, he will
not compete, directly or indirectly, or participate as a director, officer,
employee, agent, consultant, representative or otherwise, or as a stockholder
(except as a stockholder in a corporation whose shares are traded on The Nasdaq
Stock Market or a national securities exchange, provided that such ownership
shall not exceed 3% of the outstanding stock of such corporation), partner or
joint venturer, or have any direct or indirect financial interest, including,
without limitation, the interest of a creditor, in any business competing
directly or indirectly with the business of the Company or any of its
subsidiaries. Executive further undertakes and agrees that during the term of
the Agreement and for a period of two (2) years after the date of termination of
this Agreement pursuant to Section 7(b) or for a period of one (1) year after
the date of termination if this Agreement is not renewed, he will not, directly
or indirectly employ, cause to be employed, or solicit for employment any of
Company's or its subsidiaries' employees. The provisions of this Section 8(a)
shall not apply if the Agreement is terminated by Executive pursuant to Section
7(c).
b. Scope of Covenant. Should the duration, geographical area
or range or proscribed activities contained in Paragraph 8(a) above be held
unreasonable by any court of competent jurisdiction, then such duration,
geographical area or range of proscribed activities shall be modified to such
degree as to make it or them reasonable and enforceable.
c. Non-Disclosure of Information.
(1) The Executive shall (i) never, directly or
indirectly, disclose to any person or entity for any reason, or use for his own
personal benefit, any "Confidential Information" (as hereinafter defined) either
during his employment with the Company or following termination of that
employment for any reason (ii) at all times take all precautions necessary to
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protect from loss or disclosure by him of any and all documents or other
information containing, referring or relating to such Confidential Information,
and (iii) upon termination of his employment with the Company for any reason,
the Executive shall promptly return to the Company any and all documents or
other tangible property containing, referring or relating to such Confidential
Information, whether prepared by him or others.
(2) Notwithstanding any provision to the contrary in
this Paragraph 8(c), this paragraph shall not apply to information which the
Executive is called upon by legal process regular on its face (including,
without limitation, by subpoena or discovery requirement) to disclose or to
information which has become part of the public domain or is otherwise publicly
disclosed through no fault or action of the Executive.
(3) For purposes of this Agreement, "Confidential
Information" means any information relating in any way to the business of the
Company disclosed to or known to the Executive as a consequence of, result of,
or through the Executive's employment by the Company which consists of technical
and nontechnical information about the Company's products, processes, computer
programs, concepts, forms, business methods, data, any and all financial and
accounting data, marketing, customers, customer lists, and services and
information corresponding thereto acquired by the Executive during the term of
the Executive's employment by the Company. Confidential Information shall not
include any of such items which are published or are otherwise part of the
public domain, or freely available from trade sources or otherwise.
(4) Upon termination of this Agreement for any
reason, the Executive shall turn over to the Company all tangible property then
in the Executive's possession or custody which belongs or relates to the
Company. The Executive shall not retain any copies or reproductions of computer
programs, correspondence, memoranda, reports, notebooks, drawings, photographs,
or other documents which constitute Confidential Information.
d. Injunctive Relief. The parties hereto agree that the remedy
at law for any breach of the provisions of this Section 8 will be inadequate and
that the Company or any of its subsidiaries or other successors or assigns shall
be entitled to injunctive relief without bond. Such injunctive relief shall not
be exclusive, but shall be in addition to any other rights and remedies Company
or any of its subsidiaries or their successors or assigns might have for such
breach.
9. Miscellaneous.
a. Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received when so
hand-delivered or after
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three (3) business days when so deposited in the U.S. Mail, or when transmitted
and received by facsimile or sent by express mail properly addressed to the
other party. The addresses are:
To the Company:
IFS International, Inc.
185 Jordan Road
Troy, New York 12180
Facsimile No.: (518) 283-7336 Attn: President
To the Executive:
Frank A. Pascuito
1 Feather Foil Way
Ballston Spa, NY 12020
The foregoing addresses may be changed at any time by notice given in the manner
herein provided.
b. Integration; Modification. This Agreement constitutes the
entire understanding and agreement between the Company and the Executive
regarding its subject matter and supersedes all prior negotiations and
agreements, whether oral or written, between them with respect to its subject
matter. This Agreement may not be modified except by a written agreement signed
by the Executive and a duly authorized officer of the Company.
c. Enforceability. If any provision of this Agreement shall be
invalid or unenforceable, in whole or in part, such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
d. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
e. Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one (1) or more
instances shall be deemed or construed as a further or
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continuing waiver of any such condition or breach or a waiver of any other
condition, or the breach of any other term or covenant set forth in this
Agreement. Moreover, the failure of either party to exercise any right hereunder
shall not bar the later exercise thereof with respect to other future breaches.
f. Governing Law. This Agreement shall be governed by the
internal laws of the State of New York.
g. Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
h. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
i. Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and, on behalf of the Company, by its duly authorized officer on the day and
year first above written.
IFS INTERNATIONAL, INC.
By:
---------------------------------
Charles J. Caserta, President
----------------------------------
Frank A. Pascuito, Executive
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Schedule A
No commissions shall be paid on license agreements relating to
the first seven sites of the Visa Smart Card pilot program and thereafter only
if the license agreement was obtained through the efforts of Executive.
Commissions may be reduced on designated house accounts. The
accounts and commissions shall be determined by the Board of Directors.
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<PAGE>
FORM OF
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as of January
1, 1997 by and between IFS International, Inc., a Delaware corporation (the
"Company"), and Charles J. Caserta residing at 17 Shadow Wood Way, Ballston
Lake, New York 12019 (the "Executive").
The Executive is being employed by the Company as an executive officer.
The parties desire to enter into an employment agreement and to set forth herein
the terms and conditions of the Executive's continued employment by the Company
and its subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and the mutual benefits to be derived herefrom, the Company and
the Executive agree as follows:
1. Employment.
a. Duties. The Company shall employ the Executive, on the
terms set forth in this Agreement, as its President. The Executive accepts such
employment with the Company and shall perform and fulfill such duties as are
assigned to him hereunder consistent with his status as a senior executive of
the Company, devoting his best efforts and entire professional time and
attention to the performance and fulfillment of his duties and to the
advancement of the interests of the Company, subject only to the direction,
approval, control and directives of the Company's Board of Directors (the
"Board"). Nothing contained herein shall be construed, however, to prevent the
Executive from trading in or managing, for his own account and benefit, in
stocks, bonds, securities, real estate, commodities or other forms of
investments (subject to law and Company policy with respect to trading in
Company securities). Without any additional consideration, Executive shall also
continue to serve as an employee and officer of any or all subsidiaries of the
Company. Unless otherwise indicated by the context, the term "Company" shall
include the Company and all its subsidiaries.
b. Place of Performance. In connection with his employment by
the Company, the Executive shall be based at the Company's principal place of
business in the Albany metropolitan area except when required for travel on
Company business.
2. Term. The Executive's employment under this Agreement shall commence
as of January 1, 1997 (the "Commencement Date") and shall, unless sooner
terminated in accordance with the provisions hereof, continue uninterrupted
until December 31, 1999 (the "Term"). As used herein "Year" shall refer to a
twelve month period ending December 31st. Unless notice of nonrenewal is given
by either party at least sixty (60) days prior to the end of the Term or prior
to the end of any Year thereafter, the Term of this Agreement shall be
automatically extended for an additional period of one year.
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<PAGE>
3. Compensation.
a. Base Salary. During the first two (2) Years of the Term,
the Executive shall be entitled to receive an annual salary (the "Base Salary")
of One Hundred Ten Thousand Dollars ($110,000) payable in installments at such
times as the Company customarily pays its other executive officers (but in any
event not less often than monthly). For each Year thereafter, the Company shall
increase the Base Salary by an amount to be determined by the Board of
Directors.
b. Commissions. Except as described hereinafter or in Schedule
A, during each year, Executive shall also receive a commission of 8% of revenues
in excess of $425,000 derived from installations of the Company's products
pursuant to license agreements obtained hereinafter through the efforts of
Executive. The board of directors shall resolve any dispute with Executive
concerning whether commissions shall be credited to Executive as a result of his
efforts in obtaining any license agreement. The maximum commission payable to
all personnel of the Company on revenues derived from any agreement shall not
exceed 8% of such revenues.
c. Bonus. The Board of Directors may at its sole discretion
grant bonuses to the Executive.
d. Health Insurance and Other Benefits. During the Term, the
Executive shall be entitled to all employee benefits generally offered by the
Company to its executive officers and key management employees, including,
without limitation, all pension, profit sharing, retirement, stock option,
salary continuation, deferred compensation, disability insurance,
hospitalization insurance, major medical insurance, medical reimbursement,
survivor income, life insurance or any other benefit plan or arrangement
established and maintained by the Company, subject to the rules and regulations
then in effect regarding participation therein.
4. Reimbursement of Expenses. The Executive shall be reimbursed for all
items of travel, entertainment and miscellaneous expenses that the Executive
reasonably incurs in connection with the performance of his duties hereunder,
provided the Executive submits to the Company such statements and other evidence
supporting said expenses as the Company may reasonably require.
5. Automobile Allowance. The Executive shall be reimbursed for the
expenses of owning or leasing an automobile suitable for his position and
consistent with Company practices during 1996, including the expenses of
operating, insuring and parking such automobile, provided the Executive submits
to the Company such statements and other evidence supporting such expenses as
the Company may require.
6. Vacation. The Executive shall be entitled to not less than three (3)
weeks of vacation in any calendar year.
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<PAGE>
7. Termination of Employment.
a. Death or Total Disability. In the event of the death of the
Executive during the Term, this Agreement shall terminate as of the date of the
Executive's death. In the event of the Total Disability (as that term is defined
below) of the Executive for sixty (60) days in the aggregate during any
consecutive nine (9) month period during the Term, the Company shall have the
right to terminate this Agreement by giving the Executive thirty (30) days'
prior written notice thereof, and upon the expiration of such thirty (30) day
period, the Executive's employment under this Agreement shall terminate. If the
Executive shall resume his duties within thirty (30) days after receipt of such
a notice of termination and continue to perform such duties for four (4)
consecutive weeks thereafter, this Agreement shall continue in full force and
effect, without any reduction in Base Salary and other benefits, and the notice
of termination shall be considered null and void and of no effect. Upon
termination of this Agreement under this Paragraph 7(a), the Company shall have
no further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be, (i) the portion, if
any, that remains unpaid of the Base Salary for the Year in which termination
occurred, but in no event less than six (6) months' Base Salary; and (ii) the
amount of any expenses reimbursable in accordance with Paragraph 4 above, and
any automobile allowance due under Paragraph 5 above; and (iii) any amounts due
under any Company benefit, welfare or pension plan. Any stock options not vested
at the time of the termination of this Agreement under this Paragraph 7(a) shall
immediately become fully vested.
The term "Total Disability," as used herein, shall
mean a mental or physical condition which in the reasonable opinion of an
independent medical doctor selected by the Company renders the Executive unable
or incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement at the time the disabling condition was incurred.
In the event the Executive disagrees with such opinion, the Executive may, at
his sole expense, select an independent medical doctor and, in the event that
doctor disagrees with the opinion of the doctor selected by the Company, they
shall select a third independent medical doctor, and the three doctors shall, by
majority vote, determine whether the employee has suffered Total Disability. The
expense of the third doctor shall be shared equally by the Company and the
Executive. Notwithstanding the foregoing, if the Executive is covered under any
policy of disability insurance under Paragraph 3(d) above, under no
circumstances shall the definition of Total Disability be different from the
definition of that term in such policy.
b. Discharge for Cause. The Company may discharge the
Executive for "Cause" upon notice and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement the Company
shall have "Cause" to terminate the Executive's employment if the Executive, in
the reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this Agreement and has not cured such
breach or commenced in good faith to correct such breach within thirty (30) days
after notice; (ii) fails
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<PAGE>
to carry out a lawful directive of the Board; (iii) embezzles or converts to his
own use any funds of the Company or any client or customer of the Company; (iv)
converts to his own use or unreasonably destroys, intentionally, any property of
the Company, without the Company's consent; (v) is convicted of a crime; (vi) is
adjudicated an incompetent; or (vii) is habitually intoxicated or is diagnosed
by an independent medical doctor to be addicted to a controlled substance (any
disagreement of Executive shall be resolved using the procedure provided in
Paragraph 7(a) above).
c. Termination by Executive. Executive may terminate this
Agreement for the failure by the Company to comply with the material provisions
of this Agreement which failure is not cured within thirty (30) days after
notice ("Good Reason").
8. Restrictive Covenant.
a. Competition. Executive undertakes and agrees that during
the term of this Agreement and for a period of two (2) years after the date of
termination of this Agreement pursuant to Section 7(b) or for a period of one
(1) year after the date of termination if this Agreement is not renewed, he will
not compete, directly or indirectly, or participate as a director, officer,
employee, agent, consultant, representative or otherwise, or as a stockholder
(except as a stockholder in a corporation whose shares are traded on The Nasdaq
Stock Market or a national securities exchange, provided that such ownership
shall not exceed 3% of the outstanding stock of such corporation), partner or
joint venturer, or have any direct or indirect financial interest, including,
without limitation, the interest of a creditor, in any business competing
directly or indirectly with the business of the Company or any of its
subsidiaries. Executive further undertakes and agrees that during the term of
the Agreement and for a period of two (2) years after the date of termination of
this Agreement pursuant to Section 7(b) or for a period of one (1) year after
the date of termination if this Agreement is not renewed, he will not, directly
or indirectly employ, cause to be employed, or solicit for employment any of
Company's or its subsidiaries' employees. The provisions of this Section 8(a)
shall not apply if the Agreement is terminated by Executive pursuant to Section
7(c).
b. Scope of Covenant. Should the duration, geographical area
or range or proscribed activities contained in Paragraph 8(a) above be held
unreasonable by any court of competent jurisdiction, then such duration,
geographical area or range of proscribed activities shall be modified to such
degree as to make it or them reasonable and enforceable.
c. Non-Disclosure of Information.
(1) The Executive shall (i) never, directly or
indirectly, disclose to any person or entity for any reason, or use for his own
personal benefit, any "Confidential Information" (as hereinafter defined) either
during his employment with the Company or following termination of that
employment for any reason (ii) at all times take all precautions necessary to
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<PAGE>
protect from loss or disclosure by him of any and all documents or other
information containing, referring or relating to such Confidential Information,
and (iii) upon termination of his employment with the Company for any reason,
the Executive shall promptly return to the Company any and all documents or
other tangible property containing, referring or relating to such Confidential
Information, whether prepared by him or others.
(2) Notwithstanding any provision to the contrary in
this Paragraph 8(c), this paragraph shall not apply to information which the
Executive is called upon by legal process regular on its face (including,
without limitation, by subpoena or discovery requirement) to disclose or to
information which has become part of the public domain or is otherwise publicly
disclosed through no fault or action of the Executive.
(3) For purposes of this Agreement, "Confidential
Information" means any information relating in any way to the business of the
Company disclosed to or known to the Executive as a consequence of, result of,
or through the Executive's employment by the Company which consists of technical
and nontechnical information about the Company's products, processes, computer
programs, concepts, forms, business methods, data, any and all financial and
accounting data, marketing, customers, customer lists, and services and
information corresponding thereto acquired by the Executive during the term of
the Executive's employment by the Company. Confidential Information shall not
include any of such items which are published or are otherwise part of the
public domain, or freely available from trade sources or otherwise.
(4) Upon termination of this Agreement for any
reason, the Executive shall turn over to the Company all tangible property then
in the Executive's possession or custody which belongs or relates to the
Company. The Executive shall not retain any copies or reproductions of computer
programs, correspondence, memoranda, reports, notebooks, drawings, photographs,
or other documents which constitute Confidential Information.
d. Injunctive Relief. The parties hereto agree that the remedy
at law for any breach of the provisions of this Section 8 will be inadequate and
that the Company or any of its subsidiaries or other successors or assigns shall
be entitled to injunctive relief without bond. Such injunctive relief shall not
be exclusive, but shall be in addition to any other rights and remedies Company
or any of its subsidiaries or their successors or assigns might have for such
breach.
9. Miscellaneous.
a. Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received when so
hand-delivered or after
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<PAGE>
three (3) business days when so deposited in the U.S. Mail, or when transmitted
and received by facsimile or sent by express mail properly addressed to the
other party. The addresses are:
To the Company:
IFS International, Inc.
185 Jordan Road
Troy, New York 12180
Facsimile No.: (518) 283-7336 Attn: President
To the Executive:
Charles J. Caserta
17 Shadow Wood Way
Ballston Lake, New York 12019
The foregoing addresses may be changed at any time by notice given in the manner
herein provided.
b. Integration; Modification. This Agreement constitutes the
entire understanding and agreement between the Company and the Executive
regarding its subject matter and supersedes all prior negotiations and
agreements, whether oral or written, between them with respect to its subject
matter. This Agreement may not be modified except by a written agreement signed
by the Executive and a duly authorized officer of the Company.
c. Enforceability. If any provision of this Agreement shall be
invalid or unenforceable, in whole or in part, such provision shall be deemed to
be modified or restricted to the extent and in the manner necessary to render
the same valid and enforceable, or shall be deemed excised from this Agreement,
as the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
d. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
e. Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one (1) or more
instances shall be deemed or construed as a further or continuing waiver of any
such condition or breach or a waiver of any other condition, or the
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<PAGE>
breach of any other term or covenant set forth in this Agreement. Moreover, the
failure of either party to exercise any right hereunder shall not bar the later
exercise thereof with respect to other future breaches.
f. Governing Law. This Agreement shall be governed by the
internal laws of the State of New York.
g. Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
h. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
i. Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and, on behalf of the Company, by its duly authorized officer on the day and
year first above written.
IFS INTERNATIONAL, INC.
By:
-----------------------------------
Frank A. Pascuito,
Chief Executive Officer
-----------------------------------
Charles J. Caserta, Executive
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Schedule A
No commissions shall be paid on license agreements relating to
the first seven sites of the Visa Smart Card pilot program and thereafter only
if the license agreement was obtained through the efforts of Executive.
Commissions may be reduced on designated house accounts. The
accounts and commissions shall be determined by the Board of Directors.
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<PAGE>
WARRANT AGREEMENT (the "Warrant Agreement"), dated as of
September 25, 1996, between IFS INTERNATIONAL, INC., a Delaware corporation (the
"Company"), and the persons purchasing Units pursuant to the Subscription
Agreement, dated September 5, 1996, between the Company and the Investors
(hereinafter referred to as the "Holders").
----------------------------
The Company proposes to issue to the Holders warrants (the
"Warrants") to purchase up to 100,000 shares of the Company's Common Stock (the
100,000 shares of Common Stock sometimes referred to as the "Shares" and
reflects a proposed one-for-ten reverse split of the Company's Common Stock);
NOW, THEREFORE, in consideration of the premises, the payment
by the Holders to the Company of Five Thousand dollars ($5,000), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant. The Holders (as hereinafter defined) are hereby
granted the right to purchase, at any time from September 25, 1996 until 5:30
p.m., New York time, on September 24, 2001, in the aggregate up to 100,000
Shares at an initial exercise price (subject to adjustment as provided in
Sections 5 and 6 hereof) of $2.50 per Share, subject to the terms and conditions
of this Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrant. The Warrants initially are exercisable
at the initial exercise price per Share set forth in Section 5 hereof, payable
by certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 6 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased at the Company's principal offices (presently located at
Rensselaer Technology Park, 185 Jordan Road, Troy, New York, 12180), the
registered holder of a Warrant Certificate ("Holder" or "Holders") shall be
entitled to receive a certificate or certificates for the shares of Common
Stock. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in
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<PAGE>
whole or in part (but not as to fractional shares of Common Stock). In the case
of the purchase of less than all the securities purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the securities purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the
Warrants, the issuance of certificates evidencing the shares of Common Stock or
other securities, properties or rights underlying such Warrants shall be made
forthwith (and in any event within five (5) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Section 7 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates evidencing the
shares of Common Stock or other securities, property or rights shall be executed
on behalf of the Company by the manual or facsimile signature of the Chairman of
the Board of Directors, or the President or any Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the Treasurer or Assistant Treasurer or the Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Exercise Price.
5.1 Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $2.50 per Share; provided, however, that
if the Company has not consummated a public offering of its securities on or
prior to March 24, 1998, then the initial exercise price of each Warrant shall
be the lower of (a) $2.00 per Share or (b) the lowest per share price at which
the Company sold shares of its Common Stock (other than shares issued pursuant
to employee options and warrants granted by the Company prior to September 24,
1996) during the six-month period ending on March 24, 1998. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price and the then adjusted exercise
price in accordance with the provisions of Section 6 hereof.
5.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
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<PAGE>
6. Adjustments to Exercise Price and Number of Securities.
6.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
6.2 Adjustment for Issue or Sale of Common Stock of
Less than Exercise Price. Except for (a) the issuance of any options to purchase
shares of Common Stock under a stock option plan approved by the Company's
stockholders ("Company Option Plan"), (b) the exercise of options pursuant to a
Company Option Plan, (c) the exercise of the Warrants and (d) the exercise of
any other warrants or options outstanding on the date hereof, in case the
Company shall at any time after the date hereof issue or sell any shares of
Common Stock for a consideration per share less than the "Exercise Price" on the
date immediately prior to the issuance or sale of such shares, or without
consideration, then forthwith upon such issuance or sale, the Exercise Price
shall (until another such issuance or sale) be reduced to the price (calculated
to the nearest full cent) equal to the quotient derived by dividing (A) an
amount equal to the sum of (X) the product of (i) the Exercise Price on the date
immediately prior to the issuance or sale of such shares, multiplied by (ii) the
total number of shares of Common Stock outstanding immediately prior to such
issuance or sale plus, (Y) the aggregate of the amount of all consideration, if
any, received by the Company upon such issuance or sale, by (B) the total number
of shares of Common Stock outstanding immediately after such issuance or sale;
provided, however, that in no event shall the Exercise Price be adjusted
pursuant to this computation to an amount in excess of the Exercise Price in
effect immediately prior to such computation, except in the case of a
combination of outstanding shares of Common Stock, as provided by Section 6.1
hereof.
For purposes of any computation to be made in accordance with
this Section 6.2, the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be other than cash, the amount of
the consideration therefor other than cash shall be deemed to be the value of
such consideration as determined in good faith by the Board of Directors of the
Company.
(ii) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (i) of this Section 6.2.
6.3 Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 6,
the number of Shares issuable upon the
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exercise of each Warrant shall be adjusted to the nearest full amount by
multiplying a number equal to the Exercise Price in effect immediately prior to
such adjustment by the number of Shares issuable upon exercise of the Warrants
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
6.4 Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
it may be amended as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value.
6.5 Merger or Consolidation. In case of any
consolidation of the Company with, or merger of the Company with, or merger of
the Company into, another corporation (other than a consolidation or merger
which does not result in any reclassification or change of the outstanding
Common Stock), the corporation formed by such consolidation or merger shall
execute and deliver to the Holder a supplemental warrant agreement providing
that the Holder of each Warrant then outstanding or to be outstanding shall have
the right thereafter (until the expiration of such Warrant) to receive, upon
exercise of such Warrant, the kind and amount of shares of Common Stock and
other securities and property receivable upon such consolidation or merger, by a
holder of the number of shares of Common Stock of the Company for which such
warrant might have been exercised immediately prior to such consolidation,
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 6.
The above provision of this Subsection shall similarly apply to successive
consolidations or mergers.
6.6 Dividends and Other Distributions. In the event
that the Company shall at any time prior to the exercise of all Warrants declare
a dividend (consisting of shares of Common Stock) or otherwise distribute to its
stockholders any assets, property, rights, evidences of indebtedness, securities
(other than shares of Common Stock), whether issued by the Company or by
another, or any other thing of value, the Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution as if the
Warrants had been exercised immediately prior to such dividend or distribution.
At the time of any such dividend or distribution, the Company shall make
appropriate reserves to ensure the timely performance of the provisions of this
subsection 6.6. Nothing contained herein shall provide for the receipt or
accrual by a Holder of cash dividends prior to the exercise by such Holder of
the Warrants.
7. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date
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representing in the aggregate the right to purchase the same number of Shares in
such denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
8. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Warrants, nor shall it be required to issue scrip
or pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock or other securities,
properties or rights as the case may be.
9. Reservation and Listing. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants.
10. No Value Rights. Nothing contained in this Agreement shall
be construed as conferring upon the Holders the right to vote or to consent or
to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
a) the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them
to receive a dividend or distribution payable otherwise than
in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the
books of the Company; or
b) the Company shall offer to all the holders of its
Common Stock any additional shares of capital stock of the
Company or securities convertible into or exchangeable for
shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor; or
c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or
merger) or a sale of all or substantially all of its property,
assets and business as an entirety shall be proposed;
5
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then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
11. Registration Rights.
11.1 Registration Under the Securities Act of 1933.
The Warrants, the Shares and any other securities issuable upon exercise of the
Warrants have not been registered under the Securities Act of 1933, as amended
(the "Act"). Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares of Common Stock and any other securities issuable upon
exercise of the Warrants (collectively, the "Warrant Securities") shall bear the
following legend:
The securities represented by this certificate may not be
offered or sold except pursuant to (i) an effective
registration statement under the Act, (ii) to the extent
applicable, Rule 144 under the Act (or any similar rule under
such Act relating to the disposition of securities), or (iii)
an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
11.2 Piggyback Registration. If, at any time
commencing after the date hereof and expiring five (5) years thereafter, the
Company proposes to register any of its securities under the Act (other than in
connection with a transaction contemplated by Rule 145(a) promulgated under the
Act or pursuant to Form S-8) it will give written notice by registered mail, at
least thirty (30) days prior to the filing of each such registration statement,
to the Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Holders of the Warrants and/or Warrant Securities notify the
Company within twenty (20) days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford the Holders of the Warrants and/or Warrant Securities
the opportunity to have any such Warrant Securities registered under such
registration statement; provided, however, that if the managing underwriter
determines and advises in writing that the inclusion of the Warrant Securities
proposed to be included in the underwritten public offering would interfere with
the successful marketing of such securities, then the Warrant Securities shall
nevertheless be included in such registration statement but withheld from the
market by the Holders for a period not to exceed ninety (90) days, which the
managing underwriter reasonably determines as necessary in order to effect the
underwritten public offering.
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Notwithstanding anything to the contrary, the Holders agree
not to sell the Shares for a period of twelve months following the consummation
of the Company's next public offering.
Notwithstanding the provisions of this Section 11.2, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 11.2 (irrespective of whether a written request
for inclusion of any such securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
The Company shall pay all costs (excluding transfer taxes, if
any, and fees and expenses of Holder(s)' counsel and any underwriting or selling
commissions), fees and expenses in connection with all registration statements
filed pursuant to this Section 11.2 hereof including, without limitation, the
Company's legal and accounting fees, printing expenses, blue sky fees and
expenses.
12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of the Warrants, to
the address of such Holder as shown on the books of the
Company; or
(b) If to the Company, to the address set forth in
Section 3 hereof or to such other address as the Company may
designate by notice to the Holders.
13. Supplements and Amendments. The Company and the Holders
representing a majority of the Shares underlying the outstanding Warrants may
from time to time supplement or amend this Agreement.
14. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
15. Termination. This Agreement shall terminate at the close
of business on September 24, 2001.
16. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws. The Company and the Holders
hereby agree that any action, proceeding or claim against it arising out of, or
relating in any way to, this Agreement shall be brought and enforced in the
courts of the State of New York or of the United States District Court for the
Southern District of New York, and irrevocably submits
7
<PAGE>
to such jurisdiction, which jurisdiction shall be exclusive. The Company and the
Holders hereby irrevocably waive any objection to such exclusive jurisdiction or
inconvenient forum. Any such process or summons to be served upon any of the
Company and the Holders (at the option of the party bringing such action,
proceeding or claim) may be served by transmitting a copy thereof, by registered
or certified mail, return receipt requested, postage prepaid, addressed to it at
the address set forth in Section 12 hereof. Such mailing shall be deemed
personal service and shall be legal and binding upon the party so served in any
action, proceeding or claim. The Company and the Holders agree that the
prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other part(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
17. Entire Agreement; Modification. This Agreement contains
the entire understanding between the parties hereto with respect to the subject
matter hereof and may not be modified or amended except by a writing duly signed
by the party against whom enforcement of the modification or amendment is
sought.
18. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
19. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
20. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the registered Holder(s) of the Warrant Certificates or Warrant Securities
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Holder(s) of the Warrant Certificates or Warrant Securities.
21. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
IFS INTERNATIONAL, INC.
By: /s/ Charles J. Caserta
------------------------
Name: Charles J. Caserta
Title: President
Attest:
/s/ Frank A. Pascuito
- -----------------------------
Frank A. Pascuito, Secretary
9
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE
SECURITIES ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE
REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:30 P.M., NEW YORK TIME, SEPTEMBER 24, 2001
No. W-__ _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________________ or
registered assigns, is the registered holder of _________ Warrants to purchase
initially, at any time from September 25, 1996 until 5:30 P.M. New York time on
September 24, 2001 ("Expiration Date"), up to _______* shares (the "Shares") of
Common Stock, $.001 par value, of IFS INTERNATIONAL, INC., a Delaware
corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $2.50 per Share upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company. Payment of the Exercise Price shall be made by
certified or official bank check in New York Clearing House funds payable to the
order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
- --------
* Such number reflects a proposed one-for-ten reverse split of the Company's
Common Stock.
<PAGE>
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated as of _________________
IFS INTERNATIONAL, INC.
By:__________________________________
Name: Charles J. Caserta
Title: President
Attest:
- ----------------------------
Frank A. Pascuito, Secretary
2
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase __________ shares of
Common Stock of IFS International, Inc. and herewith tenders in payment for such
securities a certified or official bank check payable in New York Clearing House
Funds to the order of IFS INTERNATIONAL, INC. in the amount of $___________, all
in accordance with the terms hereof. The undersigned requests that each of the
certificates evidencing such securities be registered in the name of
_________________ whose address is __________________________ and that such
certificates be delivered to ___________________ whose address is
____________________________.
Dated: Signature:__________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be exercised by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, and full power of substitution.
Dated: Signature:__________________________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
(Insert Social Security or Other Identifying Number of Assignee)
<PAGE>
IFS INTERNATIONAL, INC.
STOCK OPTION PLAN
1. Purpose.
(a) The purpose of this Stock Option Plan (hereinafter called the "Plan") is
to further the best interests of IFS INTERNATIONAL, INC., (hereinafter called
the "Corporation") by encouraging Key Employees (as defined in Subparagraph 4(a)
hereof) and directors of, and consultants to the Corporation and its subsidiary
corporations to continue association with the Corporation or one of such
subsidiaries and by providing additional incentive for exceptional performance
and efficiency through offering an opportunity to acquire a proprietary stake in
the Corporation and its future growth. It is the view of the Corporation that
this goal may be best achieved by granting stock options to certain Key
Employees and directors and consultants (hereinafter called "Optionees") from
time to time.
(b) The Corporation intends that the options granted under this Plan shall,
at the discretion of the Board of Directors of the Corporation (the "Board"), be
either "incentive stock options," (hereinafter referred to as "Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and the regulations, rulings and other pronouncements
promulgated thereunder (collectively, the "Code"), or options that do not
qualify as incentive stock options (hereinafter referred to as "Supplemental
Stock Options"). All options granted pursuant to this Plan shall be separately
designated as either Incentive Stock Options or Supplemental Stock Options at
the time of such grant and a separate certificate or certificates shall be
issued for shares purchased upon exercise of each type of option.
(c) The Corporation further intends that this Plan shall be the successor to
the Avant-Garde Computer Systems, Inc. 1988 Stock Option Plan, dated January__,
1988 (the " 1988 Stock Option Plan"). Pursuant to a certain Acquisition
Agreement and Plan of Reorganization dated March 31, 1989 (the "Acquisition
Agreement"), by and among IFS International, Inc. (formerly known as Avant-Garde
Computer Systems, Inc.) (hereinafter referred to as the "Operating Company"),
Charles J. Caserta, Frank Pascuito and Steven Puthuff with the Corporation
(formerly known as Wellsway Ventures, Inc.), Arnold Wells, Edmond Nagel and
certain shareholders of the Operating Company, the Corporation purchased all of
the issued and outstanding capital stock of the Operating Company. Further, in
accordance with the Acquisition Agreement, each of the outstanding options
issued under the 1988 Stock Option Plan to purchase Operating Company stock was
automatically and without further action by the Corporation converted into an
option to purchase Common Stock (as hereinafter defined) in the Corporation, on
the same terms and conditions as were set forth in the 1988 Stock Option Plan,
but with the following modifications: (1) the number of shares of Common Stock
in the Corporation which may be acquired by exercise of an option shall be equal
to the number of shares of Operating Company stock previously subject to such
option multiplied by 2.489, and (2) the exercise price of such option for
acquisition of shares of Common Stock in the Corporation shall be equal to
exercise price for the shares of stock in Operating Company previously subject
to such option divided by 2.489. AJI outstanding options to purchase Common
Stock shall, upon the effective date of this Plan, be governed by the terms and
provisions of this Plan.
<PAGE>
2. Option Shares.
Shares to the provisions of paragraph 11 hereof, relating to adjustments in
share prices, the maximum number of shares of stock which may be made subject to
the options granted pursuant to this Plan shall be 3,327,793 shares of the
authorized but unissued $.001 par value common stock of the Corporation
(hereinafter called the "Common Stock"). Any such shares of Common Stock which
may remain unissued at the termination of this Plan shall cease to be reserved
for the purpose of this Plan, but until termination of this Plan, the
Corporation shall at all times reserve a sufficient number of shares of Common
Stock to meet the requirements of this Plan. Any shares of Common Stock which
are reserved for options that have lapsed may be re-reserved for options
hereunder. Shares of Common Stock subject to this Plan may be either unissued
shares or reacquired shares, bought on the market or otherwise.
3. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Corporation (the "Board") unless and until the Board delegates administration to
a committee, as provided in Subparagraph 3(c) hereof. Whether or not the Board
has delegated administration, the Board shall have the final power to
determine all questions of policy and expediency that may arise in the
administration of this Plan.
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of this Plan:
(1) To determine from time to time which of the persons eligible under
this Plan shall be granted options; when and how the option shall be granted;
whether the option will be an Incentive Stock Option or a Supplemental Stock
Option; the provisions of each option granted (which need not be identical),
including the time or times during the terms of each option at which all or
portions of such option may be exercised; and the number of shares for which an
option shall be granted to each optionee.
(2) To construe and interpret this Plan and options granted under it, and
to establish, amend and revoke rules and regulations for its administration. The
Board, in the exercise of this power, may correct any defect, omission or
inconsistency in this Plan or in any option agreement, in a manner and to the
extent it shall deem necessary or expedient to make this Plan fully effective.
(3) To amend this Plan as provided in Paragraph 13 hereof.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company.
<PAGE>
(c) The Board may delegate administration of this Plan to a committee
composed of not fewer than three (3) members (the "Committee"), all of the
members of which Committee shall be disinterested persons, (as defined in
Subparagraph 3(d) hereof). If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of this Plan, the
powers theretofore possessed by the Board, subject however, to such resolutions,
not inconsistent with the provisions of this Plan, as may be adopted from time
to time by the Board. The Board may abolish the Committee at any time and revest
in the Board the administration of this Plan. Additionally, prior to the date of
the first registration of any equity security of the Company under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of this Plan to any person or persons and the term
"committee" shall apply to any person or persons to whom such authority has been
delegated.
(d) The term "disinterested person," as used in this Plan, shall mean an
administrator of this Plan, whether a member of the Board or of any Committee to
which responsibility for administration of this Plan has been delegated pursuant
to Subparagraph 3(c) hereof, who is not at the time he or she exercises
discretion in administering this Plan eligible and has not at any time within
one (1) year prior thereto been eligible for selection as a person to whom stock
may be allocated or to whom stock options or stock appreciation rights, may be
granted pursuant to this Plan or any other Plan of the Corporation or any of its
subsidiaries entitling the participants therein to acquire stock, stock options
or stock appreciation rights of the Corporation or any of its subsidiaries, and
to the extent required by Rule 16b-3 promulgated under the Securities Exchange
Act, is not so eligible for one (1) year after such exercise. Any such person
shall otherwise comply with the requirements of Rule 16b-3 promulgated under the
Securities Exchange Act.
(e) Any requirement that an administrator of this Plan be a "disinterested
person" shall not apply prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act.
4. Eligibility.
(a) Incentive Stock Option may be granted only to employees of the
Corporation or any of its subsidiaries who hold executive or other responsible
positions in the management of the affairs of the Corporation or its
subsidiaries and thus can have a substantial impact on the Corporation's profits
(such persons being hereinafter referred to as "Key Employees"). A director of
the Corporation shall not be eligible to receive Incentive Stock Options under
this Plan unless such director is also a Key Employee of the Corporation of any
of its subsidiaries. Supplemental Stock Options may be granted on]y to Key
Employees of, director of, or consultants to the Corporation shall not be
eligible for a Supplemental Stock Option unless such director is also a Key
Employee or consultant to the Corporation or any of its subsidiaries.
<PAGE>
(b) A director shall, in no event, be eligible for the benefits of this Plan
unless and until such director is expressly declared eligible to participate in
this Plan by action of the Board or the Committee, and only if, at any time
discretion is exercised by the Board in the selection of a director as a person
to whom options may be granted, or in the determination of the number of shares
which may be covered by options granted to a director, a majority of the
members of the Board and a majority of the member of the Committee are
disinterested persons, as defined in Subparagraph 3(d) hereof. The Board shall
otherwise comply with the requirement of Rule l6b-3 promulgated under the
Exchange Act, as from time to time in effect. This Subparagraph 4(b) shall not
apply prior to the date of the first registration of an equity security of the
Company under Section 12 of the Exchange Act.
5. Grant of Options.
(a) The Corporation, by action of the Board or the Committee, may from time
to time, grant options to purchase shares of Common Stock for such number or
numbers of shares and upon such terms and conditions as shall be determined by
the Board.
(b) The aggregate number of shares of Common Stock for which any optionee
shall be granted an option under this Plan in any calendar year shall be fixed
by the Board, provided that the aggregate fair market value (as determined at
the time the option is granted) of Common Stock for which Incentive Stock
Options under this Plan and all other plans of the Corporation or any of its
subsidiary corporations are exercisable for the first time by an optionee during
any calendar year shall be limited to $100,000. Should it be determined that an
option granted under this Plan exceeds such maximum for any reason other than
the failure of a good faith attempt to value the stock subject to the option,
such option shall be considered a Supplemental Stock Option to the extent, but
only to the extent, of such excess; provided, however, that should it be
determined that an entire option or any portion thereof does not qualify for
treatment as an Incentive Stock Option by reason of exceeding such maximum, such
option or the applicable portion shall be considered a Supplemental Stock
Option.
(c) Each grant of an option pursuant to this Plan shall be made by a written
option agreement in the form of Schedule "A" attached hereto (an "Option
Agreement") with such further terms and conditions as may be determined by the
Board at the time of grant and incorporated into the Option Agreement, subject
however, to the terms, conditions and limitations set forth in this Plan. Such
further terms and provisions need not be identical for each separate option
granted hereunder.
(d) Notwithstanding the provisions of Subparagraph 6(a) hereof, upon the date
of adoption of this Plan in accordance with Paragraph 15 hereof, there shall
automatically and without any further action of the Corporation be deemed as
outstanding under this Plan options to purchase ___ shares of Common Stock, such
options representing the options granted under the 1988 Stock Option Plan that
were converted into options to acquire Corporation Common Stock pursuant to the
Acquisition Agreement (referred to in Subparagraph l(c) hereof), Attached hereto
as Schedule "B" is a table containing the names of the optionees to which such
outstanding options were granted,
<PAGE>
the designation of such options as either Incentive Stock Options, or
Supplemental Stock Options, and the number of shares subject to each such
option. Upon adoption of this Plan, the Corporation shall enter into Option
Agreements for each of the options listed in Schedule "B" attached hereto, in
substantially the form of Schedule "A" attached hereto with such additional
terms and provisions as are allowed under this Plan and which may currently be
in any existing option agreement or other certificate executed with respect to
such options under the 1988 Stock Option Plan or which were otherwise adopted or
agreed to by Operating Company and assumed by the Corporation. Such Option
Agreement, together with this Plan, shall upon execution and delivery by the
Corporation and the optionee thereunder and surrender by such optionee to the
Corporation of any such existing option agreement or certificate, supersede such
existing option agreement or certificate as well as all prior agreements,
written or oral, between the Corporation and the optionee in any way relating to
such Option.
6. Option Price. The purchase price for each share of Common Stock acquired
by exercise of an Incentive Stock Option granted under this Plan (hereinafter
called the "option price") shall be not less than 100% of the fair market value
of the Common Stock at the time of the grant of such option, or in the case of
an optionee who owns more than 10% of the total combined voting power of the
Common Stock and all other classes of stock in the Corporation, 110% of the
fair market value of the Common Stock at the time of the grant of such option.
The purchase price of each share of Common Stock acquired by exercise of a
Supplemental Stock Option shall be not less than 85% of the fair market value of
the Common Stock at the time such option is granted. For purposes of this
Paragraph 6, the fair market value of the Common Stock shall be determined by
methods consistent with provisions of the code as the directors shall, in their
discretion, select and apply at the time of the grant of the option concerned.
7. Duration of Options.
(a) The period for which the options granted hereunder shall be exercisable
(hereinafter called the "option period") shall commence upon the date specified
in the Option Agreement for such option and shall continue until such option
shall be terminated as hereinafter provided. In no event shall such option
period for any Incentive Stock Option exceed ten (10) years from the date of
grant of such option, or in the case of an optionee who owns more than 10% total
combined voting power of the Common Stock and all other classes of stock in the
Corporation, in no event shall the option period for such Incentive Stock Option
exceed five (5) years from the date of grant of such option.
(b) Notwithstanding the provisions of Subparagraph (a) above, the option
period of any Incentive Stock Option granted pursuant to this Plan shall
terminate:
(1) Not later than thirty (30) days after the termination of the
optionee's employment with the Corporation or any of its subsidiaries, if such
termination was for any reason other than permanent disability, within the
meaning of Section 422(c)(7) of the Code; and
<PAGE>
(2) Not later than one (1) year after the termination of the optionee's
employment, if such termination was due to permanent disability; this
Subparagraph 8(b) shall not be construed to extend the term of an Incentive
Stock Option past the date it would otherwise terminate in accordance with the
terms hereof and the Option Agreement nor shall it be construed to increase the
number of shares as to which an Incentive Stock Option is exercisable from the
number of shares as to which such option was otherwise exercisable in accordance
with the terms hereof and the Option Agreement as of the date of termination of
the optionee's employment with the Corporation.
(c) Notwithstanding any provisions of this Paragraph 8 to the contrary, if
the employment of any optionee is terminated because the optionee has committed
willful or gross misconduct against the Corporation or any of its subsidiaries
or its property or has disclosed trade secrets to a competitor of the
Corporation or any of its subsidiaries, as determined by the Board, the
optionee's option shall, at the election of the Board, lapse and may not be
exercised.
(d) For purposes of this Paragraph 8, an optionee shall not be deemed to
have terminated employment if the optionee is absent upon a bona fide leave of
absence (including absence for military service or by reason of temporary
disability) or is transferred to and becomes an employee of a subsidiary of the
Corporation. However, if a subsidiary of the Corporation ceases to be a
subsidiary, all employees of such subsidiary not theretofore transferred to and
becoming employees of the Corporation or of another subsidiary of the
Corporation, shall be deemed to have ceased to be employees within the meeting
of this Plan on the date such subsidiary ceases to be a subsidiary of the
Corporation.
8. Nontransferrability. No option granted pursuant to this Plan may be
transferred by the Optionee otherwise than by will or the laws of descent and
distribution and, further during the lifetime of the optionee the option may be
exercised only by the optionee.
9. Exercise of Options.
(a) An optionee shall exercise options granted pursuant to this Plan by
giving written notice to the Corporation. Such written notice shall be deemed
sufficient for this purpose only if hand delivered or mailed by registered or
certified mail to the Corporation at its principal office and only if such
written notice states the number of shares with respect to which the Option is
being exercised and further states the date, not less than ten (10) days nor
more than thirty (30) days after the date of such notice, on which the shares
of stock shall be taken up and payment therefore shall be made.
(b) The payment for shares of Common Stock purchased pursuant to exercise
of an option shall be made at the principal office of the Corporation or at any
office of a transfer agent appointed for the sale of the stock of the
Corporation. Upon exercise of an option, in compliance with the provisions of
this Paragraph 9, and upon receipt by the Corporation or its transfer agent of
<PAGE>
the exercise price for the stock so purchased, the Corporation shall deliver or
cause to be delivered to the optionee so exercising the option a certificate or
certificates for the number of shares of Common Stock with respect to which the
option is so exercised. Such shares shall be registered in the name of the
person exercising the option.
(c) In no event shall any shares of Common Stock be issued pursuant to an
exercise of an option until the full purchase price therefore shall have been
paid. Such purchase price shall be paid, to the extent permitted by applicable
statutes and regulations, (i) in cash, certified check or bank check, at the
time the option is exercised, (ii) at the discretion of the Board or the
Committee, either at the time of grant or exercise of the option, by delivery to
the Corporation of other Common Stock, or (iii) any other form of legal
consideration that may be acceptable to the Board or the Committee.
(d) The exercising optionee shall not have any of the rights of a
shareholder until such optionee has satisfied all requirements for exercise of
the option pursuant to this Plan and the applicable Option Agreement and the
shares purchased with such option have been issued. The shares issued upon
exercise of an option shall be subject to the terms and conditions contained in
the Option Agreement.
(e) Notwithstanding anything in this Plan or in any Option Agreement to
the contrary, any option granted hereunder to a director, officer or any other
person who is subject to the provisions of Section 16(b) of the Securities
Exchange Act shall not be exercisable for at least six (6) months from the date
such option is awarded, except in the case of the death or permanent disability
of such optionee.
10. Reguirements of Law. If any law, any regulation or ruling of the Securities
Exchange Commission, or any regulation or ruling of any other commission or
agency having appropriate jurisdiction shall require the Corporation or the
exercising optionee to take any action with respect to the shares of Common
Stock acquired by the exercise of an option, then the date upon which the
Corporation shall deliver or cause to be delivered the certificate or
certificates for the shares of Common Stock shall be postponed until full
compliance has been made with the requirements of all such laws, regulations or
rulings. Further, at or before the time of the delivery of the shares with
respect to which an option has been exercised, the exercising optionee shall
deliver to the Corporation his written statement that he intends to hold the
shares to be acquired by exercise of such option for investment and not with a
view to resale or other distribution thereof to the public. In addition, in the
event that the Corporation shall determine that, in compliance with the
Securities Act of 1933 or other applicable, statute or regulation, it is
necessary to register any of the shares of stock with respect to which an option
has been exercised, or to qualify any such shares for exemption from any of the
requirements of the Securities Act of 1933 or other applicable statute or
regulation, then the Corporation shall take such action at its own expense. No
shares purchased by exercise of an option shall be delivered to the optionee
until such actions have been taken.
<PAGE>
11. Adjustments. In the event of the declaration of any stock divided on the
Common Stock, or in the event of any reorganization, merger, consolidation,
acquisitions, separation, recapitalization, split-up, combination or
exchange of shares of Common Stock, or like adjustment, the number of shares of
Common Stock subject to the options granted pursuant to this Plan, and the
option prices, will be adjusted by appropriate changes in this Plan and in any
options outstanding pursuant to this Plan. Any such adjustment to this Plan or
to the options or option prices shall be made by action of the Board or the
Committee, whose determination shall be conclusive.
12. Sale of Assets of Stock. In the event of (i) a dissolution or liquidation of
the Corporation; (ii) a merger or consolidation in which the Corporation is not
the surviving corporation; (iii) a reverse merger in which the Corporation is
the surviving corporation, but the shares of the Corporation's Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; or (iv) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Corporation entitled to vote are exchanged,
then, at the sole discretion of the Board to the extent permitted by applicable
law (a) any surviving corporation shall assume any options outstanding under
this Plan or shall substitute similar options for those outstanding under this
Plan, or (b) the time during which such options may be exercised shall be
accelerated and the option terminated if not exercised prior to such event, or
(c) such options shall continue in full force and effect.
13. Amendment of Plan.
(a) This Plan may be amended from time to time by majority vote of the
Board; provided, however, that (except as provided in Paragraph 11 hereof,
relating to adjustment in the exercise price of options granted hereunder) where
an amendment deals with any of the matters listed in items (i) through (iii)
below, no such amendment shall be effective unless it has been approved by the
affirmative vote of the holders of a majority of the outstanding shares of the
Corporation's Stock entitled to vote, or by the unanimous written consent of the
holders of all such outstanding shares within twelve (12) months before or after
the adoption of such amendment. The matters which require such shareholder
approval are the following:
(i) An increase in the number of shares reserved for options under this
Plan;
(ii) A material modification in the requirements as to eligibility for
participation in this Plan; or
(iii) A material increase in the benefits accruing to participants under
this Plan.
(b) It is expressly contemplated that the Board may amend this Plan in any
respect the
Board deems necessary or advisable to provide optionees with the maximum
benefits provided or to be provided under the provisions of the Code and
regulations promulgated thereunder relating to employee Incentive Stock Options
and/or to bring this Plan and/or Incentive Stock Options granted hereunder into
compliance therewith.
<PAGE>
(c) Rights and obligations under any option granted before amendment of
this Plan shall not be altered or impaired by any amendment of this Plan unless
(i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
14. Termination or Suspension of the Plan.
(a) The Board may suspend or terminate this Plan at any time. Unless
sooner terminated, this Plan shall terminate on January 12, 1998. No options may
be granted under this Plan when this Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while this Plan is in
effect, shall not be altered or impaired by suspension or termination of this
Plan, except with the consent of the person to whom the option was granted.
15. Effective Date of Plan. This Plan shall become effective immediately
upon approval thereof by the Board, but no options granted under this Plan,
including options which were granted under the 1988 Stock Option Plan and
converted to options hereunder shall be exercised unless and until this Plan has
been approved by the affirmative vote of the holders of a majority of the
outstanding shares of the Corporation entitled to vote, or by the unanimous
written consent of the holders of all such outstanding shares of the Corporation
entitled to vote.
16. Miscellaneous.
(a) The Board or the Committee shall have the power to accelerate the time
during which an option may be exercised or the time during which an option or
any part thereof will vest, notwithstanding the provisions in the Option
Agreement stating the time during which it may be exercised or the time during
which it will vest.
(b) Throughout the term of any option granted pursuant to this Plan, the
Corporation shall make available to the holder of such option, not later than
one hundred twenty (120) days after the close of each of the Corporation's
fiscal years during the option term, upon request, such financial and other
information regarding the Corporation as comprises the annual report to the
shareholders of the Corporation provided for in the by-laws of the Company.
(c) Nothing in this Plan, any Option Agreement or other instrument
executed pursuant hereto or thereto shall confer upon any eligible employee or
optionee any right to continue in the employ of the Corporation or any of its
subsidiaries (or to continue acting as a consultant or director) or shall affect
the right of the Corporation or any of its subsidiaries to terminate the
employment, consulting relationship or directorship of any optionee with or
without cause.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement (Amendment
No. 2) on Form SB-2 of our report dated July 17, 1996, except for the second
paragraph of Note 14, for which the date is August 6, 1996 and Note 15, for
which the date is January 6, 1997, relating to the consolidated financial
statements of IFS International, Inc. and subsidiary, and to the reference to
our Firm under the caption "Experts" in the Prospectus.
/s/ URBACH KAHN & WERLIN PC
Albany, New York
January 28, 1997