<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
-----------------
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
COMMISSION FILE NUMBER 0-29794
PUBLICARD, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 23-0991870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
620 FIFTH AVENUE, 7TH FLOOR, NEW YORK, NY 10020
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (212) 489-8021
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
NONE NONE
Securities Registered Pursuant To Section 12(g) of the Act
COMMON STOCK ($.10 PAR VALUE)
RIGHTS TO PURCHASE CLASS A PREFERRED STOCK, FIRST SERIES
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
AS OF MARCH 24, 2000, THE AGGREGATE MARKET VALUE OF THE VOTING COMMON STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $210,000,000.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 24, 2000: 22,631,031
Documents Incorporated By Reference
PART III, ITEMS 10, 11, 12 AND 13, ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED PURSUANT TO REGULATION 14A
FOR THE 2000 ANNUAL MEETING OF SHAREHOLDERS.
<PAGE> 2
PART I
ITEM 1. BUSINESS
BACKGROUND
PubliCARD, Inc. entered the smart card industry in early 1998, and
began to develop solutions for the conditional access, security, payment system
and data storage needs of industries utilizing smart card technology. PubliCARD
made a series of acquisitions to enhance its position in the smart card
industry:
- In February 1998, PubliCARD acquired, through a joint venture
arrangement in Greenwald Intellicard, Inc., the assets and
intellectual property of Intellicard Systems, Ltd. Greenwald
Intellicard provides smart cards, smart card readers, value
transfer stations, card management software and machine
interface boards for the commercial laundry appliance
industry. PubliCARD initially owned 50% of Greenwald
Intellicard, and acquired the remaining 50% in February 1999
and February 2000.
- In November 1998, PubliCARD acquired Tritheim Technologies,
Inc., which develops conditional access and security products
for the software industry, computers and the electronic
information and digital video broadcast, also known as DVB,
industry.
- In February 1999, PubliCARD acquired Amazing! Smart Card
Technologies, Inc., a developer of consumer smart card
solutions and a manufacturer of customized smart cards.
- In February 1999, PubliCARD acquired Greystone Peripherals,
Inc., a developer of hard disk duplicators.
- In November 1999, PubliCARD acquired Absec Limited, a designer
of closed environment solutions, including small value
electronic cash systems and database management solutions.
Through Absec, PubliCARD provides systems for closed
populations to allow individual user access, unique rights and
monitoring.
While PubliCARD developed a number of successful smart card products
and solutions, its operations were fragmented throughout a variety of markets.
PubliCARD's Board of Directors, together with its management team, determined to
integrate its operations and focus on a single market in which:
- high growth potential exists;
- PubliCARD has established relationships;
- PubliCARD has already deployed products and gained
credibility; and
- PubliCARD possesses core technologies and competencies.
PubliCARD determined that it could leverage its existing technology for
deployment in the rapidly growing broadband market, which it had already
penetrated and which PubliCARD believes exhibits each of the characteristics
identified above. PubliCARD currently is positioning itself to be a leading
provider of end-to-end solutions to enable access and secure content and
transactions for the broadband market. PubliCARD's broadband initiative is
driven by its proprietary technology and proven engineering and design talent.
PubliCARD's proprietary technologies facilitate content protection and
transaction security.
To effect this new business strategy, in March 2000, the Board of
Directors of PubliCARD adopted a plan of disposition pursuant to which PubliCARD
will divest its non-core operations. PubliCARD currently is in negotiations with
a potential buyer of its Greenwald Industries, Inc. and Greenwald Intellicard
subsidiaries. Greenwald Industries is a designer and manufacturer of coin meter
systems used in the commercial laundry appliance industry. If these negotiations
do not result in a definitive agreement, PubliCARD intends to seek an
alternative buyer of its laundry solutions business. PubliCARD has engaged a
broker to assist in the sale of its subsidiary Greystone Peripherals, Inc.
Finally, as part of this plan, PubliCARD is also exploring various disposition
alternatives relative to Amazing! Smart Card Technologies, Inc.
1
<PAGE> 3
PubliCARD will pursue its new business strategy through the integration
of its remaining operations. As a result of this integration, PubliCARD's
product range includes application specific integrated circuits, also known as
ASICs, for television set-top boxes, secure electronic commerce, Internet
security and software copy protection. PubliCARD's ASICs incorporate multiple
chip set functionality into a single integrated circuit board. In addition,
PubliCARD is developing point-of-deployment applications, also known as PODs,
which scramble and unscramble data entering and exiting set-top boxes.
In addition, PubliCARD will continue to design closed environment
solutions, including small value electronic cash systems and database management
solutions. PubliCARD provides systems for closed populations to allow individual
user access, unique rights and monitoring.
BROADBAND INDUSTRY
In May 1997, the Federal Communications Commission adopted rules to
implement digital television with the intended effect of promoting rapid
conversion to, and implementation of, digital television. DVB signals allow
content providers to deliver very high resolution, high quality video images and
to provide a broad range of private content and ancillary services, including
web browsing, video on demand and interactive menus. Content providers currently
use set-top boxes to limit the access of their subscribers to paid services.
Consumers wishing to obtain content or services from more than one provider
would be required to use multiple proprietary set-top boxes. Various set-top box
manufacturers and other enterprises recently have developed universal set-top
boxes that are capable of receiving content from a variety of providers. This
will enable multiple providers to deliver digital content through a simple
universal set-top box, and consumers to access the content to which they have
subscribed by using a smart card that fits into a reader in the set-top box.
Because the conversion to DVB will require the use of digital television
equipment, millions of traditional analog set-top boxes will need to be
replaced.
With the advent of advanced digital technology to the cable television
industry, bi-directional high-speed and high-quality video, data and voice
capabilities will be introduced. Set-top boxes will create interactive
television in the home, and enable consumers to effect transactions such as:
- high-speed web browsing;
- sending and receiving electronic mail;
- viewing enhanced broadcasts by selecting the camera angles
from which a program is viewed;
- ordering video-on-demand; and
- viewing electronic program guides.
In effect, Internet applications currently transacted through personal
computers are expected to be effected through interactive televisions with the
advent of digital technology in the cable television industry. As a result,
security is a paramount issue. Participants in the broadband market have the
following security concerns, among others:
- Cable operators must be certain that their content is being
delivered to authorized viewers;
- Consumers must be confident that they can perform secure
electronic commerce through their televisions, known as
"television-" or "T-commerce";
2
<PAGE> 4
- Content and application providers must ensure that their
products and services are not being pirated;
- Participants in the chain of distribution of digital content
must be able to identify the source and destination of a
digital product in order to reduce the risk of fraud;
- The use of digital products must be limited to authorized use
only; and
- Publishers must be able to prevent unauthorized copying and
distribution of digital content.
PubliCARD intends to address these concerns by providing secure
infrastructure solutions to the broadband market which allow content providers
and consumers to interact with certainty and security.
PubliCARD has begun to penetrate the broadband market with its hardware
solutions. PubliCARD currently supplies ASICs to Motorola's General Instruments,
an original equipment manufacturer, also known as an OEM, of television set-top
boxes. These ASICs permit General Instruments to incorporate smart card readers
into its set-top boxes. PubliCARD's ASICs drive and manage these smart card
readers by reading the chip embedded in the card and permitting the stored data
to access the proper application. PubliCARD is also developing PODs to be used
and distributed by cable operators. PODs scramble and unscramble data entering
and exiting set-top boxes. Ultimately, PubliCARD intends to deploy software
solutions to facilitate T-commerce.
PubliCARD is also developing digital rights management solutions for
T-commerce, to make the process easier, more versatile and more secure for
consumers and content owners alike. PubliCARD is developing its solutions for a
range of consumer electronic devices for the use of electronic content and
services. Electronic content and service providers require software to allow
consumers to purchase one-time, multiple or permanent use of their content or
service, using a wide range of payment models. PubliCARD believes that its
products under development will permit consumers to make individual purchases of
images, text, music or video, or make use of software, all from the consumer's
interactive devices. This means that content and services can be consumed with
more efficient and flexible pricing, broader distribution opportunities and
greater protection against unauthorized usage.
STRATEGY
PubliCARD's business is driven by a new management team, an emphasis on
core competencies, a singular focus on the broadband market, the disposition of
non-core businesses and partnerships that enhance its market penetration. As it
enters the broadband market, PubliCARD intends to employ the following
strategies:
- UTILIZE NEW MANAGEMENT TEAM. To begin the new millennium and
to implement its new business strategy, PubliCARD appointed a
new management team, headed by Jan-Erik Rottinghuis, President
and Chief Executive Officer. He and recently-appointed
Executive Vice President Richard Phillimore have brought with
them to PubliCARD vast industry experience and knowledge that
will guide PubliCARD as it leverages its most important assets
- its core technologies and talent.
- LEVERAGE CORE COMPETENCIES. As PubliCARD enters the broadband
industry, it will leverage its technological assets as well as
its engineering and management talents. PubliCARD intends to
utilize its existing technology and develop new technology to
provide commercially viable solutions to the broadband market.
- DISPOSE OF NON-CORE BUSINESSES. Because PubliCARD is committed
to leveraging its most important assets, it is currently
taking the steps necessary to dispose of non-core
3
<PAGE> 5
businesses. PubliCARD intends to accomplish this effort by the
end of the third quarter of 2000.
- FORM STRATEGIC PARTNERSHIPS. PubliCARD recognizes that one of
the most effective ways to execute its strategy and
successfully penetrate the broadband market is through
strategic partnerships with major industry players. PubliCARD
has formed and intends to continue to form alliances with the
most credible partners in the industry.
- BUILD TECHNOLOGY BASE. PubliCARD has acquired intellectual
property and technical expertise that it will deploy in many
aspects of the broadband industry, which it intends to
leverage to develop new products and enhance existing product
offerings.
PUBLICARD PRODUCTS AND SOLUTIONS
PubliCARD has developed smart card solutions for the information
technology and cable television markets, and intends to penetrate the broadband
market through the development of new technology and the redeployment of its
existing technology.
PubliCARD believes that smart cards provide a portable and superior
security system that can reliably identify users in order to prevent
unauthorized access to information and resources. PubliCARD has developed a
number of smart card solutions to provide conditional access and security for a
variety of markets. PubliCARD believes that its existing smart card technology,
together with its products under development, provide an easy, flexible and
cost-effective way to achieve the key benefits of highly secure, authenticated
transactions. PubliCARD now intends to redeploy its technology for use in the
broadband market, which its existing products have already begun to penetrate.
PubliCARD's solutions for the digital rights management market are being
designed to create a distribution and security system under which consumers will
be able to make individual purchases of images, text, music or video, or make
use of software, all from the consumer's set-top box, personal computer or other
interactive device. PubliCARD's conditional access, security and payment system
products include the following:
- ASICs. PubliCARD's solutions drive the smart card reader in
the front of the set-top box and act as the interface between
smart cards that are inserted into the reader and the
applications in the set-top box. PubliCARD currently is
supplying ASICs to Motorola's General Instruments, the leading
OEM of television set-top boxes, which permit General
Instruments to incorporate smart card readers into its set-top
boxes. PubliCARD's ASICs drive and manage these smart card
readers by reading the chip embedded in the card and
permitting the stored data to access the proper application.
PubliCARD's ASICs are manufactured by contract manufacturers.
- PODs. A POD is a Portable Computer Memory Card International
Association, also known as PCMCIA, smart card reader that,
together with a smart card, provides the cryptographic
services required by a set-top box as it scrambles and
unscrambles data traveling to and from it. When inserted into
a reader, a smart card will "unlock" the specific services to
which a consumer has subscribed. The POD therefore provides
conditional access to the set-top box. PubliCARD intends to
market its POD to OEMs. PubliCARD believes its technology can
be used for both set-top boxes and other interactive devices.
PubliCARD therefore intends to market its POD chip
intellectual property to one or more strategic partners for
the partner to incorporate its own PODs into set-top boxes and
other interactive devices.
- SMARTCOMMERCE(TM). This software solution supports the
bi-directional transport of value. The application was
designed originally to manage payment transactions using major
credit cards that use chip technology. PubliCARD is currently
working to upgrade SmartCOMMERCE(TM) for the broadband market
to enable electronic commerce transactions through set-top
boxes and other interactive devices. With SmartCOMMERCE(TM),
consumers will be able to shop spontaneously through their
cable boxes with the simple
4
<PAGE> 6
touch of a button on their enhanced remote control. PubliCARD
intends to market SmartCOMMERCE(TM) to set-top box and
personal computer OEMs as well as cable operators.
VIRTUALTOKENS(TM). This digital rights management solution
uses public key infrastructure security to protect digital
intellectual property, whether stored on set-top boxes,
personal computers, game consoles or personal digital
assistants. Each protected item - such as a DVD movie or video
game - will have a unique isolated cryptographic key that must
be present for the item to function. Ultimately, this
protection assures that even if a movie or game is copied and
moved to another machine, it will not run without its
exclusive VirtualToken(TM). VirtualTokens(TM) will undergo an
alpha implementation in the second quarter of 2000, and beta
testing thereafter. PubliCARD expects to market
VirtualTokens(TM) principally to content providers, such as
software and interactive game publishers.
- READERS. PubliCARD designs and manufactures both peripheral
and embedded card readers for incorporation into desktop
computers, laptop and mobile computers. PubliCARD also
manufactures and markets serial readers, internal readers and
PCMCIA readers, as well as smart card readers. PubliCARD sells
its readers to OEMs, value-added resellers, value-added
distributors and other distributors.
- CHIPNET(TM). This chip card vending product is a closed
environment solution, which includes small value electronic
cash systems and database management solutions. Utilizing
ChipNet(TM), PubliCARD provides systems for closed populations
to allow individual user access, unique rights and monitoring.
PubliCARD is integrating its SmartGuardian(TM) web filtering
solution into the ChipNet(TM) system. Through the use of
Internet filtering software and related readers, smart cards
and smart card personalization devices, SmartGuardian(TM)
allows parents to manage Internet access of their children in
public institutions through personal computers and set top
boxes.
SALES AND MARKETING
PubliCARD sells and distributes its products through a broad range of
distribution channels, including value-added resellers, value-added distributors
and other distributors. PubliCARD also sells and distributes its products
directly to OEMs and end-users through its direct sales force and independent
sales representatives.
PubliCARD uses a combination of full-time employee sales personnel and
sales representatives to optimize market potential and geographic coverage.
PubliCARD has approximately 20 employees directly engaged in the sale and
distribution of its products in the United States and 20 employees in Europe.
PubliCARD is represented by independent sales representative agencies. During
2000 and thereafter, PubliCARD plans to expand both its employee and
representative sales forces in the U.S. and abroad to capitalize on the forecast
market demand for broadband products.
In support of its sales strategies, PubliCARD also makes use of direct
mail campaigns to its customer databases, advertising in targeted trade media
and at trade shows and conferences.
PubliCARD intends to form strategic relationships with a number of key
industry players to provide it with access to leading edge technology, marketing
and sales leverage and access to key customers and accounts.
RESEARCH AND DEVELOPMENT
Research and development is a key element to PubliCARD's future success
and competitive position. PubliCARD develops an annual technology development
plan as an integral part of its business planning process. This identifies new
areas requiring development in support of identified business opportunities, as
well as a program of maintenance and enhancement for PubliCARD's existing
solutions.
5
<PAGE> 7
PubliCARD strives to develop and maintain close relationships with key
suppliers of components and technologies in order to enable it to quickly
introduce new products that incorporate the latest technological advances.
PubliCARD's future success will depend upon its ability to develop and to
introduce new products on a timely basis that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - - Factors That May Affect
Future Results -- Our future success depends on our ability to keep pace with
technological changes and introduce new products in a timely manner."
COMPETITION
Competition in the markets in which PubliCARD operates is intense and
is characterized by rapidly changing technologies, evolving industry standards,
frequent new product introductions and rapid changes in customer requirements.
To maintain and improve its competitive position, PubliCARD must continue to
develop and introduce, on a timely and cost-effective basis, new products and
product features that keep pace with technological developments and emerging
industry standards and address the increasingly sophisticated needs of its
customers. The principal competitive factors affecting the market for
PubliCARD's technology products are the product's technical characteristics and
price, customer service and competitor reputation, as well as competitor
reputation positioning and resources. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - - Factors That May Affect
Future Results -- The highly competitive markets in which we operate could have
a material adverse effect on our business and operating results." PubliCARD will
be required to continue to respond promptly and effectively to the challenges of
technological changes and its competitors' innovations.
The market for broadband solutions is new, intensely competitive and
rapidly evolving. PubliCARD expects competition to continue to increase both
from existing competitors and new market entrants. PubliCARD's primary
competition currently comes from or is anticipated to come from:
- companies offering payment solutions, including Trintech and
VeriFone;
- companies offering chip technology infrastructures, including
Gemplus, Philips and SCM Microsystems;
- companies offering closed environment solutions, including
small value electronic cash systems and database management
solutions, such as CyberMark and Danyl Schlumberger; and
- companies that offer digital rights management solutions, such
as InterTrust, Wave, Preview Systems, Aladdin, IBM and
Microsoft.
Many of PubliCARD's current and potential competitors have longer
operating histories and significantly greater financial, technical, sales,
customer support, marketing and other resources, as well as greater name
recognition and a larger installed base of their products and technologies than
PubliCARD. Many of these companies have broader customer relationships that
could be leveraged, including relationships with many of PubliCARD's customers.
These companies also have more established customer support and professional
services organizations than PubliCARD does. In addition, a number of companies
with significantly greater resources than PubliCARD could attempt to increase
their presence in the broadband market by acquiring or forming strategic
alliances with competitors of PubliCARD, resulting in increased competition.
INTELLECTUAL PROPERTY
PubliCARD's success depends significantly upon its proprietary
technology. PubliCARD relies on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality agreements and contractual provisions to
protect its proprietary rights. PubliCARD seeks to protect its software,
documentation
6
<PAGE> 8
and other written materials under trade secret and copyright laws, which afford
only limited protection. PubliCARD generally enters into confidentiality and
non-disclosure agreements with its employees and with key vendors and suppliers.
Despite PubliCARD's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of PubliCARD's products or to obtain and use
information that PubliCARD regards as proprietary. Moreover, effective copyright
and trade secret protection may be unavailable or limited in certain foreign
countries, making the possibility of misappropriation of PubliCARD's proprietary
technology more likely. The steps taken by PubliCARD to protect its proprietary
technology might not prevent misappropriation of such technology, and such
protections may not preclude competitors from developing products with
functionality or features similar to PubliCARD's products.
PubliCARD currently has various trademarks and trademark applications
registered and pending in the United States and certain other jurisdictions.
PubliCARD will continue to evaluate the registration of additional trademarks as
it deems appropriate. PubliCARD currently has a number of patents issued, and
various patent applications pending. There can be no assurance that any new
patents will be issued, that PubliCARD will develop proprietary products or
technologies that are patentable, that any issued patent will provide PubliCARD
with any competitive advantages or will not be challenged by third parties or
that the patents of others will not have a material adverse effect on
PubliCARD's business and operating results.
In the event that PubliCARD's technology or products are determined to
infringe upon the rights of others, PubliCARD could be required to cease using
such technology and stop selling such products, if PubliCARD were unable to
obtain licenses to utilize such technology. There can be no assurance that
PubliCARD would be able to obtain such licenses in a timely manner on acceptable
terms and conditions, and the failure to do so could have a material adverse
effect on PubliCARD's financial condition and results of operations. If
PubliCARD is unable to obtain such licenses, it could encounter significant
delays in product market introductions while it attempted to design around the
infringed-upon patents or rights, or could find the development, manufacture or
sale of products requiring such license to be foreclosed. In addition, patent
disputes are common in the smart card and computer industries and there can be
no assurance that PubliCARD will have the financial resources to enforce or
defend a patent infringement or proprietary rights action.
PubliCARD expects that software product developers will be increasingly
subject to infringement claims as the number of products and competitors in the
broadband market grow. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel, cause product shipment delays or require PubliCARD to
develop non-infringing technology or enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to PubliCARD or at all. In the event of a successful claim of product
infringement against PubliCARD and failure or inability of PubliCARD to develop
non-infringing technology or license the infringed or similar technology,
PubliCARD's business, financial condition and results of operations could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - - Factors That May Affect Future
Results -- Our proprietary technology is difficult to protect and may infringe
on the intellectual proprietary rights of third parties."
DISCONTINUED OPERATIONS
In March 2000, the PubliCARD's Board of Directors of adopted a plan of
disposition, pursuant to which it will dispose of its non-core operations.
PubliCARD currently is in negotiations with a potential buyer of its Greenwald
Industries Inc. and Greenwald Intellicard Ltd. subsidiaries. Greenwald
Industries is a designer and manufacturer of coin meter systems used in the
commercial laundry appliance industry. Greenwald Intellicard provides smart
cards, smart card readers, value transfer stations, card management software and
machine interface boards for the commercial laundry appliance industry.
PubliCARD has engaged a broker to assist in the sale of its subsidiary Greystone
Peripherals, Inc., whose principal business is the design, manufacturer and
distribution of hard disk duplicators. Finally, as part of this plan, PubliCARD
is also exploring various disposition alternatives relative to Amazing! Smart
Card Technologies, Inc. its smart card manufacturing business. In March 1999,
the PubliCARD's Board of Directors also adopted a plan to dispose of its
engineering services subsidiary, Orr-Schelen-Mayeron & Associates. See
7
<PAGE> 9
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Discontinued Operations."
EMPLOYEES
As of March 2000, PubliCARD had approximately 250 employees, of which
125 are engaged in PubliCARD's continuing operations. Of the employees engaged
in continuing operations, 42 are involved with sales and marketing and 35 with
product development.
SEGMENT INFORMATION
As a result of the disposition plan (See Note 9) and because PubliCARD
predominantly operates in one industry, that being the deployment of solutions
for the broadband marketplace, the Company reports as a single segment. Sales by
geographical areas for the years ended December 31, 1999 and 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
United States $1,245 $3
Europe 614 --
Far East 37 --
Rest of world 34 --
------ --
$1,930 $3
====== ==
</TABLE>
The Company has operations in the United States and United Kingdom.
Identifiable assets by country as of December 31, 1999 and 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
United States $30,804 $28,950
United Kingdom 3,176 --
------- -------
$33,980 $28,950
======= =======
</TABLE>
8
<PAGE> 10
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT (SEE ITEM 10 HEREIN)
The following table sets forth information about the executive officers
of the Company as of March 24, 2000. The business address of each executive
officer is the address of the Company, 620 Fifth Avenue, New York, New York
10020.
<TABLE>
<CAPTION>
Name Age Office and Position
---- --- -------------------
<S> <C> <C>
Harry I. Freund 60 Director, Chairman of the Board and
Chairman
Jay S. Goldsmith 56 Director, Vice Chairman of the Board
and Vice Chairman
Jan-Erik Rottinghuis 52 President, Chief Executive Officer
and Director
M. Richard Phillimore 53 Executive Vice President -- Strategy
Antonio L. DeLise 38 Vice President, Chief Financial
Officer and Secretary
</TABLE>
There is no family relationship between any of the executive officers
of the Company. Each officer is elected to serve for a term ending with the next
annual meeting of shareholders.
Mr. Freund has been a Director of the Company since April 12, 1985,
Chairman of the Board of Directors since December 1985 and Chairman since
October 1998. Since 1975, Mr. Freund has been Chairman of Balfour Investors
Inc., a merchant banking firm that had previously been engaged in a general
brokerage business.
Mr. Goldsmith has been a Director of the Company since April 12, 1985,
Vice Chairman of the Board of Directors since December 1985 and Vice Chairman
since October 1998. Since 1975, Mr. Goldsmith has been President of Balfour.
Mr. Rottinghuis was appointed President and Chief Executive Officer of
PubliCARD effective in early 2000. Prior to joining PubliCARD, since 1993, Mr.
Rottinghuis had been employed by VeriFone, Inc., a subsidiary and part of the
Internet Business Unit of Hewlett Packard Company, most recently as Vice
President, Worldwide Sales. Prior to joining VeriFone, he was responsible for
sales, marketing and business development with Polaroid Europe, acting as
General Manager of Polaroid France and as Director of European Sales and
Marketing. Prior to that, Mr. Rottinghuis held various positions in
international marketing and business development for Wang Laboratories in Boston
and France, and provided strategic management consultancy to the diverse
clientele of Bain & Company, also in Boston.
Mr. Phillimore was appointed Executive Vice President in January 1999.
He was formerly Senior Vice President/Chip Business Development with MasterCard
International from February 1997 until December 1998, where he led the
department responsible for MasterCard's global chip strategy. From October 1989
until January 1997, Mr. Phillimore was Senior Manager Chip Business Development
at Europay International where he was responsible, inter alia, for development
of chip and e-cash strategy for the European market.
Mr. DeLise, a Certified Public Accountant, joined the Company in April
1995 as Vice President, Chief Financial Officer and Secretary. Prior to joining
the Company, Mr. DeLise was employed as a Senior Manager with the firm of Arthur
Andersen LLP and had been with such firm from July 1983 through March 1995.
9
<PAGE> 11
ITEM 2. PROPERTIES
FACILITIES
The Company leases the following facilities used in connection with its
continuing business operations:
<TABLE>
<CAPTION>
SQUARE
PREMISES PURPOSE LEASED/OWNED EXPIRATION FOOTAGE
<S> <C> <C> <C> <C>
Tarpon Springs, FL Office space for Tritheim Leased 2001 10,000
Tarpon Springs, FL Office space for Tritheim Leased month-to-month 1,000
Bangor, Northern Office and manufacturing for Absec Leased 2008 12,000
Ireland
New York, NY Executive offices for PubliCARD Leased 2004 4,500
Fairfield, CT Office space for PubliCARD Leased 2002 1,000
</TABLE>
The Company is seeking to sublease 3,000 square feet of office space in
Fairfield, CT.
The Company owns or leases the following facilities used in connection
with its discontinued operations:
<TABLE>
<CAPTION>
PREMISES PURPOSE LEASED/OWNED EXPIRATION FOOTAGE
<S> <C> <C> <C> <C>
Tarpon Springs, FL Office space for Tritheim Leased 2001 10,000
Chester, CT Manufacturing and office space for Owned N/A 119,000 (27
Greenwald Industries, Greenwald acres of land)
Intellicard and Amazing
Boynton Beach, FL Engineering and sales for Green- Leased 2000 5,000
wald Intellicard
London, England Sales office for Amazing Leased month-to-month 1,000
Los Gatos, CA Manufacturing and office space for
Greystone Leased 2001 11,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings are pending against the Company. The Company
considers all such proceedings to be ordinary litigation incident to the
character of its businesses. Certain claims are covered by liability insurance.
The Company believes that the resolution of those claims to the extent not
covered by insurance will not, individually or in the aggregate, have a material
adverse effect on the financial position or results of operations of the
Company.
10
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 13, 1999, an annual meeting of shareholders of the Company was
held at which directors were elected to serve until their successors shall have
been elected and shall have qualified. Two stock option plans were approved by
the shareholders and the appointment of the Company's outside auditors for the
year ending December 31, 1999 was also ratified. The voting results were as
follows:
<TABLE>
<CAPTION>
For Against Abstain Not Voted
--- ------- ------- ---------
<S> <C> <C> <C> <C>
Election of directors
Harry I. Freund 16,644,465 -- 15,874 --
Jay S. Goldsmith 16,644,465 -- 15,874 --
Clifford B. Cohn 16,058,505 -- 601,834 --
David L. Herman 16,373,182 -- 287,157 --
Jan-Erik Rottinghuis 16,643,665 -- 16,674 --
L.G. Schafran 16,058,838 -- 601,501 --
Hatim A. Tyabji 16,638,998 -- 21,341 --
1999 Long Term Incentive Plan 11,876,458 708,304 24,157 4,057,420
1999 Stock Option Plan for Non-employee Directors 12,129,594 455,042 18,283 4,057,420
Ratification of auditors 16,631,092 19,196 10,051 --
</TABLE>
11
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) PubliCARD's common stock has been traded on the Nasdaq National Market under
the symbol "CARD" since December 22, 1998. The following table sets forth the
high and low closing sale prices of PubliCARD's common stock, as reported by the
Nasdaq National Market, for the calendar period indicated (in dollars):
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter 14 9 1/4
Second Quarter 15 1/2 8 7/8
Third Quarter 9 11/16 6 1/4
Fourth Quarter 9 5 11/16
1998
Fourth Quarter 14 1/4 8 1/4
</TABLE>
From August 1, 1996 to December 21, 1998, PubliCARD's common stock was
quoted on the Over-the-Counter Bulletin Board. The following table sets forth
the high and low bid quotations for PubliCARD's common stock, as quoted in the
Over-the-Counter Bulletin Board, for the calendar periods indicated (in
dollars):
<TABLE>
<S> <C> <C>
1998 (1)
First Quarter 1 1/2 1 1/4
Second Quarter 1 3/4 1 1/2
Third Quarter 3 3/8 1 5/8
Fourth Quarter 8 1/4 3 3/8
</TABLE>
(1) Such Over-the-Counter market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual
transactions.
(b) There were approximately 2,500 registered holders of record of common
stock of the Company as of February 29, 2000.
(c) The Company did not pay dividends on its common stock during the prior
five fiscal years and does not anticipate paying dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES.
On October 6, 1999, the Company completed the offer and sale of
3,269,500 shares of its common stock, at a price of $5.91 per share in cash, for
aggregate cash consideration of $19.2 million (the "Private Placement"). Of the
shares issued and sold in the Private Placement, 2,300,000 shares of common
stock were sold for aggregate consideration of approximately $13.5 million to
non-U.S. persons in offshore transactions pursuant to Regulation S under the
Securities Act. Such non-U.S. persons made certain representations to the
Company regarding their status and actions necessary to comply with Regulation
S.
12
<PAGE> 14
The remaining 969,500 shares of common stock were issued and sold in the Private
Placement for aggregate consideration of approximately $5.7 million pursuant to
Regulation D under the Securities Act. The proceeds of the private placement
will be used to finance the development and marketing of the Company's products.
The Company registered the shares issued and sold pursuant to the Private
Placement under the Securities Act through a registration statement on Form S-3,
which became effective October 5, 1999.
On October 14, 1999, the Company issued 18,000 shares of common stock
to the Publicker Industries Inc. Retirement Income Plan in respect of a $144,000
required contribution to that Plan pursuant to Regulation D under the Securities
Act. The Company registered the shares issued to such Plan for resale under the
Securities Act through a registration statement on Form S-3, which became
effective on November 10, 1999.
On November 16, 1999, the Company issued 388,209 shares of common stock
to the shareholders of Absec in connection with the acquisition of Absec by the
Company. In addition, the Company issued options to purchase 300,000 shares of
its common stock to certain employees of Absec. These options have an exercise
price of $6.19 per share and will be exercisable from November 17, 2002 through
November 17, 2004.
On December 6, 1999, the Company issued 200,000 shares of common stock
to Jan-Erik Rottinghuis, its President and Chief Executive Officer, pursuant to
the Employment Agreement, dated as of November 2, 1999, between the Company and
Jan-Erik Rottinghuis. These shares were issued pursuant to Regulation D under
the Securities Act.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company presented below for the five
year period ended December 31, 1999 have been derived from the consolidated
financial statements of the Company, which have been audited by Arthur Andersen
LLP. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Annual Report. The selected financial data
for years prior to 1999 have been restated to reflect certain businesses as
discontinued operations. See Note 9 to the Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales $ 1,930 $ 3 $ -- $ -- $ --
Cost of sales 978 7 -- -- --
-------- ------- ------- -------- -------
Gross margin 952 (4) -- -- --
-------- ------- ------- -------- -------
Operating expenses:
General and administrative 5,713 3,694 3,570 4,866 3,885
Sales and marketing 2,862 21 -- -- --
Product development 1,318 53 -- -- --
In-process research and
development -- 2,800 -- -- --
Stock compensation expense 2,759 145 -- -- --
Goodwill amortization 1,749 128 -- -- --
Severance and other special
charges 1,895 -- 768 -- --
-------- ------- ------- -------- -------
16,296 6,841 4,338 4,866 3,885
-------- ------- ------- -------- -------
Loss from operations (15,344) (6,845) (4,338) (4,866) (3,885)
Other income (expenses):
Interest income 561 528 667 476 138
Interest expense (158) (191) (234) (594) (1,835)
Cost of retirement benefits -
non-operating (1,028) (846) (768) (769) (744)
Other (expense) income (751) (1,023) 31 9 (290)
-------- ------- ------- -------- -------
(1,376) (1,532) (304) (878) (2,731)
Loss from continuing operations
before taxes (16,720) (8,377) (4,642) (5,744) (6,616)
Income tax benefit -- -- -- 2,412 --
-------- ------- ------- -------- -------
Loss from continuing
operations (16,720) (8,377) (4,642) (3,332) (6,616)
Discontinued operations:
Income (loss) from
discontinued operations (13,999) 2,302 2,954 1,544 6,325
Gain (loss) on disposition of
discontinued operations (5,000) -- 609 12,783 --
-------- ------- ------- -------- -------
Net loss $(35,719) $(6,075) $(1,079) $ 10,995 $ (291)
======== ======= ======= ======== =======
Per common share:
Continuing operations $ (.88) $ (.61) $ (.33) $ (.22) $ (.36)
Discontinued operations: (1.00) .17 .25 .94 .34
-------- ------- ------- -------- -------
$ (1.88) $ (.44) $ (.08) $ .72 $ (.02)
======== ======= ======= ======== =======
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $23,889 $23,420 $18,219 $22,071 $ 6,503
Total assets 45,488 36,875 23,130 27,544 29,414
Total debt -- -- -- -- 7,435
Other non-current liabilities 6,674 7,689 9,043 10,057 11,134
Shareholders' equity 30,399 21,917 10,873 13,996 (2,594)
</TABLE>
No dividends on common shares have been declared or paid during the last five
years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Form 10-K contain forward-looking
statements, including (without limitation) statements concerning possible or
assumed future results of operations of PubliCARD preceded by, followed by or
that include the words "believes," "expects," "anticipates," "estimates,"
"intends," "plans" or similar expressions. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
U.S. Private Securities Litigation Reform Act of 1995. Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. You should understand that such statements made
under "Factors That May Affect Future Results" and elsewhere in this document
could affect our future results and could cause those results to differ
materially from those expressed in such forward-looking statements.
OVERVIEW
PubliCARD entered the smart card industry in early 1998, and began to
develop solutions for the conditional access, security, payment system and data
storage needs of industries utilizing smart card technology. PubliCARD made a
series of acquisitions to enhance its position in the smart card industry:
- In February 1998, PubliCARD acquired, through a joint venture
arrangement in Greenwald Intellicard, Inc., the assets and
intellectual property of Intellicard Systems, Ltd. Greenwald
Intellicard provides smart cards, smart card readers, value
transfer stations, card management software and machine
interface boards for the commercial laundry appliance
industry. PubliCARD initially owned 50% of Greenwald
Intellicard, and acquired the remaining 50% in February 1999
and February 2000.
- In November 1998, PubliCARD acquired Tritheim Technologies,
Inc., which develops conditional access and security products
for the software industry, computers and the electronic
information and digital video broadcast, also known as DVB,
industry.
- In February 1999, PubliCARD acquired Amazing! Smart Card
Technologies, Inc., a developer of consumer smart card
solutions and a manufacturer of customized smart cards.
- In February 1999, PubliCARD acquired Greystone Peripherals,
Inc., a developer of hard disk duplicators.
15
<PAGE> 17
- In November 1999, PubliCARD acquired Absec Limited, a designer
of closed environment solutions, including small value
electronic cash systems and database management solutions.
Through Absec, PubliCARD provides systems for closed
populations to allow individual user access, unique rights and
monitoring.
While PubliCARD developed a number of successful smart card products
and solutions, its operations were fragmented throughout a variety of markets.
PubliCARD's Board of Directors, together with its management team, determined to
integrate its operations and focus on a single market in which:
- high growth potential exists;
- PubliCARD has established relationships;
- PubliCARD has already deployed products and gained
credibility; and
- PubliCARD possesses core technologies and competencies.
PubliCARD determined that it could leverage its existing technology for
deployment in the rapidly growing broadband market, which it had already
penetrated and which PubliCARD believes exhibits each of the characteristics
identified above. PubliCARD currently is positioning itself to be a leading
provider of end-to-end solutions to enable access and secure content and
transactions for the broadband market. PubliCARD's broadband initiative is
driven by its proprietary technology and proven engineering and design talent.
PubliCARD's proprietary technologies facilitate content protection and
transaction security.
To effect this new business strategy, in March 2000, the Board of
Directors of PubliCARD adopted a plan of disposition pursuant to which PubliCARD
will divest its non-core operations. PubliCARD currently is in negotiations with
a potential buyer of its Greenwald Industries, Inc. and Greenwald Intellicard
subsidiaries. Greenwald Industries is a designer and manufacturer of coin meter
systems used in the commercial laundry appliance industry. If these negotiations
do not result in a definitive agreement, PubliCARD intends to seek an
alternative buyer of the laundry solutions business. PubliCARD has engaged a
broker to assist in the sale of its subsidiary Greystone Peripherals, Inc.
Finally, as part of this plan, PubliCARD is also exploring various disposition
alternatives relative to Amazing! Smart Card Technologies, Inc.
PubliCARD will pursue its new business strategy through the integration
of its remaining operations. As a result of this integration, PubliCARD's
product range includes application specific integrated circuits, also known as
ASICs, for television set-top boxes, secure electronic commerce, Internet
security and software copy protection. PubliCARD's ASICs incorporate multiple
chip set functionality into a single integrated circuit board. In addition,
PubliCARD is developing point-of-deployment applications, also known as PODs,
which scramble and unscramble data entering and exiting set-top boxes.
In addition, PubliCARD will continue to design closed environment
solutions, including small value electronic cash systems and database management
solutions. PubliCARD provides systems for closed populations to allow individual
user access, unique rights and monitoring.
Presentation
The results of operations for the three years ended December 31, 1999
have been restated to reflect Greenwald, Greenwald Intellicard, Amazing and
Greystone as discontinued operations. In addition, the results of operations for
Tritheim and Absec have been reflected in the financial statements from their
respective acquisition dates.
Sales
Revenues are generated from infrastructure product sales, licenses of
software products, maintenance contracts and software development services.
Revenue from product sales is recorded upon shipment of
16
<PAGE> 18
the product. Provisions are recorded for estimated warranty repairs, returns and
bad debts at the time the product is shipped. Software license fees are
recognized upon shipment if a signed contract exists, the fee is fixed and
determinable and the collection of the resulting receivable is probable. Revenue
from maintenance and support fees are recognized ratably over the contract
period.
Cost of sales and operating expenses
Cost of sales consists primarily of third-party contract manufacturing
costs, material, personnel costs and overhead.
Sales and marketing expenses consist primarily of personnel and travel
costs, public relations, trade shows and marketing materials. Sales and
marketing expenses are expected to increase significantly over the next year due
to increased headcount and geographic expansion.
Product development expenses consist primarily of personnel and travel
costs, independent consultants and contract engineering services. The Company
believes that a significant level of development expenditures are required in
order to enable it to quickly introduce new solutions that incorporate the
latest technological advances and to develop and maintain close relationships
with key suppliers of components and technologies. The Company's future success
will depend upon its ability to develop and to introduce new solutions on a
timely basis that keep pace with technological developments and emerging
industry standards and address the increasingly sophisticated needs of its
customers.
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance and accounting,
human resources, risk management and legal. Expenses are expected to increase
due to additional hires.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
SALES. Consolidated sales increased to $1.9 million in 1999 compared to
$3,000 for 1998. Sales principally related to the initial shipments of ASICs to
Motorola's General Instruments and closed environment infrastructure solution
sales.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $2.9
million in 1999 compared to $21,000 in 1998. The increase was due to the
Tritheim acquisition in late 1998 and additional headcount added throughout
1999. At year end 1999, the Company had approximately 35 sales and marketing
personnel versus two at year end 1998.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses include
expenses associated with the development of new products and enhancements to
existing products. Product development expenses amounted to $1.3 million in 1999
compared to $53,000 in 1998. Expenses increased in 1999 primarily due to the
Tritheim acquisition in late 1998 and ongoing ASIC, reader and software solution
development efforts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the year ended December 31, 1999 increased by approximately 55% to
$5.7 million from $3.7 million for 1998. The increase was due to higher
corporate expenditures, primarily legal, consulting and professional fees, and
$829,000 of expenses, mainly salaries and benefits, associated with the
businesses acquired in late 1998 and 1999.
STOCK COMPENSATION EXPENSE. Stock-based compensation recorded in 1999
principally relates to stock awards and below market stock option grants to two
executives hired in 1999. A total of 250,000 shares of common stock and options
to purchase 1,000,000 shares of common stock were awarded to these executives.
17
<PAGE> 19
GOODWILL AMORTIZATION. Goodwill and other intangibles associated with
the Tritheim and Absec acquisitions are being amortized over a five year period.
Amortization amounted to $1.7 million and $128,000 in 1999 and 1998,
respectively.
SEVERANCE AND OTHER SPECIAL CHARGES. Severance and other special
charges in 1999 is principally composed of a $1.7 million charge associated with
the termination of the Company's former president and chief executive officer.
Of this amount $1.0 million related to the non-cash impact of a stock award and
a change in the stock option terms.
OTHER INCOME AND EXPENSE. Interest income increased slightly to
$561,000 for 1999 from $528,000 for 1998. Interest expense principally relates
to interest on the remaining environmental obligation (see below) and decreased
to $158,000 in 1999 compared to $191,000 in 1998. Other expense in 1999 includes
$357,000 associated with a stock sale price guarantee. Other expense in 1998
includes a $954,000 charge associated with the termination of a letter of intent
to purchase five businesses.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
GENERAL AND ADMINISTRATIVE EXPENSES. During 1997 and the majority of
1998, operating expenses consisted solely of corporate general and
administrative expenses. General and administrative expenses were approximately
$3.7 million in 1998 and $3.6 million in 1997.
IN-PROCESS RESEARCH AND DEVELOPMENT. Upon consummation of the Tritheim
acquisition in November 1998, the Company immediately expensed $2.8 million
representing purchased in-process research and development projects that had not
yet reached technological feasibility and had no alternative future use.
Tritheim had several projects in progress at the time of the acquisition
including (i) a smart card-enabled software product that enables a personal
computer to encrypt and decrypt computer files and e-mail and secures personal
computer access and (ii) development of ASICs which incorporates multiple chip
set functionality into a single integrated circuit board. Estimated costs to
complete these projects aggregated approximately $450,000 at the acquisition
date. The in-process projects were completed at various dates in 1999.
The value assigned to in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the percentage of completion of each
project, estimating the resulting net cash flows from such projects and
discounting the net cash flows back to their present values. The discount rate
includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. The following
assumptions were used, among others, to estimate discounted net cash flows:
- The projected revenues were based on management's estimates of
total market size, penetration rate and life expectancy for
each particular product. The estimated revenues projected
average compounded annual growth rates of 40% to 82% during
1999-2003, depending on the product area, with the single
largest product having projected sales in 2003 of
approximately $11.0 million. Estimated total revenue from the
purchased in-process products was expected to peak in year
2003 and decline rapidly in 2004-2006 as other new products
were expected to enter the market.
- The projected cost of sales, sales and marketing expenses,
general and administrative expenses and income taxes were
estimated by management based on expected and historical
operating characteristics. Products, which were more software
oriented, were projected to have a higher gross margin than
products containing a hardware element.
- A risk-adjusted discount rate was used to discount the net
cash flows back to their present value. Giving primary
consideration to rates of return required for venture capital
investments, an overall 30% after-tax discount rate was
selected as the basis for discounting net cash flows to arrive
at indications of value for determining the appropriate
discount rate to be used in the valuation of specific
projects. The discount rate for a specific project
incorporated the likelihood of success of
18
<PAGE> 20
each product based on the estimated percentage completed as of
the date of the acquisition. The discount rate used ranged
from 25% to 40%.
If these projects are not successfully developed, the revenue and
profitability of the Company may be adversely affected in future periods.
Management believes that the assumptions used in the valuation of the purchased
in-process research and development reasonably estimated the future benefits
attributable to the purchased in-process technology. However, no assurance can
be given that commercial or technological viability of these projects will be
achieved or that actual results will not deviate from those assumptions in
future periods.
STOCK COMPENSATION EXPENSE. Stock-based compensation relates to stock
awards and stock options granted to several consultants. The fair value of the
awards was $251,000 of which $145,000 was charged to expense in 1998.
GOODWILL AMORTIZATION. The 1998 expense relates to amortization of
goodwill and other intangibles associated with the Tritheim acquisition.
SEVERANCE AND OTHER SPECIAL CHARGES. Special charges in 1997 represents
a non-cash charge of $768,000 in connection with the extension and modification
of certain common stock purchase warrants.
OTHER INCOME AND EXPENSE. Interest income decreased to $528,000 for
1998 compared to $667,000 for 1997 due to lower amounts of cash investments.
Interest expense principally relates to interest on the remaining environmental
obligation and decreased to $191,000 in 1998 compared to $234,000 for 1997.
Other expense in 1998 includes a $954,000 charge associated with the termination
of a letter of intent to purchase five businesses.
LIQUIDITY
The Company has financed its operations over the last two years
primarily through the sale of common stock. During the year ended December 31,
1999, cash, including short-term investments, decreased by $246,000 to $18.2
million at December 31, 1999. Shareholders' equity as of December 31, 1999 was
$30.4 million.
Operating activities from continuing operations utilized cash of $8.5
million in 1999 and principally consisted of the loss from continuing operations
of $16.7 million coupled with the environmental payments to the United States
and Commonwealth of Pennsylvania offset by non-cash charges of $5.7 million for
goodwill amortization, stock compensation expense and depreciation. Operating
activities from discontinued operations utilized cash of $3.2 million.
Investing activities from continuing operations utilized cash of $4.2
million in 1999 and consisted principally of cash paid, including debt assumed
and immediately repaid, in connection with the acquisition of Absec. Investing
activities from discontinued operations utilized cash of $3.8 million in 1999
and consisted principally of capital expenditures of $1.5 million and cash paid
in connection with the acquisitions of Amazing, Greystone and Greenwald
Intellicard of $2.4 million.
Financing activities provided cash of $19.4 million in 1999 and
consisted of the net proceeds from the private placement of common stock of
$19.2 million and proceeds from the exercise of options to purchase common stock
of $815,000 offset by the repurchase of redeemable shares of $503,000.
During 1999, the Company's capital expenditures from continuing
operations totaled $480,000. The Company anticipates that its level of capital
expenditures for 2000 will be greater than 1999 due to the expected growth in
headcount and the expenditure requirements of Absec, which was acquired late in
1999. The Company has not entered into any material commitments for acquisitions
or capital expenditures and has the ability to increase or decrease capital
expenditure levels as required. The Company anticipates that it will be able to
fund its capital expenditures during 2000 with its available cash resources as
well as through capital equipment financing.
The Company has experienced negative cash flow from operating
activities in the past and expects to experience negative cash flow in 2000 and
2001. Future uses of cash include the following:
19
<PAGE> 21
- The Company expects to substantially increase expenditures to
support the expansion of sales and marketing efforts, new
product development, working capital growth and capital
expenditures. Also, there will be a need to fund new
initiatives in the broadband market before there is a
reasonable expectation to derive any significant revenues from
this market.
- In April 1996, a Consent Decree among the Company, the United
States Environmental Protection Agency and the Pennsylvania
Department of Environmental Protection ("PADEP") was entered
by the court which resolved all of the United States' and
PADEP's claims against the Company for recovery of costs
incurred in responding to releases of hazardous substances at
a facility previously owned and operated by the Company.
Pursuant to the Consent Decree, the Company will pay a total
of $14.4 million plus interest to the United States and
Commonwealth of Pennsylvania. Through December 31, 1999, the
Company has made principal payments aggregating $11.8 million.
Further payments totaling $2.8 million, including interest,
will be made to the United States and Commonwealth of
Pennsylvania in the amounts of $1.1 million due April 2000,
$862,000 due April 2001 and $823,000 due April 2002.
- The Company sponsors a defined benefit pension plan, which was
frozen in 1993. As of December 31, 1999, the actuarial present
value of accrued liabilities exceeded the plan assets by
approximately $5.5 million. The annual contribution to the
plan is expected to be approximately $1 million in 2000 and
beyond.
The Company believes that its current cash balance together with the
expected proceeds from the disposition of several businesses will satisfy
working capital, product development, sales and marketing expansion and capital
expenditures for at least the next 12 months. Although the Company has generated
funds to meet its cash requirements in the past and expects to be able to
generate funds to meet its obligations and other needs enumerated above, there
can be no assurance that such funds will be available when required. In
addition, there can be no assurance that the businesses currently held for sale
will generate significant proceeds.
At December 31, 1999, approximately $88 million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
2000 through 2019, were available to offset future taxable income. Due to the
"change of ownership" provisions of the Internal Revenue Code of 1986, the
availability of net operating loss carryforwards to offset federal taxable
income in future periods could be subject to an annual limitation if a change in
ownership for income tax purposes occur.
FACTORS THAT MAY AFFECT FUTURE RESULTS
WE HAVE A HISTORY OF OPERATING LOSSES AND NEGATIVE CASH FLOW, AND WE
HAVE ONGOING FUNDING OBLIGATIONS. We have incurred losses and experienced
negative cash flow from operating activities in the past, and we expect to incur
losses and experience negative cash flow from operating activities in the
foreseeable future. We incurred losses from continuing operations in 1997, 1998
and 1999 of approximately $4.6 million, $8.4 million and $16.7, respectively. In
addition, we experienced negative cash flow from continuing operating activities
of $5.0 million, $5.6 million and $8.5 in 1997, 1998 and 1999, respectively. We
also incurred a loss of $19.0 million from discontinued operations in 1999 and
will incur additional losses from discontinued operations if we realize less
from the disposition of those assets than we have estimated or if we are
unable to dispose of all of our discontinued operations by the end of the third
quarter of 2000, as we currently anticipate.
We expect that our businesses will require on-going funding to support
the expansion of sales and marketing efforts, new product development, working
capital growth and capital expenditures. Also, we will need to fund our new
initiatives in the broadband market before we can reasonably expect to derive
any significant revenues from this market.
We also have continuing obligations to fund payments due under an
environmental consent decree and an underfunded pension plan. As of December 31,
1999, we were required to make future aggregate payments of $2.8 million through
April 2002 in connection with the environmental consent decree to which we are
subject. Consistent with the general practices of environmental enforcement
agencies, the consent
20
<PAGE> 22
decree does not eliminate our potential liability for remediation of
contamination that had not been known at the time of the settlement. We sponsor
a defined benefit pension plan, which was frozen in 1993. As of December 31,
1999, the present value of the accrued benefit liabilities of our pension plan
exceeded the plan's assets by approximately $5.5 million. In addition to the
$1.0 million we were required to contribute to the plan for 1999, we are
obligated to make continued contributions to the plan in accordance with the
rules and regulations prescribed by the Employee Retirement Income Security Act
of 1974. Future contribution levels depend in large measure on the mortality
rate of plan participants and the investment return on the plan assets. For a
discussion of these obligations and our results of operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements.
OUR FUTURE PROFITABILITY DEPENDS LARGELY UPON PRODUCTS AND FUTURE
PRODUCTS THAT HAVE NOT YET PRODUCED ANY REVENUES OR ARE NOT YET COMMERCIALLY
VIABLE. We believe that certain of our products are viable, but have not yet
generated any material sales. Our future revenues and earnings depend in large
part on the success of these products. Our business is also based on products
not yet developed. There are no assurances that these products will be developed
into working products or that a market will develop for these products in the
future.
WE HAVE LIMITED EXPERIENCE IN THE BROADBAND MARKET. We have only
recently begun to penetrate the broadband market. We are therefore subject to
the risks inherent in establishing a new business enterprise.
Our business model is new and unproven and may not generate sufficient
revenue for us to be successful. The volume of products and services distributed
using our technology may be too small to support or grow our business.
THE MARKET'S ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN. Demand for, and
market acceptance of, our products is subject to a high level of uncertainty due
to rapidly changing technology, new product introductions and changes in
customer requirements and preferences. The success of our products or any future
products also depends upon our ability to enhance our existing products and to
develop and introduce new products and technologies to meet customer
requirements. We face the risk that our current and future products will not
achieve market acceptance.
Interactive television is a new and emerging business, and we cannot
guarantee that it will attract widespread demand or market acceptance. Our
success in this area depends upon, among other things, broad acceptance of the
concept of interactive television by industry participants, including broadcast
and pay-television networks and system operators and manufacturers of
televisions and set-top boxes, including their ability to successfully market
interactive television to television viewers and advertisers. There have been
several well-financed, high-profile attempts in the U.S. to develop and deploy
systems in the broad category of interactive television. None of these attempts
has resulted in large scale deployment, and many key industry participants have
avoided participating in interactive television for a variety of reasons,
including:
- inconsistent quality of service;
- need for new and expensive hardware in homes;
- inadequate transmission facilities and broadcast centers;
- complicated and expensive processes for creating interactive
content; and
- inability to align the conflicting interests of various
participants.
Accordingly, such participants may perceive interactive television
negatively and be reluctant to participate.
In addition, other participants in the television industry must accept
and support interactive television for it to be successful. For instance,
broadcasters will need to add interactive features to their programming and
commercial vendors will need to embrace e-commerce over interactive television.
We cannot assure you that these parties will provide such support.
21
<PAGE> 23
WE DEPEND ON A RELATIVELY SMALL NUMBER OF CUSTOMERS FOR A MAJORITY OF
OUR REVENUES. We rely on a limited number of customers in our business. The
ASICs we provide to Motorola's General Instruments for inclusion in their
set-top boxes accounted for 56% of our revenue in 1999 and 28% of our receivable
balance as of December 31, 1999. We expect to continue to depend upon a
relatively small number of customers for a majority of the revenues in our
business.
We generally do not enter into long-term supply commitments with our
customers. Instead, we bid on a project basis and have supply contracts in place
for each project. Significant reductions in sales to any of our largest
customers would have a material adverse effect on our business. In addition, we
generate significant accounts receivable and inventory balances in connection
with providing products to our customers. A customer's inability to pay for our
products could have a material adverse effect on our results of operations.
WE DEPEND ON THIRD PARTY MANUFACTURERS WHO ARE OUTSIDE OF OUR CONTROL.
We outsource manufacturing needs of a significant portion of our products to
third party contract manufacturers. Outsourcing of manufacturing involves risks
with respect to quality assurance, cost and the absence of engineering support.
In addition, financial, operational or supply problems encountered by the third
party manufacturers we use or may use in the future, their subcontractors or
their suppliers could result in our inability to obtain timely delivery, if at
all, of finished products. Any such difficulties would adversely affect our
financial results.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO KEEP PACE WITH
TECHNOLOGICAL CHANGES AND INTRODUCE NEW PRODUCTS IN A TIMELY MANNER. The rate of
technological change currently affecting the television industry is particularly
rapid compared to other industries. The migration of television from analog to
digital transmission, the convergence of television, the Internet,
communications and other media and other emerging trends are creating a dynamic
and unpredictable environment in which to operate. Our ability to anticipate
these trends and adapt to new technologies is critical to our success. Because
new product development commitments must be made well in advance of actual
sales, new product decisions must anticipate future demand as well as the speed
and direction of technological change. Our ability to remain competitive will
depend upon our ability to develop in a timely and cost effective manner new and
enhanced products at competitive prices. New product introductions or
enhancements by our competitors could cause a decline in sales or loss of market
acceptance of our existing products and lower profit margins.
Our success in developing, introducing and selling new and enhanced
products depends upon a variety of factors, including:
- product selections;
- timely and efficient completion of product design and
development;
- timely and efficient implementation of manufacturing
processes;
- effective sales, service and marketing;
- price; and
- product performance in the field.
Our ability to develop new products also depends upon the success of
our research and development efforts. Our research and development expenditures
for the year ended December 31, 1999 were $1.3 million and we plan to increase
this substantially in the near term. We cannot assure you that these
expenditures will lead to the development of viable products. We may need to
devote substantially more resources to our research and development efforts in
the future.
The market for digital rights management solutions is fragmented and
marked by rapid technological change, frequent new product introductions and
enhancements, uncertain product life cycles and changes in customer demands. To
succeed, we must develop and introduce, in response to customer and market
demands, software that offers features and functionality that are not currently
available in the market. Any delays in our ability to develop and release
products will seriously harm our business and operating
22
<PAGE> 24
results. In the past, we have experienced delays in new product releases, and we
may experience similar delays in the future.
THE HIGHLY COMPETITIVE MARKETS IN WHICH WE OPERATE COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND OPERATING RESULTS. The markets in
which we operate are intensely competitive and characterized by rapidly changing
technology. We compete against numerous companies, many of which have greater
resources than we do, and we believe that competition is likely to intensify.
We believe that the principal competitive factors affecting the
broadband market are:
- the extent to which products support industry standards and
are capable of being operated or integrated with other
products;
- technical features and level of security;
- strength of distribution channels;
- price;
- product reputation, reliability, quality, performance and
customer support;
- product features such as adaptability, functionality and ease
of use; and
- competitor reputation, positioning and resources.
We cannot assure you that competitive pressures will not have a
material adverse effect on our business and operating results. Many of our
current and potential competitors have longer operating histories in the
broadband industry and significantly greater financial, technical, sales,
customer support, marketing and other resources, as well as greater name
recognition and a larger installed base of their products and technologies than
our company. Additionally, there can be no assurance that new competitors will
not enter the broadband market. Increased competition would likely result in
price reductions, reduced margins and loss of market share, any of which would
have a material adverse effect on our business and operating results.
The market for broadband solutions is new, intensely competitive and
rapidly evolving. We expect competition to continue to increase both our
existing competitors and new market entrants. Our primary competition currently
comes from or is anticipated to come from:
- companies offering payment solutions, including Trintech and
VeriFone;
- companies offering chip technology infrastructures, including
Gemplus, Philips and SCM Microsystems;
- companies offering closed environment solutions, including
small value electronic cash systems and database management
solutions, such as CyberMark and Danyl Schlumberger; and
- companies that offer digital rights management solutions, such
as InterTrust, Wave, Preview Systems, Aladdin, IBM and
Microsoft.
Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical, sales, customer
support, marketing and other resources, as well as greater name recognition and
a larger installed base of their products and technologies than we do. Many of
these companies have broader customer relationships that could be leveraged,
including relationships with many of our customers. These companies also have
more established customer support and professional services organizations than
we do. In addition, a number of companies with significantly greater resources
than we have could attempt to increase their presence in the broadband market by
acquiring or forming strategic alliances with our competitors, resulting in
increased competition.
23
<PAGE> 25
OUR LONG PRODUCT SALES CYCLES SUBJECT US TO RISK. Our products fall
into two categories, those that are standardized and ready to install and use
and those that require significant development efforts to implement within the
purchasers' own systems. Those products requiring significant development
efforts tend to be newly developed technologies and software applications that
can represent major investments for customers. We rely on potential customers'
internal review processes and systems requirements. The implementation of some
of our products involves deliveries of small quantities for pilot programs and
significant testing by the customers before firm orders are received for
production volumes, or lengthy beta testing of software solutions. For these
more complex products, the sales process may take one year or longer, during
which time we may expend significant financial, technical and management
resources, without any certainty of a sale.
WE MAY BE LIMITED IN OUR USE OF OUR FEDERAL NET OPERATING LOSS
CARRYFORWARDS. As of December 31, 1999, we had federal net operating loss
carryforwards, subject to review by the Internal Revenue Service, totaling
approximately $88 million for federal income tax purposes, approximately $12.0
million of which will expire at the end of 2000, $9.0 million of which will
expire at the end of 2001 and $25.0 million of which will expire at the end of
2002. We do not expect to earn any significant taxable income prior to 2002, and
may not do so until later. A federal net operating loss can generally be carried
back two or three years and then forward fifteen or twenty years (depending on
the year in which the loss was incurred), and used to offset taxable income
earned by a company (and thus reduce its income tax liability).
Section 382 of the Internal Revenue Code provides that when a company
undergoes an "ownership change," the corporation's use of its net operating
losses is limited in each subsequent year. An "ownership change" occurs when, as
of any testing date, the sum of the increases in ownership of each shareholder
that owns five percent or more of the value of a company's stock as compared to
that shareholder's lowest percentage ownership during the preceding three-year
period exceeds fifty percentage points. For purposes of this rule, certain
shareholders who own less than five percent of a company's stock are aggregated
and treated as a single five-percent shareholder. We intend to issue a
substantial number of shares of our common stock in connection with public and
private offerings. In addition, the exercise of outstanding warrants and certain
options to purchase shares of our common stock may require us to issue
additional shares of our common stock. The issuance of a significant number of
shares of common stock could result in an "ownership change." If we were to
experience such an "ownership change," we estimate that we would not be able to
use a substantial amount of our available federal net operating loss
carryforwards to reduce our taxable income.
The extent of the actual future use of our federal net operating loss
carryforwards is subject to inherent uncertainty because it depends on the
amount of otherwise taxable income we may earn. We cannot give any assurance
that we will have sufficient taxable income in future years to use any of our
federal net operating loss carryforwards before they would otherwise expire.
OUR PROPRIETARY TECHNOLOGY IS DIFFICULT TO PROTECT AND MAY INFRINGE ON
THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. Our success depends
significantly upon our proprietary technology. We rely on a combination of
patent, copyright and trademark laws, trade secrets, confidentiality agreements
and contractual provisions to protect our proprietary rights. We seek to protect
our software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We currently have a number
of patent applications pending. We cannot assure you that any of our
applications will be approved, that any new patents will be issued, that we will
develop proprietary products or technologies that are patentable, that any
issued patent will provide us with any competitive advantages or will not be
challenged by third parties. Furthermore, we cannot assure you that the patents
of others will not have a material adverse effect on our business and operating
results.
If our technology or products are determined to infringe upon the
rights of others, and we were unable to obtain licenses to use the technology,
we could be required to cease using the technology and stop selling the
products. We may not be able to obtain a license in a timely manner on
acceptable terms or at all. Any of these events would have a material adverse
effect on our financial condition and results of operations.
Patent disputes are common in technology-related industries. We cannot
assure you that we will have the financial resources to enforce or defend a
patent infringement or proprietary rights action. As the number of products and
competitors in the broadband market grows, the likelihood of infringement claims
also increases. Any claim or litigation may be time-consuming and costly, cause
product shipment delays
24
<PAGE> 26
or require us to redesign our products or require us to enter into royalty or
licensing agreements. Any of these events would have a material adverse effect
on our business and operating results. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to use our proprietary information and software. In addition, the
laws of some foreign countries do not protect proprietary and intellectual
property rights to as great an extent as do the laws of the United States. Our
means of protecting our proprietary and intellectual property rights may not be
adequate. There is a risk that our competitors will independently develop
similar technology, duplicate our products or design around patents or other
intellectual property rights.
IF THIRD PARTIES DO NOT DEPLOY OUR TECHNOLOGY AND CREATE A MARKET FOR
DIGITAL COMMERCE, OUR BUSINESS WILL BE HARMED. Relationships with leading
content, technology and commerce service providers are critical to our success.
Our business and operating results would be harmed to the extent our strategic
partnerships fail, in whole or in part, to:
- deploy our technology;
- develop an infrastructure for the sale and delivery of digital
goods and services;
- generate transaction fees from the sale of digital content and
services; and
- develop and deploy new applications.
THE NATURE OF OUR PRODUCTS SUBJECTS US TO PRODUCT LIABILITY RISKS. Our
customers may rely on certain of our current products and products in
development to prevent unauthorized access to digital content, computer
networks, digital video broadcasting and real property. A malfunction of or
design defect in certain of our products could result in tort or warranty
claims. Although we attempt to reduce the risk of exposure from such claims
through warranty disclaimers and liability limitation clauses in our sales
agreements and by maintaining product liability insurance, we cannot assure you
that these measures will be effective in limiting our liability for any damages.
Any liability for damages resulting from security breaches could be substantial
and could have a material adverse effect on our business and operating results.
In addition, a well-publicized actual or perceived security breach involving our
conditional access or security products could adversely affect the market's
perception of our products in general, regardless of whether any breach is
attributable to our products. This could result in a decline in demand for our
products, which would have a material adverse effect on our business and
operating results.
WE MAY HAVE DIFFICULTY RETAINING OR RECRUITING PROFESSIONALS FOR OUR
BUSINESS. Our future success and performance is dependent on the continued
services and performance of our senior management and other key personnel. There
is a shortage of qualified marketing, technical and financial personnel in our
industry, and the competition for such personnel is intense. Accordingly, the
loss of the services of any of our executive officers or other key employees
could materially adversely affect our business.
Our business requires experienced software programmers, creative
designers and application developers, and our success depends on identifying,
hiring, training and retaining such experienced, knowledgeable professionals. If
a significant number of our current employees or any of our senior technical
personnel resign, or for other reasons are no longer employed by us, we may be
unable to complete or retain existing projects or bid for new projects of
similar scope and revenues. In addition, former employees may compete with us in
the future.
Even if we retain our current employees, our management must
continually recruit talented professionals in order for our business to grow.
There is currently a shortage of qualified senior technical personnel in the
software development field, and this shortage is likely to continue.
Furthermore, there is significant competition for employees with the skills
required to perform the services we offer. We cannot assure you that we will be
able to attract a sufficient number of qualified employees in the future to
sustain and grow our business, or that we will be successful in motivating and
retaining the employees we are able to attract. If we cannot attract, motivate
and retain qualified professionals, our business, financial condition and
results of operations will suffer.
IF STANDARDS FOR DIGITAL RIGHTS MANAGEMENT ARE NOT ADOPTED, CONFUSION
AMONG CONTENT PROVIDERS, DISTRIBUTORS AND CONSUMERS MAY DEPRESS THE LEVEL OF
DIGITAL COMMERCE, WHICH WOULD REDUCE OUR REVENUES. If standards for digital
rights management are not adopted or complied with, content providers may
25
<PAGE> 27
delay distributing content until they are confident that the technology by which
the content is to be distributed will be commercially accepted. Standards for
the distribution of various digital content might not develop or might be found
to violate antitrust laws or fair use of copyright policies. In addition, the
failure to develop a standard among device manufacturers may affect the market
for digital goods and services. As a result, consumers may delay purchasing
products and services that include our technology if they are uncertain of
commercial acceptance of the standards with which our technology complies.
Consequently, if a standard format for the secure delivery of content on the
Internet is not adopted, or if the standards are not compatible with our digital
rights management technology, our business and operating results would likely be
harmed.
OUR ARTICLES OF INCORPORATION AND BY-LAWS, CERTAIN CHANGE OF CONTROL
AGREEMENTS, OUR RIGHTS PLAN AND PROVISIONS OF PENNSYLVANIA LAW COULD DETER
TAKEOVER ATTEMPTS.
Blank check preferred stock. Our board of directors has the authority
to issue up to 136,566 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of these
shares without any further vote or action by the holders of our common stock.
The rights of the holders of any preferred stock that may be issued in the
future may adversely affect the rights of the holders of our common stock. The
issuance of preferred stock could make it more difficult for a third party to
acquire a majority of our outstanding voting stock, thereby delaying, deferring
or preventing a change of control. Such preferred stock may have other rights,
including economic rights, senior to our common stock, and as a result, the
issuance of the preferred stock could limit the price that investors might be
willing to pay in the future for shares of our common stock and could have a
material adverse effect on the market value of our common stock.
Rights plan. Our rights plan entitles the registered holders of rights
to purchase shares of our class A preferred stock upon the occurrence of certain
events, and may have the effect of delaying, deferring or preventing a change of
control.
Change of control agreements. We are a party to change of control
agreements which provide for payments to certain of our directors and executive
officers under certain circumstances following a change of control. Since the
change of control agreements require large cash payments to be made by any
person effecting a change of control, these agreements may discourage takeover
attempts.
The change of control agreements provide that, if the services of any
person party to a change of control agreement are terminated within three years
following a change of control, that individual will be entitled to receive, in a
lump sum within 10 days of the termination date, a payment equal to 2.99 times
that individual's average annual compensation for the shorter of the five years
preceding the change of control and the period the individual received
compensation from us for personal services. Assuming a change of control were to
occur at the present time, payments in the following amounts would be required:
Mr. Harry I. Freund -- $972,000; Mr. Jay S. Goldsmith -- $972,000; and Mr. David
L. Herman -- $104,000. If any such payment, either alone or together with others
made in connection with the individual's termination, is considered to be an
excess parachute payment under the Internal Revenue Code, the individual will be
entitled to receive an additional payment in an amount which, when added to the
initial payment, would result in a net benefit to the individual, after giving
effect to excise taxes imposed by Section 4999 of the Internal Revenue Code and
income taxes on such additional payment, equal to the initial payment before
such additional payment. We would not be able to deduct these payments for
income tax purposes.
Pennsylvania law. We are a Pennsylvania corporation. Anti-takeover
provisions of Pennsylvania law could make it difficult for a third party to
acquire control of us, even if such change of control would be beneficial to our
shareholders.
WE ARE SUBJECT TO GOVERNMENT REGULATION. The telecommunications, media,
broadcast and cable television industries are subject to extensive regulation by
governmental agencies. These governmental agencies continue to oversee and adopt
legislation and regulation over these industries, which may affect our business,
market participants with which we have relationships or the acceptance of
interactive television in general. In addition, future legislation or regulatory
requirements regarding privacy issues could be enacted to require notification
to users that captured data may be used by marketing entities to target product
promotion and advertising to that user. Any of these developments may materially
adversely affect our business.
26
<PAGE> 28
Federal, state and local regulations impose various environmental
controls on the discharge of chemicals and gases, which may be used in our
present or future assembly processes. Moreover, changes in such environmental
rules and regulations may require us to invest in capital equipment and
implement compliance programs in the future. Any failure by our company to
comply with environmental rules and regulations, including the discharge of
hazardous substances, would subject us to liabilities and would materially
adversely affect our operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk primarily through its short-term
investments. The Company's investment policy calls for investment in short-term,
low risk instruments. As of December 31, 1999, short-term investments
(principally U.S. Treasury bills) were $17.0 million. Due to the nature of these
investments, any decrease in rates would not have a material impact on the
Company's financial condition or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, the report of independent
public accountants thereon and related schedules appear beginning on page F-2.
See Index to Consolidated Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the 2000 Annual Meeting of Shareholders.
The information with respect to the executive officers of the Company
required by this item is set forth in Item 1A of this Form 10-K.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and officers and persons who
own more than 10 percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than 10% shareholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. To the Company's knowledge,
based solely upon the Company's review of the copies of such forms received by
it during the fiscal year ended December 31, 1999 and representations that no
other reports were required, the Company believes that each person who, at any
time during such fiscal year, was a director, officer or, to the Company's
knowledge, beneficial owner of more than 10% of the Company's common stock
complied with all Section 16(a) filing requirements during such fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the 2000 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the 2000 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is hereby incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to Regulation
14A for the 2000 Annual Meeting of Shareholders.
28
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits.
1) Financial Statements - See accompanying Index to Consolidated
Financial Statements, Page F-1.
2) Financial Statement Schedules - See accompanying Index to
Consolidated Financial Statements, Page F-1.
3) Exhibits:
3.1 Amended and Restated Articles of Incorporation, amended and
restated through November 2, 1998. Incorporated by reference
from the Registrant's Form 10-Q for the quarter ended
September 30, 1996, dated November 9, 1998.
3.2 By-Laws as amended through July 17, 1990. Incorporated by
reference from the Registrant's Form 10-K for the year ended
December 31, 1990, dated March 28, 1991.
3.3 Certificate of Designation, Preferences and Rights of Class A
Preferred Stock, First Series. Incorporated by reference from
the Registrant's Registration Statement on Form 8-A, dated
September 26, 1988.
4.1 Form of option to purchase common stock of the Registrant
issued in connection with the Stock Purchase Agreement dated
April 12, 1985, among the Registrant, Balfour Securities
Corporation and the Purchasers. Incorporated by reference from
the Registrant's Form 10-K for the year ended December 31,
1994, dated March 31, 1995.
4.2 Form of Warrant Agreement, dated 1986 between the Registrant
and J. Henry Schroder Bank & Trust Company, as Warrant Agent.
Incorporated by reference from the Registrant's Registration
Statement on Form S-1, dated October 8, 1986.
4.3 Form of Amendment No. 1 to Warrant Agreement, dated August 13,
1997, between the Registrant and Publicker Industries Inc.,
successor to J. Henry Schroder Bank & Trust Company, as
Warrant Agent. Incorporated by reference from the Registrant's
Form 8-K, filed on August 15, 1997.
4.4 Form of Warrant Agreement, dated 1986 between the Registrant
and Drexel Burnham Lambert Incorporated. Incorporated by
reference from the Registrant's Registration Statement on Form
S-1, dated October 8, 1986.
4.5 Form of Amendment No. 1 to Warrant Agreement, dated August 13,
1997, between the Registrant and Harry I. Freund and Jay S.
Goldsmith. Incorporated by reference from the Registrant's
Form 8-K, filed on August 15, 1997.
4.6 Amended and Restated Rights Agreement, dated as of August 7,
1998, between the Registrant and Continental Stock Transfer
and Trust Company, as Rights Agent. Incorporated by reference
from the Registrant's Form 8-K, filed on September 17, 1998.
10.1 Agreements dated as of August 1987 between the Registrant and
Harry I. Freund, Jay S. Goldsmith and David L. Herman
concerning a change in control of the Registrant. Incorporated
by reference from the Registrant's Form 8 Amendment to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1987, dated December 7, 1987, filed on
December 18, 1987.
10.4 Publicker Industries Inc. 1993 Long-Term Incentive Plan.
Incorporated by reference from the Registrant's Form 10-K for
the year ended December 31, 1993, dated March 29, 1994.
10.5 Publicker Industries Inc. Non-employee Director Stock Option
Plan. Incorporated by reference from the Registrant's Form
10-K for the year ended December 31, 1993, dated March 29,
1994.
10.6 Asset Purchase Agreement dated August 16, 1996 among
Masterview Window Company, Inc., Registrant, Hanten
Acquisition Co., as sellers, and Masterview
29
<PAGE> 31
Acquisition Corp., as buyer. Incorporated by reference from
the Registrant's Form 10-Q for the quarter ended September 30,
1996, dated November 14, 1996.
10.7 Agreement and Plan of Merger dated as of October 30, 1998
among Registrant, Publicker Smart Card Acquisition Co.,
Tritheim Technologies, Inc. and the Security Holders of
Tritheim Technologies, Inc. Incorporated by reference from the
Registrant's Form 8-K, filed on December 7, 1998.
10.9 Agreement and Plan of Merger dated as of February 11, 1999,
among Registrant, ASCT Acquisition Corp., Amazing! Controls,
Inc. and the Security Holders of Amazing! Controls, Inc.
Incorporated by reference from the Registrant's Form 8-K,
filed on February 26, 1999.
10.10 Agreement and Plan of Merger dated as of February 22, 1999,
among Registrant, GPI Acquisition, Inc. Greystone Peripherals,
Inc. and Security Holders of Greystone Peripherals, Inc.
Incorporated by reference from the Registrant's Form 8-K,
filed on March 8, 1999.
10.11 Termination, Severance and Release Agreement dated as of
December 3, 1999 between Registrant and James J. Weis. Filed
herewith.
10.12 Employment Agreement, dated as of November 3, 1999 between
Registrant and Jan-Erik Rottinghuis. Filed herewith.
10.13 PubliCARD, Inc. 1999 Long-Term Incentive Plan. Filed herewith.
10.14 PubliCARD, Inc. 1999 Stock Option Plan for Non-Employee
Directors. Filed herewith.
21.1 Subsidiaries of Registrant. Filed herewith.
23.1 Consent letter from Independent Public Accountants. Filed
herewith.
27.1 Financial Data Schedule (EDGAR version only). Filed herewith.
Reports on Form 8-K
None.
30
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PUBLICARD, INC.
(Registrant)
Date March 29, 2000 By: /s/ JAN-ERIK ROTTINGHUIS
----------------- -----------------------------------
Jan-Erik Rottinghuis, President,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date March 29, 2000 By: /s/ JAN-ERIK ROTTINGHUIS
----------------- -----------------------------------
Jan-Erik Rottinghuis, President,
Chief Executive Officer and
Director
Date March 29, 2000 By: /s/ ANTONIO L. DELISE
----------------- -----------------------------------
Antonio L. DeLise, Vice President,
Chief Financial Officer, Secretary
and Principal Financial and
Accounting Officer
Date March 29, 2000 By: /s/ CLIFFORD B. COHN
----------------- -----------------------------------
Clifford B. Cohn, Director
Date March 29, 2000 By: /s/ HARRY I. FREUND
----------------- -----------------------------------
Harry I. Freund, Director
Date March 29, 2000 By: /s/ JAY S. GOLDSMITH
----------------- -----------------------------------
Jay S. Goldsmith, Director
Date March 29, 2000 By: /s/ DAVID L. HERMAN
----------------- -----------------------------------
David L. Herman, Director
Date March 29, 2000 By: /s/ L. G. SCHAFRAN
----------------- -----------------------------------
L. G. Schafran, Director
Date March 29, 2000 By: /s/ HATIM A. TYABJI
----------------- -----------------------------------
Hatim A. Tyabji, Director
31
<PAGE> 33
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Financial Statements
Report of independent public accountants F-2
Consolidated balance sheets as of December 31, 1999 and 1998 F-3
Consolidated statements of income (loss) for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated statements of shareholders' equity for the
years ended December 31, 1999, 1998 and 1997 F-5
Consolidated statements of cash flows for the years ended
December 31, 1999, 1998 and 1997 F-6
Notes to consolidated financial statements F-7 through F-19
Schedule
Report of independent public accountants on schedule F-20
Schedule II - Valuation and qualifying accounts F-21
All other schedules required by Regulation S-X have been omitted because
they are not applicable or because the required information is included in the
financial statements or notes thereto.
F-1
<PAGE> 34
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PubliCARD, Inc.:
We have audited the accompanying consolidated balance sheets of PubliCARD, Inc.
(a Pennsylvania corporation) and subsidiary companies as of December 31, 1999
and 1998, and the related consolidated statements of income (loss),
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PubliCARD, Inc. and subsidiary
companies as of December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States.
/s/ Arthur Andersen LLP
Stamford, Connecticut
March 20, 2000
F-2
<PAGE> 35
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
(in thousands except share data)
ASSETS
Current assets:
Cash, including short-term investments of $16,997 in 1999 and $17,547 in 1998 $ 18,236 $ 18,482
Trade receivables, less allowance for doubtful accounts (1999 - $92; 1998 - $38) 1,720 37
Inventories 903 34
Net assets of discontinued operations 10,832 8,385
Other 613 373
--------- ---------
Total current assets 32,304 27,311
--------- ---------
Equipment and leasehold improvements, net 1,063 377
Goodwill 11,508 7,925
Other assets 613 1,262
--------- ---------
$ 45,488 $ 36,875
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,413 $ 693
Accrued liabilities 6,002 3,198
--------- ---------
Total current liabilities 8,415 3,891
Other non-current liabilities 6,674 7,689
--------- ---------
Total liabilities 15,089 11,580
--------- ---------
Redeemable shares -- 3,378
--------- ---------
Shareholders' equity:
Common shares, $0.10 par value,
Authorized - 40,000,000
Issued - 26,191,189 in 1999 and 20,300,954 in 1998 2,619 2,030
Additional paid-in capital 111,476 67,091
Accumulated deficit (74,610) (38,891)
Common shares held in treasury, at cost (8,649) (8,207)
Unearned compensation (437) (106)
--------- ---------
Total shareholders' equity 30,399 21,917
--------- ---------
$ 45,488 $ 36,875
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE> 36
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
(in thousands except per share data)
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 1,930 $ 3 $ --
Cost of sales 978 7 --
-------- -------- --------
Gross margin 952 (4) --
-------- -------- --------
Operating expenses:
General and administrative 5,713 3,694 3,570
Sales and marketing 2,862 21 --
Product development 1,318 53 --
In-process research and development -- 2,800 --
Stock compensation expense 2,759 145 --
Goodwill amortization 1,749 128 --
Severance and other special charges 1,895 -- 768
-------- -------- --------
16,296 6,841 4,338
-------- -------- --------
Loss from operations (15,344) (6,845) (4,338)
-------- -------- --------
Other income (expenses):
Interest income 561 528 667
Interest expense (158) (191) (234)
Cost of retirement benefits - non-operating (1,028) (846) (768)
Other (expense) income (751) (1,023) 31
-------- -------- --------
(1,376) (1,532) (304)
-------- -------- --------
Loss from continuing operations (16,720) (8,377) (4,642)
Discontinued operations:
Income (loss) from discontinued operations (13,999) 2,302 2,954
Gain (loss) on disposition of discontinued operations (5,000) -- 609
-------- -------- --------
Net loss $(35,719) $ (6,075) $ (1,079)
======== ======== ========
Basic earnings (loss) per common share:
Continuing operations $ (.88) $ (.61) $ (.33)
Discontinued operations (1.00) .17 .25
-------- -------- --------
$ (1.88) $ (.44) $ (.08)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 37
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON SHARES
------------------- ADDITIONAL COMMON SHARE-
SHARES PAID-IN ACCUMULATED TREASURY UNEARNED HOLDERS'
ISSUED AMOUNT CAPITAL DEFICIT SHARES(1) COMPENSATION EQUITY
---------- ------ ---------- ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(in thousands except share data)
Balance - December 31, 1996 16,037,937 $1,604 $ 48,240 $ (31,737) $ (4,111) $ -- $ 13,996
Common shares issued
Stock option plans 27,000 2 29 -- -- -- 31
Stock purchase warrants 486,912 49 878 -- -- -- 927
Expense related to extension of common
stock purchase warrants -- -- 768 -- -- -- 768
Purchase of common shares -- -- -- -- (3,770) -- (3,770)
Net loss -- -- -- (1,079) -- -- (1,079)
---------- ------ ---------- ---------- -------- ---------- ----------
Balance - December 31, 1997 16,551,849 1,655 49,915 (32,816) (7,881) -- 10,873
Common shares issued
Stock option plans 433,000 43 606 -- -- -- 649
Private placement 2,059,000 206 10,079 -- -- -- 10,285
Business acquisition 1,253,771 126 8,261 -- -- -- 8,387
Restricted shares and grant of stock
options to consultants 3,334 -- 251 -- -- (251) --
Amortization of unearned compensation -- -- -- -- -- 145 145
Market adjustment to redeemable shares -- -- (2,021) -- -- -- (2,021)
Purchase of common shares -- -- -- -- (326) -- (326)
Net loss -- -- -- (6,075) -- -- (6,075)
---------- ------ ---------- ---------- -------- ---------- ----------
Balance - December 31, 1998 20,300,954 2,030 67,091 (38,891) (8,207) (106) 21,917
Common shares issued
Stock option plans 685,655 68 1,822 -- (442) -- 1,448
Private placement 3,269,500 327 18,859 -- -- -- 19,186
Business acquisitions 1,509,610 151 17,635 -- -- -- 17,786
Pension plan contribution 18,000 2 142 -- -- -- 144
Restricted shares and below
market stock options 208,333 21 3,072 -- -- (1,614) 1,479
Amortization of unearned compensation -- -- -- -- -- 1,283 1,283
Market adjustment to redeemable shares -- -- 846 -- -- -- 846
Reclassification of redeemable shares 199,137 20 2,009 -- -- -- 2,029
Net loss -- -- -- (35,719) -- -- (35,719)
---------- ------ ---------- ---------- -------- ---------- ----------
Balance - December 31, 1999 26,191,189 $2,619 $ 111,476 $ (74,610) $ (8,649) $ (437) $ 30,399
========== ====== ========== ========== ======== ========== ==========
</TABLE>
F-5
<PAGE> 38
(1) Represents common shares held in treasury of 3,725,024 at December 31,
1999, 3,660,252 at December 31, 1998, and 3,440,252 at December 31,
1997.
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 39
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations $(16,720) $ (8,377) $ (4,642)
Adjustments to reconcile loss to net cash
used in continuing operations:
In-process research and development -- 2,800 --
Goodwill amortization 1,749 128 --
Stock compensation and warrant expense 3,763 146 768
Depreciation 185 83 80
Changes in operating assets and liabilities 2,563 (426) (1,139)
-------- -------- --------
Net cash used in continuing operations (8,460) (5,646) (4,933)
Income (loss) from discontinued operations (18,999) 2,302 3,563
Loss (gain) on disposition of discontinued operations 5,000 -- (609)
Non-cash charges 12,042 398 432
Change in net assets of discontinued operations (1,211) (379) (1,549)
-------- -------- --------
Net cash provided by (used in) discontinued operations (3,168) 2,321 1,837
-------- -------- --------
Net cash used in operating activities (11,628) (3,325) (3,096)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (3,689) (1,145) --
Capital expenditures (480) (108) (19)
-------- -------- --------
Net cash used in continuing operations (4,169) (1,253) (19)
Acquisition of businesses, net of cash acquired (2,442) (312) --
Proceeds from discontinued operations 107 31 1,488
Capital expenditures (1,465) (210) (312)
-------- -------- --------
Net cash (used in) provided by discontinued operations (3,800) (491) 1,176
-------- -------- --------
Net cash (used in) provided by investing activities (7,969) (1,744) 1,157
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placements of common shares 19,186 10,285 --
Issuance of common shares pursuant to stock option and warrant exercises 815 649 958
Purchase of treasury shares -- (326) (3,770)
Purchase of redeemable shares (503) -- --
Repayment of term loans and notes payable from discontinued operations (147) (134) (490)
-------- -------- --------
Net cash provided by (used in) financing activities 19,351 10,474 (3,302)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH (246) 5,405 (5,241)
CASH - BEGINNING OF PERIOD 18,482 13,077 18,318
-------- -------- --------
CASH - END OF PERIOD $ 18,236 $ 18,482 $ 13,077
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE> 40
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
PubliCARD, Inc. ("PubliCARD" or the "Company") was incorporated in the
Commonwealth of Pennsylvania in 1913. The Company was known as Publicker
Industries Inc. until 1998, when its name was changed to PubliCARD, Inc.
PubliCARD entered the smart card industry in early 1998, and began to develop
solutions for the conditional access, security, payment system and data storage
needs of industries utilizing smart card technology. The Company made a series
of acquisitions to enhance its position in the smart card industry. In early
2000, PubliCARD's Board of Directors, together with its management team,
determined to integrate its operations and focus on the broadband market. To
effect this new business strategy, in March 2000, the Board of Directors
adopted a plan of disposition pursuant to which the Company will divest its
non-core operations. See Note 9 for a discussion on the disposition plan.
The Company will pursue its new business strategy through the
integration of its remaining operations. As a result of this integration, the
Company's product range includes application specific integrated circuits, also
known as ASICs, for television set-top boxes, secure electronic commerce,
Internet security and software copy protection. In addition, The Company is
developing point-of-deployment applications, also known as PODs, which scramble
and unscramble data entering and exiting set-top boxes. PubliCARD will continue
to design closed environment solutions, including small value electronic cash
systems and database management solutions. The Company provides systems for
closed populations to allow individual user access, unique rights and
monitoring.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PubliCARD
and its majority-owned subsidiaries. All significant intercompany transactions
are eliminated in consolidation.
SHORT-TERM INVESTMENTS
Short-term investments consist of certain liquid instruments with original
maturities of three months or less including U.S. Treasury obligations,
repurchase agreements and money market funds.
INVENTORIES
Inventories are recorded at cost, determined on a first-in, first-out, or
FIFO, basis and do not exceed net realizable values. Inventories at December 31,
1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
(in thousands)
Raw materials and supplies $ 599 $ 34
Work in process 48 --
Finished goods 256 --
------ ------
$ 903 $ 34
====== ======
</TABLE>
DEPRECIATION AND AMORTIZATION
Equipment and leasehold improvements are stated at cost. Improvements and
replacements are capitalized, while expenditures for maintenance and repairs are
charged to expense as incurred. Depreciation for equipment is computed using the
straight-line method over estimated useful lives of 3 to 7 years. Amortization
for leasehold improvements is computed using the lesser of the estimated useful
life or the life of the lease. Equipment and leasehold improvements at December
31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
(in thousands)
Equipment $ 1,307 $ 532
Leasehold improvements 218 177
Accumulated depreciation and amortization (462) (332)
------- -------
$ 1,063 $ 377
======= =======
</TABLE>
F-8
<PAGE> 41
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill is the excess of the purchase price and related costs over the
value assigned to the net tangible assets of the businesses acquired. Goodwill
is amortized on a straight-line basis over five years. Accumulated amortization
was $1.9 million and $128,000 as of December 31, 1999 and 1998, respectively. At
each balance sheet date, the Company evaluates the realizability of goodwill
based upon expectations of non-discounted cash flows and operating income for
each subsidiary having a goodwill balance. Based upon its most recent analysis,
the Company believes that no impairment of goodwill exists at December 31, 1999.
REVENUE RECOGNITION
Revenue from product sales are recorded upon shipment of the product.
Provisions are recorded for estimated warranty repairs, returns and bad debts at
the time the products are shipped. Software license fees are recognized upon
shipment if a signed contract exists, the fee is fixed and determinable and the
collection of the resulting receivable is probable. Revenue from maintenance and
support fees are recognized ratably over the contract period.
STOCK-BASED COMPENSATION
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method. Compensation cost for stock
options, if any, is measured as the excess of the quoted market price of the
Company's common stock at the date of grant over the exercise price. Restricted
stock is recorded or stock awards are recorded as compensation expense over the
vesting period, if any, based on the market value on the date of grant. The
Company has provided in Note 6 the pro forma disclosures of the effect on net
income (loss) and earnings (loss) per common share as if the fair value-based
method had been applied in measuring compensation expense.
USE OF ESTIMATES
The preparation of these financial statements required the use of certain
estimates by management in determining the Company's assets, liabilities,
revenues and expenses. While all available information has been considered,
actual amounts could differ from those reported.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging activities", subsequently
amended by SFAS No. 137, to be effective for all fiscal years beginning after
June 15, 2000. SFAS No. 133 requires that all derivative financial instruments,
such as interest rate swap contracts and foreign exchange contracts, be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
stockholders' equity depending on whether the derivative is being used to hedge
or changes in fair value or cash flows. The adoption of SFAS No. 133 is not
expected to have a material effect on the Company's financial statements.
EARNINGS (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is based on net income divided by
the weighted average number of common shares outstanding during each year
(18,978,519 in 1999; 13,716,243 in 1998; and 14,057,396 in 1997). Diluted net
income (loss) per common share assumes issuance of the net incremental shares
from stock options and warrants at the later of the beginning of the year or
date of issuance. Diluted net income (loss) per share was not computed for 1999,
1998 and 1997 as the effect of stock options and warrants were antidilutive.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign affiliate are translated at
current exchange rates, while revenue and expenses are translated at average
rates prevailing during the year. Translation adjustments are reported as a
component of shareholders' equity. The translation adjustment recorded for 1999
did not have a material effect on the Company's financial statements.
CONCENTRATION OF CREDIT RISK
The carrying amount of financial instruments including cash and short-term
investments, accounts receivable and accounts payable approximated fair value as
of December 31, 1999, because of the relatively short maturity of these
instruments. The Company maintains all of its cash and short-term investments
with high-credit quality financial institutions. Approximately, 28% of the
company's accounts receivable balance as of December 31, 1999 and 56% of the
Company's sales for the year ended December 31, 1999 was represented by a single
customer, which exposes the Company to a concentration risk.
F-9
<PAGE> 42
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Research and development costs are expensed as incurred. In accordance with
SFAS No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed", the Company capitalizes eligible computer software costs
upon achievement of technological feasibility subject to net realizable value
considerations. Through December 31, 1999, such costs eligible for
capitalization were insignificant. Accordingly, all such costs have been charged
to product development expenses.
F-10
<PAGE> 43
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITIONS
On November 16, 1999, the Company acquired 100% of the common stock of
Absec Ltd., a Northern Ireland company that designs, manufactures and
distributes cost recovery and cashless payment and control systems. The
aggregate purchase price was approximately $5.5 million and included the
issuance of 388,209 shares of common stock and options to purchase a total of
300,000 shares of common stock at an exercise price of $6.19 per share.
On November 24, 1998, the Company acquired 100% of the common stock of
Tritheim, a Florida company that designs, develops, and sells technologies used
in conditional access systems and secure electronic commerce over the Internet.
The aggregate purchase price was approximately $10.4 million and included the
issuance of 1,495,037 shares of common stock and options to purchase a total of
333,270 shares of common stock at an exercise price of $2.00 per share.
The amount and components of the estimated purchase price along with the
preliminary allocation of the estimated purchase price are as follows (in
thousands):
<TABLE>
<CAPTION>
ABSEC TRITHEIM
----- --------
<S> <C> <C>
Purchase price:
Value of common stock and stock options $ 3,455 $ 9,743
Cash paid 1,561 --
Acquisition expenses 525 694
-------- --------
$ 5,541 $ 10,437
======== ========
Allocation of purchase price:
Net assets (liabilities) $ 498 $ (713)
In-process research and development -- 2,800
Goodwill 5,043 8,350
-------- --------
$ 5,541 $ 10,437
======== ========
</TABLE>
The assets and liabilities of Absec and Tritheim were recorded at their
estimated fair values as of the respective acquisition dates. The aggregate fair
value of Tritheim's research and development efforts that had not reached
technological feasibility and had no alternative future uses was determined by
appraisal to be $2.8 million, and was expensed at the date of the acquisition. A
similar appraisal was performed in connection with the Absec acquisition, which
resulted in no such charge. Goodwill represents the excess of the purchase price
over the fair value of identifiable tangible and intangible assets acquired and
is amortized using the straight-line method over its estimated life of five
years.
The acquisitions have been accounted for as purchases and, accordingly, the
results are included in the consolidated financial statements of the Company
since the dates of acquisition. The following summarized unaudited pro forma
financial information assumes that the acquisitions had occurred as of January 1
of each period (in thousands except per share data):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales $ 6,144 $ 4,516
Net loss from continuing operations (17,563) (8,731)
Net loss per share from continuing operations (.91) (.57)
</TABLE>
The summarized pro forma information omits the non-recurring charge for
acquired in-process research and development. The pro forma information is not
necessarily indicative of the results that would have been reported had such
event actually occurred on the dates specified, nor is it intended to project
the Company's results of operations or financial position for any future period
or date.
During 1999, the Company acquired of Amazing! Smart Card Technologies, Inc.
("Amazing") and Greystone Peripherals, Inc. ("Greystone") and increased its
ownership interest in Greenwald Intellicard, Inc.
F-11
<PAGE> 44
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
("Greenwald Intellicard"). In March 2000, the Company's Board of Directors
adopted a plan to dispose of these businesses. See Note 9.
On February 11, 1999, the Company acquired 100% of the common stock of
Amazing, a California company that develops smart card solutions and
manufactures smart cards. The aggregate purchase price was approximately $5.9
million and included the issuance of 350,000 shares of common stock and options
to purchase a total of 457,503 shares of common stock. On February 22, 1999, the
Company acquired 100% of the common stock of Greystone, a California company
that principally develops and distributes hard disk duplicators. The aggregate
purchase price was approximately $9.1 million and included the issuance of
746,401 shares of common stock and options to purchase a total of 132,388 shares
of common stock. The amount and components of the purchase price along with the
allocation of the purchase price are as follows (in thousands):
<TABLE>
<CAPTION>
Amazing Greystone
------- ---------
<S> <C> <C>
Purchase price:
Value of common stock and stock options $ 5,327 $ 8,729
Acquisition expenses 597 414
------- -------
$ 5,924 $ 9,143
======= =======
Allocation of purchase price:
Net assets (liabilities) of acquired businesses $(1,371) $ 306
In-process research and development 1,509 1,410
Goodwill 5,786 7,427
------- -------
$ 5,924 $ 9,143
======= =======
</TABLE>
The assets and liabilities of Amazing and Greystone were recorded at their
fair values as of the respective acquisition dates. The aggregate fair value of
research and development efforts that had not reached technological feasibility
and had no alternative future uses was determined by appraisal to be $1.5
million and $1.4 million for Amazing and Greystone, respectively, and was
expensed at the respective acquisition dates. Goodwill represents the excess of
the purchase price over the fair value of identifiable tangible assets acquired
and is amortized using the straight-line method over its estimated life of five
years. The acquisitions of Amazing and Greystone have been accounted for under
the purchase method of accounting and, accordingly, their results are included
in the consolidated financial statements of the Company since the respective
acquisition dates.
In February 1998, the Company purchased, through a joint venture
arrangement in Greenwald Intellicard, the assets and intellectual property of
Intellicard Systems, Ltd. Greenwald Intellicard develops, manufactures and
markets smart card systems for the commercial laundry appliance industry. The
initial cash investment in Greenwald Intellicard, all of which was provided by
the Company, was $314,000. The Company had two fixed price options aggregating
$150,000 plus 66,333 shares of common stock to increase its ownership to 100%.
The Company exercised these options in February 1999 and February 2000.
NOTE 3 - SHAREHOLDERS' EQUITY
In October 1999, the Company completed the issuance of 3,269,500 shares of
common stock through a private placement. The shares were sold at $5.91 per
share for net proceeds of $19.2 million. In November 1998, the Company completed
the issuance of 2,059,000 shares of common stock through a private placement.
The shares were sold at $5.00 per share for net proceeds of $10.3 million.
The Company was required to register 241,266 shares of Company common stock
issued as a portion of the merger consideration in the Tritheim acquisition
under a shelf registration statement under the Securities Act of 1933, as
amended. If the shelf registration statement was not effective by May 24, 1999,
the holders of these shares were entitled, for a specified period of time, to
cause the Company to repurchase their shares for a cash purchase price equal to
the fair market value of the shares on the date of repurchase. As such, these
shares have been reflected in the accompanying consolidated balance sheet as of
December 31, 1998, under the caption "Redeemable shares" and subsequent
adjustments to the value of the redemption obligation were charged or credited
to additional paid-in capital. On July 21, 1999, a registration statement
covering the registration of these shares, to the extent not previously
redeemed, was declared effective by the Securities and Exchange Commission.
Prior to that date, holders caused the Company to repurchase 42,129 shares for
$503,000. The repurchase right terminated upon registration of the shares.
F-12
<PAGE> 45
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has 1,000,000 shares of authorized and unissued Class A
Preferred Stock, without par value. On August 9, 1988, the Company declared a
dividend of one Right for each outstanding share of its common stock. Each Right
entitles the holder to purchase one one-hundredth of a share of a new series of
Class A Preferred Stock at an exercise price of $7.50, subject to adjustment to
prevent dilution. The Rights become exercisable 10 days after a person or group
acquires 20% or more of the Company's common stock or announces a tender or
exchange offer for 30% or more of the Company's common stock. If, after the
Rights become exercisable, the Company is party to a merger or similar business
combination transaction, each Right not held by a party to such transaction may
be used to purchase common stock having a market value of two times the exercise
price. The Rights, which have no voting power, may be redeemed by the Company at
$.01 per Right. In July 1998, the Company's Board of Directors approved the
extension of the rights plan to August 8, 2008.
In August 1996, the Board of Directors of the Company authorized the
repurchase of up to 1,000,000 shares of the Company's common stock and, in 1997,
increased the Company's share repurchase authorization to 3,300,000 shares. In
April 1998, the Company announced the conclusion of the common stock buy-back
program. The Company repurchased 3,094,100 shares of common stock under the
buy-back program for an aggregate cost of $4.3 million.
In March 1998, the Company initiated an odd-lot buy-back offer allowing
holders of less than 100 shares a convenient method of selling their shares of
the Company's common stock. A total of 7,990 shares were tendered under the
offer which expired on April 3, 1998.
NOTE 4 - INCOME TAXES
As of December 31, 1999, approximately $88 million of U.S. tax loss
carryforwards (subject to review by the Internal Revenue Service), expiring from
2000 through 2019, were available to offset future taxable income. The
carryforwards expire as follows (in thousands):
<TABLE>
<CAPTION>
Year
- ----
<S> <C>
2000 $12,000
2001 9,000
2002 25,000
2005 7,000
2006 2,000
2007 - 2019 33,000
-------
$88,000
</TABLE>
Due to the "change of ownership" provisions of the Internal Revenue Code of
1986, the availability of net operating loss carryforwards to offset federal
taxable income in future periods could be subject to an annual limitation if a
change in ownership for income tax purposes occurs. If such change in ownership
were to occur, management estimates that the Company would not be able to use a
substantial amount of the available net operating loss carryforwards to reduce
its income tax liability. Furthermore, the extent of the actual future use of
the net operating loss carryforwards is subject to inherent uncertainty, because
it depends on the amount of otherwise taxable income the Company may earn. No
assurance can be given that the Company will have sufficient taxable income in
future years to use the net operating losses before they would otherwise expire.
No income tax provision or benefit was recognized in 1999, 1998 and 1997
because the tax benefit associated with the Company's operating losses were
offset in full by an increase in the valuation allowance. In 1997, the Company
reversed $609,000 of tax reserves provided in 1996 relating to the sales of
certain subsidiaries.
The components of net deferred taxes are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(in thousands)
<S> <C> <C>
Net operating loss carryforward $30,767 $ 26,832
Pension expense 1,640 1,737
Discontinued operations reserves 1,246 287
</TABLE>
F-13
<PAGE> 46
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Other, net 1,196 377
---------- ----------
34,849 29,233
Less valuation allowance (34,849) (29,233)
---------- ----------
Net deferred taxes $ -- $ --
========== ==========
</TABLE>
NOTE 5 - EMPLOYEE BENEFITS
The Company and its subsidiaries maintain a 401(k) plan for substantially
all of the Company's U.S. employees. The assets of the Company's 401(k) plan are
held by an outside fund manager and are invested in accordance with the
instructions of the individual plan participants. The Company's 401(k)
contributions totaled $189,000, $197,000 and $190,000 in 1999, 1998 and 1997,
respectively.
The Company sponsors a defined benefit pension plan that was frozen in
1993. The assets of the defined benefit pension plan are managed by an outside
trustee and invested primarily in a short duration bond fund. Cost of retirement
benefits - non-operating includes amounts related to discontinued product lines
and related plant closings prior to 1993 totaling $1.0 million, $846,000 and
$768,000 in 1999, 1998 and 1997, respectively. Information regarding the defined
benefit pension plan is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 10,901 $ 10,775
Interest cost 689 749
Benefit payments (1,120) (1,164)
Actuarial (gain) or loss (670) 541
Benefit obligation at end of year 9,800 10,901
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 4,883 4,253
Actual return on plan assets (127) 762
Employer contributions 620 1,032
Benefit payments (1,120) (1,164)
-------- --------
Fair value of plan assets at end of year 4,256 4,883
Funded status (5,544) (6,018)
Unrecognized transition obligation 1,175 1,469
Unrecognized net gains (572) (414)
-------- --------
$ (4,941) $ (4,963)
======== ========
Amounts recognized in statement of financial
position consist of:
Accrued benefit liability $ (5,544) $ (6,018)
Intangible asset 603 1,055
-------- --------
Net amount recognized $ (4,941) $ (4,963)
======== ========
</TABLE>
A discount rate of 7.75% and 6.75% were used as of December 31, 1999 and
1998, respectively. The expected return on plan assets was 8%.
The components of the net periodic pension cost were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Interest cost $ 689 $ 749 $ 766
Expected return on plan assets (384) (331) (327)
Amortization of transition obligation 294 306 306
------ ------ ------
Net periodic pension cost $ 599 $ 724 $ 745
====== ====== ======
</TABLE>
F-14
<PAGE> 47
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999, the accrued pension liability was $5.5 million, of
which $1.0 million was included in accrued liabilities and $4.5 million was
included in other non-current liabilities. As of December 31, 1998, the accrued
pension liability was $6.0 million, of which $1.0 million was included in
accrued liabilities and $5.0 million was included in other non-current
liabilities. Accrued liabilities also included accrued payroll and other
employment related accruals of approximately $890,000 and $468,000 as of
December 31, 1999 and 1998, respectively.
NOTE 6 - STOCK OPTIONS AND WARRANTS
The Company has issued stock options pursuant to several fixed stock option
plans, made special stock option awards to certain directors, consultants and
employees and also issued common stock purchase warrants in connection with
certain subordinated notes. A summary of shares purchasable upon the exercise of
stock options and common stock purchase warrants is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
<S> <C> <C> <C>
Fixed stock option plans 2,771,167 2,232,500 2,130,500
Special stock options 2,676,218 983,270 600,000
Warrants 1,523,573 1,472,422 1,460,736
--------- --------- ---------
6,970,958 4,688,192 4,191,236
========= ========= =========
</TABLE>
The Company has several stock option plans that provide for the granting of
incentive and non-qualified stock options, restricted stock, stock appreciation
rights, performance awards and other stock-based awards to employees,
non-employee directors and consultants. Under the stock option plans adopted by
shareholders of the Company, the Company may grant up to 7,300,000 shares of
common stock. The plans are administered by the Board of Directors of the
Company. Stock options granted through December 31, 1999 expire five years from
the date of grant. The exercise price of each option granted was equal to the
market price of the Company's common stock on the date of grant. Prior to 1999,
stock options granted pursuant to the fixed stock option plans vested
immediately. Grants subsequent to 1998 generally vest over three years. As of
December 31, 1999, there were 3,175,500 shares available for grant under all
plans.
A summary of the Company's stock options as of December 31, 1999, 1998 and
1997 and changes during the years then ending is presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- -------------------------- --------------------------
Average Average Average
exercise exercise exercise
Shares price Shares price Shares price
------- -------- ------ -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 2,232,500 $ 1.80 2,130,500 $ 1.65 1,938,500 $ 1.69
Granted 1,232,000 7.35 565,000 2.10 250,000 1.31
Exercised (631,333) 1.59 (433,000) 1.50 (27,000) 1.15
Canceled (62,000) 9.50 (30,000) 1.50 (31,000) 1.58
--------- --------- ---------
Balance at December 31 2,771,167 4.14 2,232,500 1.80 2,130,500 1.65
========= ========= =========
</TABLE>
A summary of the Company's stock options outstanding and exercisable as of
December 31, 1999, is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------------- ---------------------
Average Average
Range of Contractual exercise exercise
Exercise price Shares life price Shares price
- -------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.31-$2.00 1,551,167 2.0 $1.76 1,551,167 $1.76
$5.69-$6.50 425,000 3.3 6.18 50,000 5.69
$6.88-$8.00 652,000 4.7 7.05 120,000 6.88
$10.25-$12.50 143,000 4.2 10.72 50,000 10.25
- ---------------------------------------------------------------------------------------------------------
$1.31-$12.50 2,771,167 2.9 4.14 1,771,167 2.45
========== =========
</TABLE>
F-15
<PAGE> 48
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In April 1985, the Company issued 1.6 million shares of common stock at
$2.50 per share in a private placement. Under the terms of this agreement, the
agent for the purchasers received options to purchase 400,000 shares of the
Company's common stock at a price of $2.50 per share for five years, which
period was subsequently extended by ten years. These options are held by two
members of the Company's Board of Directors. In January 1996, the Company issued
options to two members of the Company's Board of Directors to purchase 200,000
shares of the Company's common stock at a price of $2.50 per share for five
years. In March 1999, the Company issued options to a newly appointed member of
the Board of Directors to purchase 250,000 shares of the Company's common stock
at a price of $9.75 per share. The options vest over a two year period and
expire five years from the grant date. None of these options have been exercised
as of December 31, 1999.
In 1998, a consultant received options to purchase 25,000 shares of common
stock at an exercise price of $7.75 per share. These options are immediately
exercisable. The Company also granted in 1998 to another consultant options to
purchase 25,000 shares of common stock at an exercise price of $8.25 per share
and a stock award of 10,000 shares of common stock. The options and stock award
vest over a two year period. The fair value of the awards to the two consultants
at the date of grant was $251,000 and are being charged to earnings over the
vesting period, if any.
In connection with the acquisition of Tritheim in 1998 and Amazing,
Greystone and Absec in 1999, the Company granted options to purchase an
aggregate of 1,223,161 shares of common stock to certain employees and owners of
the acquired businesses. Of these options, 410,000 were granted pursuant to the
Company's fixed stock option plans. The fair value of stock options granted
amounting to $5.0 million, was included in the acquisition purchase price. These
options have exercise prices ranging from $2.00 to $10.75 per share, generally
vest over three years and expire five years from the date of grant.
In January 1999, the Company issued 50,000 restricted shares and options to
purchase 200,000 shares of common stock at an exercise price of $5.50 per shares
to a newly hired executive. The Company also awarded 5,000 shares and options to
purchase a total of 4,000 shares of common stock at an exercise price of $5.50
per share to several employees. The restricted stock vests over a one-year
period and the stock options generally vest over a two year period and expire
five years from the grant date. The options were granted at exercise prices
below fair market value on the date of grants. The fair value of the stock
awards and stock options was $1.4 million and are being charged to earnings over
the vesting period, if any.
In November 1999, pursuant to an employment agreement with the appointment
of a new President and Chief Executive Officer, the Company issued 200,000
shares of common stock and options to purchase 400,000 shares of common stock at
an exercise price of $6.75 per share. The stock options vest over three years
and expire after five years. Options to purchase an additional 400,000 shares of
common stock were also issued which will become exercisable upon the achievement
of certain performance-based goals. The options were granted at an exercise
price below fair market value on the date of grant. The fair value of the stock
award and stock options was $1.7 million and are being charged to earnings over
the vesting period, if any.
The Company applies APB Opinion 25 Accounting for Stock Issued to Employees
and related interpretations in accounting for its plans. The exercise price of
each option granted pursuant to the fixed stock option plans is typically equal
to the market price of the Company's common stock on the date of grant.
Accordingly, no compensation cost has been recognized for such grants. Had
compensation cost been determined based on the fair value at the grant dates for
such awards consistent with the method of FASB Statement 123 Accounting for
Stock-Based Compensation, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C>
Net loss As reported $ (35,719) $ (6,075) $ (1,079)
Pro forma (38,293) $ (6,684) $ (1,253)
Loss per share As reported $ (1.88) $ (.44) $ (.08)
Pro forma (2.02) $ (.49) $ (.09)
</TABLE>
F-16
<PAGE> 49
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of the pro forma disclosure, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option pricing
model. The weighted average assumptions used to estimate the value of the
options included in the pro forma amounts, and the weighted average estimated
fair value of an option granted are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected option term (years) 5 5 5
Expected volatility 60.4% 52.7% 53.7%
Risk-free interest rate 5.9% 4.9% 6.0%
Weighted average fair value per option $4.69 $1.08 $.70
</TABLE>
In December 1986, the Company issued $30 million of 13% Subordinated Notes
together with detachable warrants ("Warrants") to purchase 3,600,000 shares of
the Company's common stock for five years, which period was subsequently
extended by five years. In addition, the Company issued 1,200,000 Underwriter's
Warrants to purchase the Company's common stock for five years, which period was
subsequently extended by five years. Unexercised warrants were to expire on
December 15, 1996 (December 17, 1996, in the case of the Underwriter's
Warrants).
In November 1996, the Company's Board of Directors, acting upon the
recommendation of a special committee of disinterested directors, determined it
would be in the Company's best interests to modify the Warrants and
Underwriter's Warrants owned by any holder who exercises, at the current
exercise price of $1.95 per share of common stock, 25% of the warrants owned on
December 15, 1996 (December 17, 1996, in the case of the Underwriter's
Warrants). Shareholders of the Company subsequently approved the modification on
July 2, 1997 (the "Approval Date"). As of July 2, 1997, a total of 2,257,050
warrants were outstanding entitling the warrant holders to purchase an aggregate
of 2,311,220 shares of common stock.
The modification resulted in the following changes to the holder's
unexercised Warrants and Underwriter's Warrants (i.e., the 75% balance of the
warrants owned on December 15, 1996 or December 17, 1996, as the case may be)
(the "Remaining Modified Warrants"):
(a) FIVE-YEAR EXTENSION The expiration date of the holder's
Remaining Modified Warrants was extended to July 2, 2002.
(b) INCREASED EXERCISE PRICE The exercise price of the holder's
Remaining Modified Warrants was increased from $1.95 per
share to (i) $2.00 per share, during the year ending on the
first anniversary of the Approval Date, (ii) $2.10 per
share, during the year ending on the second anniversary of
the Approval Date, (iii) $2.20 per share, during the year
ending on the third anniversary of the Approval Date, (iv)
$2.30 per share, during the year ending on the fourth
anniversary of the Approval Date, and (v) $2.40 per share,
during the year ending on the fifth anniversary of the
Approval Date.
In September 1997, a total of 486,912 shares of common stock were
issued pursuant to the exercise of 475,500 warrants. The net proceeds received
amounted to $927,000. A non-cash charge to income of $768,000 was recorded in
1997 based on the fair value of the Remaining Modified Warrants.
In 1999, pursuant to the terms of the Warrant and Underwriter Warrant
agreements, the number of shares of common stock purchasable upon the exercise
of each warrant increased to 1.068 and the exercise price per share decreased
from $2.20 to $2.11. As of December 31, 1999, there are 1,426,500 Remaining
Modified Warrants entitling the warrant holders to purchase 1,523,573 shares of
common stock. Members of the Company's Board of Directors hold 1,417,500 of the
Remaining Modified Warrants.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, vehicles and office equipment
under operating leases that expire over the next nine years. Certain of these
operating leases provide the Company with the option, after the initial
F-17
<PAGE> 50
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
lease term, to either purchase the property or renew the lease. Total rent
expense for all operating leases amounted to approximately $381,000 in 1999,
$280,000 in 1998, and $272,000 in 1997.
Minimum payments for operating leases having initial or remaining
non-cancellable terms in excess of one year are as follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
2000 $ 585
2001 449
2002 394
2003 382
2004 201
Remainder 181
---------
Total minimum lease payments $ 2,192
</TABLE>
The Company and Balfour Investors Inc. ("Balfour") are parties to a License
Agreement, dated as of October 26, 1994, with respect to a portion of the office
space leased by the Company in New York City. The Chairman and Vice Chairman of
the Company's Board of Directors are the only shareholders of Balfour. The term
of the License Agreement commenced on January 1, 1995 and will expire on June
30, 2004, unless sooner terminated pursuant to law or the terms of the License
Agreement. The License Agreement provides for Balfour to pay to the Company a
portion of the rent paid by the Company under its lease, including base rent,
electricity, water, real estate tax escalations and operation and maintenance
escalations. As of December 31, 1999, Balfour's share of rent and other costs
was 10%. The base rent payable by Balfour under the License Agreement is
approximately $2,000 per month.
The Company leases a 12,000 square foot facility in Bangor, Northern
Ireland from the former owner, and current general manager, of Absec. The lease
agreement expires in August, 2008. Annual lease payments amount to $60,000.
In April 1996, a Consent Decree among the Company, the United States
Environmental Protection Agency and the Pennsylvania Department of Environmental
Protection ("PADEP") was entered by the court which resolved all of the United
States' and PADEP's claims against the Company for recovery of costs incurred in
responding to releases of hazardous substances at a facility previously owned
and operated by the Company. Pursuant to the Consent Decree, the Company will
pay a total of $14.4 million plus interest to the United States and the
Commonwealth of Pennsylvania. Through December 31, 1999, the Company has made
principal payments aggregating $11.8 million. Further payments totaling $2.8
million, including interest, will be made to the United States and the
Commonwealth of Pennsylvania over the next years. The annual payments are $1.1
million in2000, $862,000 in 2001 and $823,000 in 2002.
Various legal proceedings are pending against the Company. The Company
considers all such proceedings to be ordinary litigation incident to the
character of its businesses. Certain claims are covered by liability insurance.
The Company believes that the resolution of those claims to the extent not
covered by insurance will not, individually or in the aggregate, have a material
adverse effect on the financial position or results of operations of the
Company.
NOTE 8 - SEGMENT DATA
As a result of the disposition plan (See Note 9) and because the Company
predominantly operates in one industry, that being the deployment of solutions
for the broadband marketplace, the Company reports as a single segment. Sales by
geographical areas for the years ended December 31, 1999 and 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
United States $ 1,245 $ 3
Europe 614 --
</TABLE>
F-18
<PAGE> 51
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Far East 37 --
Rest of world 34 --
--------- ---------
$ 1,930 $ 3
========= =========
</TABLE>
The Company has operations in the United States and United Kingdom.
Identifiable assets by country as of December 31, 1999 and 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
United States $ 30,804 $ 28,950
United Kingdom 3,176 --
--------- ---------
$ 33,980 $ 28,950
========= =========
</TABLE>
NOTE 9 - DISCONTINUED OPERATIONS
In March 2000, the Company's Board of Directors adopted a plan to dispose
of the operations of the Company's Greenwald Industries Inc. ("Greenwald"),
Greenwald Intellicard, Greystone and Amazing subsidiaries. These subsidiaries
design, manufacture and distribute mechanical and smart card laundry solutions,
hard disk duplicators, PCMCIA products, digital camera readers and smart cards.
The Company is actively seeking purchasers for Greenwald, Intellicard and
Greystone and is assessing various disposition alternatives relative to Amazing,
including the wind-down of its operations. In 1999, the Company recorded a loss
of $2.0 million related to the disposition plan, net of the expected gain on the
disposition of these businesses. The loss provision was based on estimates of
the proceeds expected to be realized on the dispositions and the results of
operations through the disposition or wind-down dates. The amounts the Company
will ultimately realize could differ from the amounts assumed in arriving at the
charge recorded.
In March 1999, the Company's Board of Directors adopted a plan to dispose
of its engineering services subsidiary, Orr-Schelen-Mayeron & Associates
("OSM"). During 1999, the Company revised its estimates of expected operating
results and wind-down costs and recorded a loss provision of $3.0 million.
Approximately $1.2 million related to the write-off of OSM's goodwill. The
wind-down of OSM has been substantially completed.
The results of the operations of Greenwald, Greenwald Intellicard, Amazing,
Greystone and OSM have been reflected as discontinued operations. Certain
operating information with respect to discontinued operations for the year ended
December 31, 1999 is summarized as follows (in thousands):
<TABLE>
<S> <C>
Net sales $ 31,222
Cost of sales 23,171
Operating expenses 10,892
In process research and development 2,919
Goodwill charges 8,131
Interest expense, net 108
Loss from discontinued operations (13,999)
</TABLE>
Goodwill charges include amortization of acquisition of goodwill and
intangibles of $2.5 million and a write-off of goodwill of $5.7 million related
to product lines that were discontinued in the fourth quarter of 1999.
Summarized balance sheet information with respect to the discontinued
operations as of December 31, 1999 is as follows (in thousands):
<TABLE>
<S> <C>
Current assets $ 8,796
Non-current assets 11,687
Current liabilities (8,735)
Non-current liabilities (916)
---------
Net assets of discontinued operations $ 10,832
=========
</TABLE>
F-19
<PAGE> 52
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1996, the Company completed the sale of substantially all of the assets
of Masterview Window Company, Inc. ("Masterview"). During 1997, an additional
$1.5 million in cash was received relating to the finalization of the Masterview
purchase price adjustment.
NOTE 10 - SPECIAL CHARGES AND OTHER EXPENSES
In December 1999, the Company entered into a separation and termination
agreement with its former President and Chief Executive Officer. Pursuant to the
agreement, the former executive will receive salary and benefit continuation
through June 2001. In certain circumstances, the salary payment by the Company
may be in the form of common stock instead of cash. In addition, the former
executive received 32,500 shares of common stock and the exercise period of
certain stock options, which otherwise would have accelerated in connection with
his termination, was extended. A charge of $1.7 million was recorded in 1999 to
reflect the costs associated with this agreement, of which $1.0 million related
to the non-cash impact of the stock award and change in the stock option terms.
In April 1998, the Company executed a letter of intent to purchase
substantially all of the assets of a group of five businesses from Katy
Industries, Inc. On August 5, 1998, the Company announced that the letter of
intent terminated due to the inability of the parties to reach agreement on
certain aspects of the transaction. Included in "Other (expense) income" is a
charge of $954,000 relating to legal, environmental and financing related fees.
NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION
Changes in operating assets and liabilities are net of acquisitions of
businesses and consisted of the following for the years ended December 31, 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Trade receivables $ (387) $ 17 $ --
Inventories (84) (3) --
Other current assets (32) 219 (72)
Other assets 649 131 224
Trade accounts payable 1,175 424 (363)
Accrued liabilities 2,307 139 86
Other non-current liabilities (1,065) (1,353) (1,014)
------- ------- -------
$ 2,563 $ (426) $(1,139)
======= ======= =======
</TABLE>
Acquisition of businesses in the consolidated statement of cash flows is net of
cash acquired and includes debt assumed and immediately repaid. Cash paid for
interest during 1999, 1998 and 1997 was $191,000, $224,000, and $266,000,
respectively. No income taxes were paid in 1999, 1998 and 1997. Non-cash
investing activities include the acquisitions of Tritheim, Amazing, Greystone
and Absec for shares of common stock and options valued at $17.8 million and
$9.7 million in 1999 and 1998, respectively, as described in Note 2.
F-20
<PAGE> 53
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To PubliCARD, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of PubliCARD, Inc. and subsidiary companies
included in this Form 10-K and have issued our report thereon dated March 20,
2000. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index to consolidated
financial statements and schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic consolidated financial statements taken
as a whole.
----------------------------
/s/ Arthur Andersen LLP
Stamford, Connecticut
March 20, 2000
<PAGE> 54
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Additions
---------------------
Charged to
Balance Costs and Balance
January 1 Expenses Other (1) Deductions (2) December 31
--------- -------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C>
(in thousand of dollars)
Year ended December 31, 1999:
Allowance for doubtful accounts 38 53 9 (8) 92
Reserve for discontinued operations 794 5,000 107 (2,992) 2,909
Year ended December 31, 1998:
Allowance for doubtful accounts -- -- 39 (1) 38
Reserve for discontinued operations 921 -- 31 (158) 794
Year ended December 31, 1997:
Allowance for doubtful accounts -- -- -- -- --
Reserve for discontinued operations 142 -- 1,488 (709) 921
</TABLE>
(1) Other changes for the reserve for discontinued operations represents the
receipt of cash principally relating to the finalization of certain disposition
price adjustments. Other changes for the allowance for doubtful accounts
represents reserves established against receivables of certain acquired
businesses at the date of acquisition.
(2) Represents write-offs of receivables and charges/payments against
discontinued operations reserve balances.
<PAGE> 1
EXHIBIT 10.11
TERMINATION, SEVERANCE AND RELEASE AGREEMENT
Termination, Severance and Release Agreement dated as of December 3,
1999, between PubliCARD, Inc., a Pennsylvania corporation (the "Company") and
James J. Weis, an individual ("Weis").
Weis had been President and Chief Executive Officer of the Company
until November 3, 1999 and has been a member of its Board of Directors. The
Company and Weis desire to provide for the terms on which Weis' employment by
the Company will terminate.
The parties hereto, intending to be legally bound, hereby agree as
follows:
SECTION 1. TERMINATION. Weis' employment by the Company is terminated,
effective December 31, 1999. As a result of that termination, Weis will hold no
office or position, and after December 31, 1999 will not be employed by, the
Company or any of its subsidiaries. Weis further agrees and acknowledges that he
(i) ceased serving in the positions of President and Chief Executive Officer of
the Company on November 3, 1999 and (ii) resigned from the Board of Directors of
the Company effective as of November 5, 1999. The letter agreement dated
February 17, 1987 between the Company and Weis regarding certain conditions of
his employment and the agreement dated August 20, 1987 between the Company and
Weis are terminated and neither party shall have any liability or obligation
thereunder. Weis acknowledges and agrees that this Agreement shall be the
exclusive basis on which he is entitled to receive any compensation or benefits
of any kind from the Company or any of its subsidiaries.
SECTION 2. SEVERANCE PAYMENTS; SHARES.
2.1 GUARANTEED SEVERANCE. Weis will receive from the Company severance
payments at the rate of $25,722.22 for each month during the nine-month period
from January 2000 through September 2000 (the "Guaranteed Severance"). The
Company shall pay the Guaranteed Severance to Weis on or before the 15th day of
the applicable month in monthly installments in cash by check mailed to the
address provided in Section 8.3 hereof.
2.2 ADDITIONAL SEVERANCE. Weis will receive from the Company severance
at the rate of $25,722.22 for each month for the nine-month period from October,
2000 through June, 2001 (the "Additional Severance"). During the period, if any,
from October, 2000 through the earlier of June, 2001 and the calendar month in
which Weis becomes employed by an unrelated third party on a full-time basis the
Company shall pay the monthly installments of Additional Severance on or before
the 15th day of the applicable month in cash by check mailed to the address
provided in Section 8.3 hereof. Weis shall provide written notice of any such
full-time employment (as defined in the preceding sentence and the last sentence
of this Section 2.2) to the Company on or before the first day of such
employment (the "ReEmployment Date"). Within 45 days after the Re-Employment
Date, if any, the Company shall pay the balance of the monthly installments of
the Additional Severance in a lump-sum issuance of fully paid and non-assessable
shares of the Company's common stock, par value $0.10 per share (the "Common
Stock"), valued at the average of the closing prices of the Common Stock on the
NASDAQ National Market on the ten trading days immediately preceding the
ReEmployment Date (the "Additional Severance Shares"). The number of shares of
Common Stock to be issued shall be rounded up to the nearest whole number and no
fractional shares shall be issued. For purposes hereof, in no event shall Weis
be deemed to be employed on a full-time basis by reason of his performance of
consulting services, acceptance of part-time employment or start of his own
business (either alone or with others).
2.3 ADDITIONAL SHARES. The Company shall issue to Weis 32,500 fully
paid and non-assessable shares of Common Stock (the "Additional Shares") during
the first week of January, 2000.
2.4 REGISTRATION. The Company shall prepare and file with the
Securities and Exchange Commission (the "Commission") on or before March 31,
2000 a registration statement under the Securities Act of 1933 (the "Securities
Act") for the sale of the Additional Severance Shares and the Additional Shares
on the NASDAQ National
<PAGE> 2
Market (the "Shelf Registration Statement"), and shall use reasonable efforts to
have the Shelf Registration Statement declared effective by the Commission as
soon as practicable. The Company shall use good faith and diligent efforts to
keep the Shelf Registration Statement continuously effective for the period
beginning on the date on which the Shelf Registration Statement is declared
effective and ending when (i) all Additional Severance Shares and Additional
Shares have been sold or (ii) or all Additional Severance Shares and Additional
Shares then owned by Weis may be sold without registration under the Securities
Act without limitation as to volume or manner of sale. However, the Company
shall have no obligation to keep the Shelf Registration Statement effective
after September 30, 2001.
2.5 STOCK OPTIONS. Weis currently holds fully vested options to acquire
165,667 shares of Common Stock (the "Options") granted under the Company's 1993
Long-Term Incentive Plan (the "Plan"); incentive stock options to acquire
174,333 shares were exercised by Weis on November 26, 1999 (in connection with
which exercise Weis delivered 47,019 shares of Common Stock in payment of the
exercise price).
(a) The expiration date of the Options shall be extended to
June 30, 2001 (or the stated expiration date thereof, whichever is earlier) and
the Options, to the extent currently exercisable, may be exercised at any time
or from time to time until June 30, 2001 (or the stated expiration date thereof,
whichever is earlier), subject to Section 9 of the Plan. The Options, to the
extent then exercisable, shall terminate and cease to be exercisable on June 30,
2001. The Company hereby warrants and represents to Weis that (i) the Company
has full right, power and authority to so extend the expiration of the options
and (ii) the approval or vote of the stockholders of the Company is not required
in order to do same.
(b) The exercise price of the Common Stock issuable upon
exercise of the Options may be paid by Weis by the delivery of shares of Common
Stock owned by him in accordance with Section 6(b) of the Plan, including,
without limitation, the Additional Shares and the Additional Severance Shares.
(c) The Company hereby warrants and represents to Weis that
the shares of Common Stock issuable upon exercise of the Options have been
registered under the Securities Act.
2.6 LIMITATIONS ON SALES. During the period from January, 2000 through
June, 2001, Weis shall not offer, sell, contract to sell, transfer or otherwise
reduce his risk with respect to any shares of Common Stock (or publicly announce
an intention to do any of the foregoing) other than
(i) sales during a calendar month in ordinary brokerage
transactions effectuated through the NASDAQ National Market of a number
of shares of Common Stock not exceeding the quotient obtained by
dividing (x) the excess, if any, of (1) the sum of 549,500
(representing the number of shares of Common Stock previously held by
Weis or issuable upon exercise of Options held by Weis on the date of
this Agreement) and the number of Additional Shares and Additional
Severance Shares, if any, issued to Weis during or prior to that
calendar month over (2) the number of shares of Common Stock, if any,
delivered by Weis in payment of the exercise price of Options during or
prior to that calendar month (including the delivery of 47,019 shares
referred to below) by (y) 18; and
(ii) transfers by gift to members of Weis' family or trusts,
partnerships, limited liability companies or other entities for his or
their benefit, but only if the transferee enters into an agreement with
the Company, in form and substance reasonably satisfactory to the
Company, not to offer, sell, contract to sell, transfer or otherwise
reduce its risk with respect to any shares of Common Stock (or publicly
announce an intention to do any of the foregoing) until after June 30,
2001 except to the extent of sales that Weis would be permitted to
effect pursuant to clause (i) on the basis of aggregating the sales
effected by Weis and all transferees pursuant to this clause (ii) (Weis
hereby agrees that the number of shares of Common Stock he may sell
pursuant to clause (i) shall be reduced by all such sales by
transferees).
Weis represents and warrants to the Company that during the period from November
3, 1999 through the date of this Agreement he has not offered, sold, contracted
to sell, transferred or otherwise reduced his risk with respect to any shares of
Common Stock except for 15,700 shares sold and 47,019 shares delivered in
connection with the exercise of options as described above. For purposes of this
Section 2.6, (a) any sale or other transaction effected from the date
2
<PAGE> 3
of this Agreement through December 31, 1999 shall be deemed to occur in January,
2000 and (b) "reducing risk" includes any short-sale, any purchase, sale or
issuance of options or other derivative securities, any pledge or financing or
any other similar transaction.
SECTION 3. OTHER BENEFITS.
3.1 OUTPLACEMENT PACKAGE. The Company shall bear the cost of
outplacement services obtained by Weis to the extent not exceeding $18,000.
3.2 MEDICAL INSURANCE. During the period from January 1, 2000 through
the earlier of December 31, 2001 and the Re-Employment Date (the "Health
Coverage Period") the Company shall (i) continue to provide the current health
insurance coverage for Weis and his dependents presently covered by the
Company's medical insurance plan (to the extent that such dependents would have
continued to be so covered had Weis remained an employee of the Company) or
otherwise provide benefits comparable to those provided by the Company's medical
insurance plan and (ii) continue the coverage of Weis and such dependents under
the Company's Supplemental Medical Plan or otherwise provide benefits comparable
to those provided by the Company's Supplemental Medical Plan. In addition, upon
expiration of the Health Coverage Period Weis and such dependents shall be
entitled to health continuation coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1986 at their own expense. Weis shall, and shall cause his
dependents to, cooperate as the Company may from time to time reasonably request
in connection with obtaining or insuring the benefits required by this Section.
3.3 LIFE INSURANCE. The Company shall continue Weis' term life
insurance reimbursement benefits through the American Institute of Certified
Public Accountants at the current coverage level, and to the extent permitted by
the insurer his group life insurance coverage, pro-rated through of June 30,
2001.
3.4 AUTOMOBILE ALLOWANCE. The Company shall continue to pay Weis an
automobile allowance of $850 per month through of June 30, 2001.
SECTION 4. OFFICE/EQUIPMENT.
4.1 USE OF PREMISES; LEASE. The Company shall permit Weis to use on a
non-exclusive basis the Company's offices located at One Post Road, Fairfield,
Connecticut (the "Premises") through May 31, 2000. Subject to obtaining the
consent of the landlord under the lease relating to such Premises (the "Lease"),
the Company shall assign the Lease to Weis or his designee effective June 1,
2000 on the basis that the Company has no continuing obligation thereunder. The
Company acknowledges that prior to June 1, 2000 it will not take any action or
fail to take any reasonable action that it knows would result in the termination
of the lease.
4.2 OFFICE SERVICES, During Weis' occupancy of the Premises through May
31, 2000, Weis shall be entitled to use the telephones and other services
currently available at the Premises. The Company shall arrange to have email
messages addressed to Weis at [email protected] promptly forwarded to him at
such internet email address as he may specify by notice to the Company. In
addition, the Company's reception service shall forward to Weis at the Premises
incoming telephone calls and messages until May 31, 2000.
4.3 EQUIPMENT. The Company hereby transfers to Weis, on an "as is"
basis without representation or warranty, ownership of his desk and chairs at
the Company's office and the Company's personal computer, laptop, scanners,
laserjet printer, home facsimile machine and cellular telephone currently in his
possession.
SECTION 5. INDEMNIFICATION.
To the extent permitted by law, the Company shall indemnify Weis with
respect to matters arising from his service as a director or officer or employee
of the Company as provided by the Company's Articles of Incorporation and
By-Laws as currently in effect.
SECTION 6. RELEASE.
3
<PAGE> 4
For valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Weis hereby releases and forever discharges the Company and
its subsidiaries, and their respective past, present and future affiliates,
stockholders, officers, directors, employees, agents, and controlling persons,
and the respective heirs, administrators, successors and assigns of each of the
foregoing (each, a "Releasee"), of and from any and all manner of action or
actions, cause or causes of actions, in law or in equity, suits, debts,
contracts, agreements, promises, liability, claims, demands, damages, loss, cost
or expense, of any nature whatsoever, known or unknown to him, fixed or
contingent, choate or inchoate, which Weis ever had, now has or may have at any
time arising out of or relating to Weis' employment or status as a director or
officer or the termination of such employment or status (or any promise or
agreement made or entered into, or any action taken or omitted, in connection
with such employment, status or termination), including, but not limited to,
those arising under the federal Civil Rights Acts of 1866, 1871, 1964 and 1971,
as amended, the Age Discrimination in Employment Act of 1967, as amended by,
inter alia, the Older Workers Benefit Protection Act of 1990, the Americans with
Disabilities Act of 1990, the Employee Retirement Income Security Act of 1974 or
any other federal, state or local statute or principle of common law. Weis shall
refrain from asserting any matter released hereby against any Releasee in any
manner, including, but not limited to, by way of counterclaim, offset or defense
and shall actively resist any effort to assert on his behalf any such matter.
Weis shall indemnify and hold harmless each Releasee from and against all
losses, liabilities, claims, damages and expenses (including costs of
investigation and defense and reasonable attorneys' fees), arising directly or
indirectly from or in connection with the assertion by or on behalf of Weis of
any claim or other matter released pursuant to this Section.
Notwithstanding anything contained herein to the contrary, there is and
shall be excepted from the within and foregoing release and discharge any and
all of the following: any and all of the obligations of the Company under this
Agreement or for the payment of compensation and benefits with respect to Weis'
continued employment through December 31, 1999; all of Weis' accrued and/or
vested benefits under any pension, profit sharing or other welfare or benefit
plan or program in which he is or has been a participant; and any and all rights
which Weis may have as an owner of Common Stock and/or Options.
SECTION 7. NO DISPARAGEMENT. The Company shall not , directly or
indirectly, disparage or impugn the reputation of Weis. Weis shall not, directly
or indirectly, disparage or impugn the reputation of the Company, any of its
subsidiaries or any of their respective shareholders, directors, officers,
employees or agents. Weis hereby confirms that he does not intend to and shall
not, directly or indirectly, make or deliver to the Company any statement for
inclusion (or that the Company might be required to include or refer to) in the
Company's proxy statement or any filing by the Company with the Commission.
SECTION 8. MISCELLANEOUS.
8.1 Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to any
conflicts of laws principles thereof that would call for the application of the
laws of any other jurisdiction.
8.2 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same agreements.
8.3 NOTICES. All notices, demands, requests or other communications
which may be or are required to be given, served or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery (including delivery by courier), or
facsimile transmission, addressed as follows (or to such other addresses as a
party may specify as to itself by notice to the other):
If to the Company:
PubliCARD, Inc.
Rockefeller Center
620 Fifth Avenue
New York, New York 10020
4
<PAGE> 5
Attention: Chairman
Telephone: (212) 489-8021
Facsimile: (212) 307-5781
With a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Joel I. Greenberg, Esq.
Telephone: (212) 836-8201
Facsimile: (212) 836-8211
If to Weis:
James J. Weis
5 Sunset Hill Road
Redding, Connecticut 06896
Telephone & Facsimile: (203) 938-2818
With a copy to:
Berkowitz, Trager & Trager, LLC
253 Post Road West
P.O. Box 808
Westport, Connecticut 06881
Attention: Richard Berkowitz, Esq.
Telephone: (203) 226-1001
Facsimile: (203) 226-3801
8.4 BINDING NATURE OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and permitted assigns as
provided herein.
8.5 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements, understandings,
inducements and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter hereof. The express terms hereof
control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof. This Agreement may not be modified or
amended other than by an agreement in writing.
8.6 INDULGENCES, NOT WAIVERS. Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power of privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and signed by the party asserted to have granted such waiver.
8.7 CONFIDENTIALITY. Weis shall keep the terms of this Agreement
confidential and he will not hereafter disclose any information concerning the
Company or any of its subsidiaries and/or this Agreement to anyone except his
attorneys, accountants, tax and financial advisors, if any, and as otherwise may
be required by law.
8.8 INDEPENDENT JUDGMENT; REVOCATION. The Company and Weis have each
been represented and advised by counsel in connection with the negotiation,
execution and delivery of this Agreement, have exercised independent
5
<PAGE> 6
judgment in connection therewith, and have not relied on any statement, promise,
representation or warranty not expressly set forth in this Agreement. Weis may
revoke this agreement by written notice given to the Company within seven
calendar days after the date on which this Agreement is executed by Weis; if so
revoked, this agreement shall be of no effect. Weis hereby waives the benefit of
any longer revocation or review period to which he may be entitled under any
applicable law.
8.9 DEATH OR DISABILITY. Notwithstanding anything contained in this
Agreement to the contrary, all sums to be paid, stock to be issued and/or
benefits to be provided to Weis under this Agreement shall be paid, issued
and/or provided, as the case may be, notwithstanding Weis' death or disability
at any time after the execution hereof.
8.10 TIME OF THE ESSENCE. Time is of the essence with respect to the
parties' obligations under this Agreement.
PUBLICARD, INC.
By: _____________________________
Name:
Title:
______________________________________
James J. Weis
6
<PAGE> 1
Exhibit 10.12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of November 3, 1999, by
PubliCARD, Inc., a Pennsylvania corporation (the "Employer"), and Jan-Erik
Rottinghuis, an individual (the "Executive").
The parties, intending to be legally bound, hereby agree as
follows:
1. PRE-EMPLOYMENT PAYMENT
The Employer acknowledges that the Executive's termination of
his current employment in order to accept employment with the Employer is
causing him to forfeit valuable unvested stock options and to exercise vested
stock options and sell the stock acquired thereby currently, when market
conditions are unfavorable and when the tax consequences to him under French
legislation will also be unfavorable. In consideration of the economic losses
that the Executive is incurring as a result of these actions which he is
required to take in France and in full satisfaction of a condition set by the
Executive for leaving his present employment position, the Employer and the
Executive have agreed that the Employer shall issue to the Executive 200,000
shares of its common stock, par value $0.10 per share (the "Common Stock").
Delivery of these shares shall be made immediately upon the execution and
delivery of this Agreement or at such later date as shall be specified in
writing by the Executive, and shall be unconditional and not dependent in any
fashion on the Executive's performance of services for the Employer.
2. EMPLOYMENT TERMS AND DUTIES
2.1 EMPLOYMENT; DUTIES
The Employer hereby employs the Executive, and the Executive
hereby accepts employment by the Employer, as its President and Chief Executive
Officer, with such duties consistent with those positions as are assigned or
delegated to him by the Board of Directors of Employer or any duly authorized
committee thereof (the "Board"). The Employer will nominate the Executive to
serve as a member of the Board of Directors of Employer. The Executive will
devote his entire business time, attention, skill and energy exclusively to the
business of the Employer, will use his best efforts to promote the success of
the Employer's business, and will cooperate fully with the Board in the
advancement of the best interests of the Employer.
2.2 TERM
The term of the Executive's employment under this Agreement
will be three years, beginning on December 6, 1999 and ending on the third
anniversary of such date, subject to Section 6.
3. COMPENSATION
3.1 BASIC COMPENSATION
(a) Salary. The Executive will be paid an annual salary of
$350,000 (the "Salary"), which will be payable in equal periodic installments
according to the Employer's customary payroll practices, but no less frequently
than monthly.
b) Option Grants. Upon the execution of this Agreement, the
Employer will issue to the Executive (i) options to acquire 400,000 shares of
Common Stock at an exercise price of $6.75 per share, in the form of Exhibit A
and (ii) contingent options to acquire 400,000 shares of Common Stock, at an
exercise price of $6.75 per share, in the form of Exhibit B.
(c) Benefits. The Executive will, during the term of his
employment be entitled to participate in such pension, profit sharing, bonus,
life insurance, hospitalization, major medical and other employee benefit plans
of the Employer as may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
3.2 BONUS COMPENSATION
The Executive shall be paid a bonus (the "Bonus") for each
calendar year during the term of his employment in an amount determined by the
Board, but not less than $100,000, in quarterly installments of $25,000 each,
with the balance, if any, payable by April 15th of the following year.
<PAGE> 2
4. EXPENSES
4.1 GENERAL
(a) The Employer will reimburse the Executive for reasonable
expenses incurred by the Executive at the request of, or on behalf of, the
Employer in the performance of his duties pursuant to this Agreement, to the
extent incurred and documented in accordance with the Employer's policies.
(b) The Employer will reimburse the Executive for reasonable
moving expenses incurred by the Executive in connection with (i) his move to the
United States from France, and (ii) his return to France from the United States
at the end of the term of his employment.
(c) The Employer will reimburse the Executive for his
reasonable temporary living expenses in the United States until the earlier of
(i) six months from the date of this Agreement, and (ii) the date on which he
establishes and takes occupancy of a residence in the United States.
(d) The Employer will assume the Executive's life insurance
policies (numbers 10-875-722 and 8-915-546) with Northwestern Mutual Life
Insurance Company, 720 East Wisconsin Avenue, Milwaukee WI 53202-4797, and shall
pay the premiums due on such policy during the Employment Period.
(e) The Employer will reimburse the Executive for the
reasonable fees of legal counsel retained by the Executive in connection with
the negotiation of this Agreement, to the extent not exceeding $15,000.
4.2 AUTOMOBILE AND GOLF CLUB
The Employer will reimburse the Executive for the reasonable
rental cost of an appropriate automobile and the reasonable expense of parking,
gasoline, maintenance, insurance and other costs ancillary to the operation of
the automobile during the Employment Period, to the extent documented in
accordance with Employer's policies. In addition, the Employer will reimburse
the Executive for the reasonable dues and expenses of an appropriate golf club
membership.
5. VACATIONS, HOLIDAYS AND HOME LEAVE
5.1 The Executive will be entitled to four weeks' paid
vacation each calendar year in accordance with the vacation policies of the
Employer in effect for its executive officers from time to time.
5.2 The Employer will reimburse the Executive for reasonable
expenses, including business class air fare, incurred by the Executive's wife in
traveling to France once per calendar quarter, to the extent documented in
accordance with the Employer's policies.
6. TERMINATION
6.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Basic Compensation,
Incentive Compensation and Bonus, and any and all other rights of the Executive
under this Agreement or otherwise as an employee of the Employer will terminate
(except as otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the Disability of the Executive immediately upon
notice from either party to the other;
(c) For Cause, immediately upon notice from the Employer to
the Executive, or at such later time as such notice may specify; or
(d) For Good Reason upon not less than thirty days' prior
notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to
have a "Disability" if, for physical or mental reasons, the Executive is unable
to perform the Executive's duties under this Agreement for 120 consecutive days,
or 180 days during any twelve month period, as determined by the Board in good
faith. In order to assist the Board in making that determination, the Executive
will submit to a reasonable number of examinations by a medical doctor
2
<PAGE> 3
designated by the Board and the Executive hereby authorizes the disclosure and
release to the Employer of the results of such examinations and all supporting
medical records.
6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "For Cause" means: (a)
the Executive's breach of this Agreement in any material respect; (b) the
Executive's failure to substantially perform his assigned duties hereunder or to
adhere to any written Employer policy if such failure continues uncured for at
least ten days after notice thereof; (c) the appropriation (or attempted
appropriation) of a material business opportunity of the Employer, including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of the Employer; (d) the misappropriation (or
attempted misappropriation) of any of the Employer's funds or property; or (e)
the conviction of, the indictment for (or its procedural equivalent), or the
entering of a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime, involving fraud or falsehood, or with
respect to which imprisonment is a possible punishment; or (f) use of illegal
drugs or controlled substances or excessive and recurring consumption of
alcoholic beverages.
6.4 DEFINITION OF "FOR GOOD REASON"
For purposes of Section 6.1, the phrase "For Good Reason"
means any of the following: (a) the Employer's breach of this Agreement in any
material respect that continues uncured for at least ten days after notice
thereof from the Executive; (b) the assignment of the Executive without his
consent to a position, responsibilities, or duties inconsistent with Section 2;
(c) the requirement by the Employer that the Executive's principal place of
employment be anywhere more than 75 miles from New York County, without the
Executive's consent; or (d) the assignment of Employer's rights under this
Agreement pursuant to Section 9.6, without the Executive's consent .
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer
will be obligated to pay the Executive (or, in the event of his death, his
estate) only such compensation as is provided in this Section 6.5, in lieu of
all other amounts and in settlement and complete release of all claims the
Executive may have against the Employer.
(A) TERMINATION FOR GOOD REASON OR OTHER THAN FOR CAUSE. If
the Executive's employment pursuant to this Agreement is terminated by
the Employer other than For Cause or by the Executive for Good Reason,
(i) the Employer shall continue to pay to the Executive the Executive's
Salary, Bonus and Incentive Compensation for the remainder of the term
of this Agreement, and (during such period or, if earlier, until he
obtains new employment providing health benefits coverage) the Employer
shall provide such continuation of health benefits coverage, including,
without limitation, medical and dental coverage, required to be
provided to employees, former employees and the beneficiaries or
dependents of such employees and former employees under Part 6 of
Subtitle B of Title I of the Employee Retirement Income Security Act of
1974, as amended, or, if applicable, Section 4980B of the Internal
Revenue Code of 1986, as amended, on terms no less favorable to the
Executive than the terms on which such coverage was provided prior to
termination of his employment and (ii) the Executive will be entitled
to the payment provided by Section 4.1(b)(ii).
(B) TERMINATION UPON DISABILITY. If the Executive's employment
pursuant to this Agreement is terminated by either party as a result of
the Executive's Disability, as determined under Section 5.2, (i) the
Employer will pay the Executive his Salary through the remainder of the
calendar month during which such termination is effective, and that
part of the Executive's (i) Incentive Compensation, if any, for the
calendar year during which his disability occurs, and (ii) Bonus for
the calendar year during which his disability occurs, in each case
prorated through the end of the calendar month during which his
disability occurs , and (ii) the Executive will be entitled to the
payment provided by Section 4.1(b)(ii).
(C) TERMINATION UPON DEATH. If the Executive's employment
pursuant to this Agreement is terminated because of the Executive's
death, the Executive will be entitled to receive his Salary through the
end of the calendar month in which his death occurs, and that part of
the Executive's (i) Incentive Compensation, if any, for the calendar
year during which his death occurs, (ii) Bonus for the calendar year
during which his death occurs, in each case prorated through the end of
the calendar month during which his death occurs, and (iii) the payment
provided by Section 4.1(b)(ii).
(D) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective date of
the termination of his employment pursuant to this this Agreement, and
the Executive will be entitled to accrued Benefits pursuant to such
plans only as provided in this Agreement or in such plans. The
Executive shall receive upon termination of his employment payment, at
the rate of the Salary, for unused vacation that has accrued pursuant
to Section 5.1 through the date of such termination (pro rated for the
calendar year in which such termination occurs). The Executive will not
receive, as part of his
3
<PAGE> 4
termination pay pursuant to this Section 6, any other payment or other
compensation for any vacation, holiday, sick leave, or other leave
unused on the date the notice of termination is given under this
Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that (a) during the term of and as
a part of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information could have
an adverse effect on the Employer and its business; (c) because the Executive
possesses substantial technical expertise and skill with respect to the
Employer's business, the Employer desires to obtain exclusive ownership of each
Employee Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each Employee
Invention; and (d) the provisions of this Section 6 are reasonable and necessary
to prevent the improper use or disclosure of Confidential Information and to
provide the Employer with exclusive ownership of all Employee Inventions.
"CONFIDENTIAL INFORMATION" shall mean any and all:
(a) trade secrets concerning the business and affairs of the
Employer and its subsidiaries, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs, drawings,
samples, inventions and ideas, past, current, and planned research and
development, current and planned manufacturing or distribution methods and
processes, customer lists, current and anticipated customer requirements, price
lists, market studies, business plans, computer software and programs (including
object code and source code), computer software and database technologies,
systems, structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries, concepts,
ideas, designs and methods and information), and any other information, however
documented, that is a trade secret under applicable law; and
(b) information concerning the business and affairs of the
Employer and its subsidiaries (which includes historical financial statements,
financial projections and budgets, historical and projected sales, capital
spending budgets and plans, the names and backgrounds of key personnel and
personnel training and techniques and materials), however documented; and
(c) notes, analysis, compilations, studies, summaries, and
other material prepared by or for the Employer or any of its subsidiaries
containing or based, in whole or in part, on any information included in the
foregoing.
"EMPLOYEE INVENTION" shall mean any idea, invention,
technique, modification, process or improvement (whether patentable or not), any
industrial design (whether registerable or not) and any work of authorship
(whether or not copyright protection may be obtained for it) created, conceived,
or developed by the Executive, either solely or in conjunction with others,
during the term of his employment, or a period that includes a portion of the
term of his employment, that relates in any way to, or is useful in any manner
in, the business then being conducted or proposed to be conducted by the
Employer or any of its subsidiaries, and any such item created by the Executive,
either solely or in conjunction with others, following termination of the
Executive's employment with the Employer, that is based upon or uses
Confidential Information.
7.2 COVENANTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid
or provided to the Executive by the Employer under this Agreement, the Executive
covenants as follows:
(A) Confidentiality.
(i) During and following the term of his employment,
the Executive will hold in confidence the Confidential
Information and will not disclose it to any person except with
the specific prior written consent of the Employer or except
as otherwise expressly permitted by the terms of this
Agreement.
(ii) Any trade secrets of the Employer will be
entitled to all of the protections and benefits under
applicable law. If any information that the Employer deems to
be a trade secret is found by a court of competent
jurisdiction not to be a trade secret for purposes of this
Agreement, such information will, nevertheless, be considered
Confidential Information for purposes of this Agreement. The
Executive hereby waives any requirement that the Employer
submit proof of the economic value of any trade secret.
4
<PAGE> 5
(iii) None of the foregoing obligations and
restrictions applies to any part of the Confidential
Information that the Executive demonstrates was or became
generally available to the public other than as a result of a
disclosure by the Executive.
(iv) The Executive will not remove from the
Employer's or any of its subsidiaries' premises (except to the
extent such removal is for purposes of the performance of the
Executive's duties at home or while traveling, or except as
otherwise specifically authorized by the Employer) any
document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in
any other form (collectively, the "Proprietary Items"). The
Executive ----------------- recognizes that, as between the
Employer and the Executive, all of the Proprietary Items,
whether or not developed by the Executive, are the exclusive
property of the Employer. Upon termination of this Agreement
by either party, or upon the request of the Employer during
the Employment Period, the Executive will return to the
Employer all of the Proprietary Items in the Executive's
possession or subject to the Executive's control, and the
Executive shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary Items.
(B) Employee Inventions. Each Employee Invention will belong
exclusively to the Employer. The Executive acknowledges that all of the
Executive's writing, works of authorship, specially commissioned works
and other Employee Inventions are works made for hire and the property
of the Employer, including any copyrights, patents, or other
intellectual property rights pertaining thereto. If it is determined
that any such works are not works made for hire, the Executive hereby
assigns to the Employer all of the Executive's right, title, and
interest, including all rights of copyright, patent, and other
intellectual property rights, to or in such Employee Inventions. The
Executive covenants that he will promptly:
(i) disclose to the Employer in writing any Employee
Invention;
(ii) assign to the Employer or to a party designated
by the Employer, at the Employer's request and without
additional compensation, all of the Executive's right to the
Employee Invention for the United States and all foreign
jurisdictions;
(iii) execute and deliver to the Employer such
applications, assignments and other documents as the Employer
may request in order to apply for and obtain patents or other
registrations with respect to any Employee Invention in the
United States and any foreign jurisdictions;
(iv) sign all other papers necessary to carry out the
above obligations; and
(v) give testimony and render any other assistance in
support of the Employer's rights to any Employee Invention.
7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy
arising from or relating to this Agreement be submitted for adjudication to any
court, arbitration panel or other third party, the preservation of the secrecy
of Confidential Information may be jeopardized. All pleadings, documents,
testimony and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be
performed by him under this Agreement are of a special, unique, unusual,
extraordinary and intellectual character; (b) the Employer's business is
national in scope and its products are marketed throughout the United States;
(c) the Employer competes with other businesses that are or could be located in
any part of the United States; and (d) the provisions of this Section 8 are
reasonable and necessary to protect the Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and
in consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer, the Executive covenants that he will not, directly or
indirectly:
5
<PAGE> 6
(a) during the term of his employment, except in the course of
his employment hereunder, and during the Post-Employment Period, engage or
invest in, own, manage, operate, finance, control or participate in the
ownership, management, operation, financing or control of, be employed by,
associated with, or in any manner connected with, lend the Executive's name or
any similar name to, lend Executive's credit to or render services or advice to,
any business engaged in any aspect of the Smart Card Business; provided,
however, that the Executive may purchase or otherwise acquire up to (but not
more than) one percent of any class of securities of any enterprise (but without
otherwise participating in the activities of such enterprise) if such securities
are registered under Section 12 of the Securities Exchange Act of 1934, as
amended;
(b) whether for the Executive's own account or for the account
of any other person, at any time during the term of his employment and the
Post-Employment Period, solicit business related to the Smart Card Business from
any person known by the Executive to be a customer of the Employer or any of its
subsidiaries, whether or not the Executive had personal contact with such person
during and by reason of the Executive's employment with the Employer;
(c) whether for the Executive's own account or the account of
any other person (i) at any time during the term of his employment and the
Post-Employment Period, solicit, employ or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer or any of its subsidiaries at any time during the term of his
employment or in any manner induce or attempt to induce any employee of the
Employer or any of its subsidiaries to terminate his employment with the
Employer or any of its subsidiaries; or (ii) at any time during the term of his
employment and for three years thereafter, interfere with the Employer's or any
of its subsidiaries' relationships with any person, including any person who at
any time during the Employment Period was an employee, contractor, supplier, or
customer of the Employer or any of its subsidiaries; or
(d) at any time during or after the term of his employment,
disparage the Employer or any of its subsidiaries, shareholders, directors,
officers, employees or agents.
For purposes of this Section 8.2, (i) the term
"Post-Employment Period" means the two-year period beginning on the date of
termination of the Executive's employment with the Employer, unless the the
Executive's employment pursuant to this Agreement is terminated by the Employer
other than For Cause or by the Executive for Good Reason, in which event it
shall end on the date of termination of the Executive's employment and (ii) the
term "Smart Card Business" means the creation, development, manufacture, sale,
license or distribution of smart cards or smart card systems.
If any covenant in this Section 8.2 is held to be
unreasonable, arbitrary or against public policy, such covenant will be
considered to be divisible with respect to scope, time and geographic area, and
such lesser scope, time or geographic area, or all of them, as a court of
competent jurisdiction may determine to be reasonable, not arbitrary, and not
against public policy, will be effective, binding and enforceable against the
Executive.
The period of time applicable to any covenant in this Section
8.2 will be extended by the duration of any violation by the Executive of such
covenant.
The Executive will, while the covenant under this Section 8.2
is in effect, give notice to the Employer, within ten days after accepting any
other employment, of the identity of the Executive's employer. The Employer may
notify such employer that the Executive is bound by this Agreement and, at the
Employer's election, furnish such employer with a copy of this Agreement or
relevant portions thereof.
9. GENERAL PROVISIONS
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be
suffered by the Employer as a result of a breach of the provisions of this
Agreement (including any provision of Sections 7 and 8) would be irreparable and
that an award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief. In any action to obtain such relief, if the
Executive is the prevailing party he shall be entitled to recover from the
Employer the reasonable costs incurred by him in defending such action,
including, without limitation, reasonable attorneys' fees.
Without limiting the Employer's rights under this Section 9 or
any other remedies of the Employer, if the Executive breaches any of the
provisions of Section 7 or 8, the Employer will have the right to cease making
any payments otherwise due to the Executive under this Agreement. If the
Employer ceases making any such payments to the Executive by reason of the
preceding sentence and it is finally judicially determined that the Executive
had not
6
<PAGE> 7
breached any of the provisions of Section 7 or 8 and that the Employer's failure
to make such payments was not authorized by the preceding sentence, the
Executive shall be entitled to recover, in addition to the payments that the
Employer improperly failed to make, interest on each such payment from the date
it was due until it is made at the prime rate of The Chase Manhattan Bank.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL AND INDEPENDENT
COVENANTS
The covenants by the Executive in Sections 7 and 8 are
essential elements of this Agreement, and without the Executive's agreement to
comply with such covenants, the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The Employer
and the Executive have independently consulted their respective counsel and have
been advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer.
The Executive's covenants in Sections 7 and 8 are independent
covenants and the existence of any claim by the Executive against the Employer
under this Agreement or otherwise will not excuse the Executive's breach of any
covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is
terminated, this Agreement will continue in full force and effect as is
necessary or appropriate to enforce the covenants and agreements of the
Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder will not,
with or without the giving of notice or the passage of time, or both: (a)
violate any judgment, writ, injunction or order of any court, arbitrator or
governmental agency applicable to the Executive; or (b) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Executive is a party or by which the Executive
is or may be bound.
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE
Except as otherwise specifically provided herein, the
obligations of the Employer hereunder, including its obligation to pay the
compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
9.5 WAIVER
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power or privilege under this Agreement will
operate as a waiver of such right, power or privilege, and no single or partial
exercise of any such right, power or privilege will preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any obligation of such party or of the right of the party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be
binding upon, the parties hereto and their respective successors, assigns, heirs
and legal representatives, including any entity with which the Employer may
merge or consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES
All notices, consents, waivers, and other communications under
this Agreement must be in writing and will be deemed to have been duly given
when (a) delivered by hand (with written confirmation of receipt), (b) sent by
facsimile (with written confirmation of receipt), provided that a copy is mailed
by registered mail, return receipt requested or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt
7
<PAGE> 8
requested), in each case to the appropriate addresses and facsimile numbers set
forth below (or to such other addresses and facsimile numbers as a party may
designate by notice to the other parties):
If to Employer:
PubliCARD, Inc.
620 Fifth Avenue
7th Floor
New York, NY 10020
Attention: Harry I. Freund, Chairman
Facsimile No.: (212) 307-5781
With a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
Attention: Joel I. Greenberg, Esq.
Facsimile No.: 212-836-8689
If to the Executive:
c/o PubliCARD, Inc.
620 Fifth Avenue
7th Floor
New York, NY 10020
Facsimile: 212-307-5781
With a copy to:
Levine & Okoshken
51 Avenue Montaigne
75008 Paris, France
Attention: Samuel Okoshken, Esq.
Facsimile 33 1 45 63 24 96
9.8 ENTIRE AGREEMENT; AMENDMENTS
This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, oral or written, between the parties hereto with
respect to the subject matter hereof. This Agreement may not be amended orally,
but only by an agreement in writing signed by the parties hereto.
9.9 GOVERNING LAW
This Agreement will be governed by the laws of the State of
New York without regard to conflicts of laws principles.
9.10 JURISDICTION
Any action or proceeding seeking to enforce any provision of,
or based on any right arising out of, this Agreement may be brought against
either of the parties in the courts of the State of New York, County of New
York, or, if it has or can acquire jurisdiction, in the United States District
Court for the Southern District of New York, and each of the parties consents to
the jurisdiction of such courts (and of the appropriate appellate courts) in any
such action or proceeding and waives any objection to venue laid therein.
Process in any action or proceeding referred to in the preceding sentence may be
served on either party anywhere in the world.
9.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement unless otherwise specified. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
8
<PAGE> 9
9.12 SEVERABILITY
If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
PUBLICARD, INC.
By:_________________________
Name: Harry I. Freund
Title: Chairman
By:
Name: Jay Goldsmith
Title: Vice Chairman
EXECUTIVE:
________________________________
Jan-Erik Rottinghuis
Dated: November 1, 1999
10
<PAGE> 11
Exhibit A
OPTION AGREEMENT
AGREEMENT, dated as of November __, 1999, between PubliCARD,
Inc., a Pennsylvania corporation with offices at One Post Road, Fairfield,
Connecticut 06430 (the "Corporation"), and Jan-Erik Rottinghuis (the
"Optionee").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, do hereby agree as follows:
1. The Optionee is hereby granted an option to purchase from the
Corporation, subject to and under the terms and conditions set forth in
this Agreement, all or any part of 400,000 shares of common stock, par
value $.10 per share of the Corporation (the "Common Stock"), at an
exercise price equal to $6.75 per share (the "Exercise Price"). This
option is not intended to be treated as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. This option shall become exercisable in accordance with the following
schedule:
<TABLE>
<CAPTION>
Number of shares Vesting date
<S> <C>
133,333 November __, 2000
133,333 November __, 2001
133,334 November __, 2002
</TABLE>
If the Optionee's employment is terminated (i) by the Corporation other
than For Cause (as defined in the employment agreement dated November
__, 1999 (the "Employment Agreement") or (ii) by Optionee For Good
Reason (as defined in the Employment Agreement), this option shall
become exercisable in full.
The Optionee may purchase all or any part of the shares then vested
(but not fractions of a share) to which this option relates, at such
time or times as he may desire, until this option expires. Unless
sooner terminated as provided in this Agreement, the options granted
shall expire at 5:00 P.M. Eastern Time on the five year anniversary of
the date hereof (the "Expiration Time"), and any shares not purchased
on or before such date may not thereafter be purchased hereunder.
3. The Optionee shall exercise the option by delivering to the Corporation
a written notice of exercise in substantially the form attached hereto
as Exhibit I. Common Stock purchased pursuant to this Agreement shall
be paid for in full in cash at the time of purchase or in shares of
Common Stock surrendered to the Corporation or in a combination of cash
and such shares. Shares of Common Stock thus surrendered shall be
valued at their Fair Market Value (as defined in this Section 3 below)
on the date of exercise. Upon receipt of payment and written notice of
exercise, the Corporation shall deliver, without stock transfer tax to
the Optionee or other person entitled to exercise the option, to the
person exercising the option, a certificate or certificates for such
shares. It shall be a condition to the performance of the Corporation's
obligation to issue or transfer Common Stock upon exercise of this
option that the person exercising this option pay, or make provision
satisfactory to the Corporation for the payment of, any taxes (other
than stock transfer taxes) which the Corporation is obligated to
collect with respect to the issue or transfer of Common Stock upon
exercise (including any federal, state or local withholding taxes).
As used in this Agreement, the "Fair Market Value" of a share of Common
Stock shall mean the per share value of the Common Stock as of a given
date, determined as follows:
a. If the Common Stock is listed or admitted for trading on the
New York Stock Exchange (or if not, on another national
securities exchange), the Fair Market Value of the Common
Stock is the average of the closing quotations for such stock
based on composite transactions for the New York Stock
Exchange (or if not listed on it, such other national
securities exchange) for the five Trading Days (as defined
below) ending at the close of business on the day prior to
such given date.
b. If the Common Stock is not traded on any national securities
exchange, but is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System (NASDAQ
System) or any similar system of automated dissemination of
quotations of prices in common use, the Fair Market
11
<PAGE> 12
Value of the Common Stock is the average of the last sales
price (if the stock is listed as a national market issue under
the NASDAQ System) or the mean between the closing
representative bid and asked prices (in all other cases) for
the stock as reported by the NASDAQ System (or such similar
quotation system) for the five Trading Days ending at the
close of business on the day prior to such given date.
c. If neither clause (a) nor clause (b) of this definition is
applicable, the Fair Market Value of the Common Stock is the
fair market value per share as of such valuation date, as
determined by the Board of Directors of the Corporation in
good faith and in accordance with uniform principles
consistently applied.
d. "Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business
or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, any business day.
4. The Corporation hereby agrees that at all times there shall be reserved
for issuance and delivery upon exercise of the option such number of
shares of its Common Stock as shall be required for issuance and
delivery upon the exercise of the option, and that such shares, when
issued in accordance with the terms of this Agreement, shall be validly
issued, fully paid, and non-assessable. The Corporation covenants and
agrees that it will from time to time take all such action as may be
necessary to assure that the par value per share of the Common Stock is
at all times equal to or less than the then effective Exercise Price of
the option.
5. This option is not transferable other than by will or the laws of
descent and distribution. Any other transfer of this option (including
without limitation any purported assignment, whether voluntary or by
operation of law, pledge, hypothecation or other disposition contrary
to the provisions hereof, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, of the option)
shall be null and void and of no effect. Any shares issued pursuant to
this option shall not be registered under the Securities Act of 1933,
as amended (the "Act"). The Optionee may not sell or otherwise dispose
of such shares in the absence of either a registration statement under
the Act or an exemption from the registration provisions thereunder,
with respect to which the Optionee shall have delivered to the
Corporation an opinion of counsel, in form satisfactory to the
Corporation, that, under the circumstances, registration is not
required. The certificates representing such shares shall bear a legend
as follows:
The shares represented by this certificate have not
been registered under the Securities Act of 1933 and may not
be transferred in the absence of either an effective
registration statement under the Securities Act of 1933, as
amended (the "Act") with respect to such shares, or an
exemption from the registration provisions of the Act, with
respect to which the Corporation shall have received an
opinion of counsel, in form satisfactory to it, that, under
the circumstances, registration under the Act is not required.
6. This option shall be exercisable during the life of the Optionee only
by the Optionee and the Optionee's guardian or legal representative and
after death only by the Optionee's legal representative.
Notwithstanding the following provisions of this Section 6, no option
shall be exercisable after the Expiration Time. If the Optionee's
consulting arrangement or employment with the Corporation terminates
for any reason other than (i) For Cause, (ii) death or (iii)
termination by the Optionee other than For Good Reason, the option may
be exercised (to the extent it was exercisable immediately preceding
such termination) until 90 days after the date of such termination. If
the option was not exercisable immediately preceding such termination
of employment, the option shall terminate upon such termination of
employment.
If the Optionee's consulting arrangement or employment with the
Corporation is terminated For Cause or by the Optionee other than For
Good Reason, the option shall terminate immediately upon such
termination of the consulting arrangement or employment, regardless of
whether the option was exercisable immediately preceding such
termination of employment.
Upon the death of the Optionee while in active service with the
Corporation, the person or persons to whom the Optionee's rights under
the option are transferred by will or the laws of descent and
distribution may exercise the option until the expiration of 12 months
after the date of the Optionee's death, but only to the extent the
option was exercisable immediately preceding the Optionee's death. If
the option was not exercisable immediately preceding the Optionee's
death, the option shall terminate upon the Optionee's death.
7. If dividends payable in Common Stock during any fiscal year of the
Corporation exceed an aggregate of 5% of the Common Stock issued and
outstanding at the beginning of such fiscal year, or if, during any
fiscal year
12
<PAGE> 13
of the Corporation, there is one or more splits, subdivisions, or
combinations of shares of Common Stock resulting in an increase or
decrease by more than 5% of the shares outstanding at the beginning of
the year, the number of shares available under this option shall be
increased or decreased proportionately, as the case may be, without
change in the aggregate exercise price. Common Stock dividends, splits,
subdivisions, or combinations during any fiscal year which do not
exceed, in the aggregate, 5% of the Common Stock issued and outstanding
at the beginning of such year shall be ignored for purposes of this
option. All adjustments shall be made as of the day such action
necessitating such adjustment becomes effective.
In case the Corporation is merged or consolidated with another
corporation, or in case the property or stock of the Corporation is
acquired by another corporation, or in case of a reorganization or
liquidation of the Corporation, the Board of Directors of the
Corporation, or the board of directors of any corporation assuming the
obligations of the Corporation hereunder, shall either (i) make
appropriate provisions for the protection of this option by the
substitution on an equitable basis of appropriate stock or other
property of the Corporation, or appropriate stock or other property of
the merged, consolidated or otherwise reorganized corporation, provided
only that such substitution of options or other property shall comply
with the requirements of Section 424 of the Code, or (ii) give written
notice to the Optionee that his options, which will become immediately
exercisable (if not already immediately exercisable), must be exercised
within 30 days of the date of such notice (but not later than the
Expiration Time) or they will be terminated.
8. The grant and exercise of this option, and the Corporation's obligation
to sell and deliver shares upon the exercise of this option, shall be
subject to the requirement that, if at any time the Board of Directors
of the Corporation shall determine, in its discretion, that the
listing, registration or qualification of the shares issuable or
transferable upon exercise thereof upon any securities exchange or
under any state or Federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition
of, or in connection with, the granting of this option, the issue,
transfer, or purchase of shares thereunder may not be exercised in
whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors of the Corporation.
The Corporation shall not be obligated to sell or issue any shares of
Common Stock in any manner in contravention of the Securities Act of
1933, as amended or any state securities law.
9. This Agreement shall not give the Optionee any right with respect to
continuance as a consultant or an employee of the Corporation, nor
shall it be a limitation in any way on any legal right which the Board
of Directors of the Corporation, the Corporation's stockholders or an
officer of the Corporation may have to terminate the Optionee as an
employee at any time.
10. The Optionee shall have no rights as a stockholder with respect to any
shares issuable or transferable upon exercise of the option until the
date a stock certificate is issued to the Optionee for such shares,
and, except as otherwise expressly provided in this Agreement, no
adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
11. All notices hereunder shall be in writing, and if to the Corporation,
shall be delivered personally to the Secretary of the Corporation or
mailed to the address provided in the preamble of this Agreement,
addressed to the attention of the Secretary, and if to the Optionee,
shall be delivered personally or mailed to the Optionee at the address
provided in the preamble of this Agreement. Such addresses may be
changed at any time by notice from one party to the other.
12. All decisions or interpretations made by the Board of Directors of the
Corporation with regard to any question arising hereunder shall be
binding and conclusive on the Corporation and the Optionee.
13. This Agreement shall bind and inure to the benefit of the parties
hereto and the successors and assigns of the Corporation and, to the
extent provided in Sections 6 and 8, the executors, administrators,
legatees and heirs of the Optionee.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PUBLICARD, INC.
By: _______________________________
Name:
_______________________________
Jan-Erik Rottinghuis
14
<PAGE> 15
Exhibit I
EXERCISE NOTICE
The undersigned, pursuant to an Option Agreement dated
November __, 1999 between the undersigned and PubliCARD, Inc. (the
"Corporation"), hereby irrevocably elects to exercise purchase rights
represented by said option agreement for, and to purchase thereunder, _______
shares of the Common Stock (the "Shares") of the Corporation covered by said
Option Agreement and herewith makes payment in full therefor pursuant to Section
3 of such Option Agreement.
The undersigned (i) hereby agrees, represents and warrants
that I will not dispose of the shares unless a registration statement under the
Securities Act of 1933, as amended, covering the shares is in effect or, in the
opinion of counsel to the Company, an exemption from such registration is
available, and (ii) hereby acknowledges that the number of shares hereafter
subject to the Option Agreement referred to above is hereafter reduced by the
number of shares which I have hereby elected to purchase.
Very truly yours,
Jan-Erik Rottinghuis
Social Security Number ______________
Address: ______________________
______________________
Dated: ______________________
15
<PAGE> 16
Exhibit B
OPTION AGREEMENT
AGREEMENT, dated as of November __, 1999, between PubliCARD,
Inc., a Pennsylvania corporation with offices at One Post Road, Fairfield,
Connecticut 06430 (the "Corporation"), and Jan-Erik Rottinghuis (the
"Optionee").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, do hereby agree as follows:
1. The Optionee is hereby granted an option to purchase from the
Corporation, subject to and under the terms and conditions set forth in
this Agreement, all or any part of 400,000 shares of common stock, par
value $.10 per share of the Corporation (the "Common Stock"), at an
exercise price equal to $6.75 per share (the "Exercise Price"). This
option is not intended to be treated as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. This option shall become exercisable in accordance with, in such
installments as may be provide in and upon satisfaction of the
applicable Performance Criteria for the periods specified in the
Performance Criteria. The Performance Criteria shall be established by
mutual agreement of the Corporation and Optionee. The parties will
endeavor to agree upon the Performance Criteria within 90 days after
the date hereof.
If the Optionee's employment is terminated (i) by the Corporation other
than For Cause (as defined in the employment agreement dated November
__, 1999 (the "Employment Agreement") or (ii) by Optionee For Good
Reason (as defined in the Employment Agreement), this option shall
thereafter be exercisable for a number of shares equal to the sum of
(i) the number of shares for which it was exercisable immediately prior
to such termination and (ii) the number of shares for which it could
become exercisable after such termination if all Performance Criteria
applicable to the period after termination were met.
The Optionee may purchase all or any part of the shares then vested
(but not fractions of a share) to which this option relates, at such
time or times as he may desire, until this option expires. Unless
sooner terminated as provided in this Agreement, the options granted
shall expire at 5:00 P.M. Eastern Time on the five year anniversary of
the date hereof (the "Expiration Time"), and any shares not purchased
on or before such date may not thereafter be purchased hereunder.
3. The Optionee shall exercise the option by delivering to the Corporation
a written notice of exercise in substantially the form attached hereto
as Exhibit I. Common Stock purchased pursuant to this Agreement shall
be paid for in full in cash at the time of purchase or in shares of
Common Stock surrendered to the Corporation or in a combination of cash
and such shares. Shares of Common Stock thus surrendered shall be
valued at their Fair Market Value (as defined in this Section 3 below)
on the date of exercise. Upon receipt of payment and written notice of
exercise, the Corporation shall deliver, without stock transfer tax to
the Optionee or other person entitled to exercise the option, to the
person exercising the option, a certificate or certificates for such
shares. It shall be a condition to the performance of the Corporation's
obligation to issue or transfer Common Stock upon exercise of this
option that the person exercising this option pay, or make provision
satisfactory to the Corporation for the payment of, any taxes (other
than stock transfer taxes) which the Corporation is obligated to
collect with respect to the issue or transfer of Common Stock upon
exercise (including any federal, state or local withholding taxes).
As used in this Agreement, the "Fair Market Value" of a share of Common
Stock shall mean the per share value of the Common Stock as of a given
date, determined as follows:
a. If the Common Stock is listed or admitted for trading on the
New York Stock Exchange (or if not, on another national
securities exchange), the Fair Market Value of the Common
Stock is the average of the closing quotations for such stock
based on composite transactions for the New York Stock
Exchange (or if not listed on it, such other national
securities exchange) for the five Trading Days (as defined
below) ending at the close of business on the day prior to
such given date.
b. If the Common Stock is not traded on any national securities
exchange, but is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System (NASDAQ
System) or any similar system of automated dissemination of
quotations of prices in common use, the Fair Market
16
<PAGE> 17
Value of the Common Stock is the average of the last sales
price (if the stock is listed as a national market issue under
the NASDAQ System) or the mean between the closing
representative bid and asked prices (in all other cases) for
the stock as reported by the NASDAQ System (or such similar
quotation system) for the five Trading Days ending at the
close of business on the day prior to such given date.
c. If neither clause (a) nor clause (b) of this definition is
applicable, the Fair Market Value of the Common Stock is the
fair market value per share as of such valuation date, as
determined by the Board of Directors of the Corporation in
good faith and in accordance with uniform principles
consistently applied.
d. "Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business
or, if the Common Stock is not listed or admitted to trading
on any national securities exchange, any business day.
4. The Corporation hereby agrees that at all times there shall be reserved
for issuance and delivery upon exercise of the option such number of
shares of its Common Stock as shall be required for issuance and
delivery upon the exercise of the option, and that such shares, when
issued in accordance with the terms of this Agreement, shall be validly
issued, fully paid, and non-assessable. The Corporation covenants and
agrees that it will from time to time take all such action as may be
necessary to assure that the par value per share of the Common Stock is
at all times equal to or less than the then effective Exercise Price of
the option.
5. This option is not transferable other than by will or the laws of
descent and distribution. Any other transfer of this option (including
without limitation any purported assignment, whether voluntary or by
operation of law, pledge, hypothecation or other disposition contrary
to the provisions hereof, or levy of execution, attachment, trustee
process or similar process, whether legal or equitable, of the option)
shall be null and void and of no effect. Any shares issued pursuant to
this option shall not be registered under the Securities Act of 1933,
as amended (the "Act"). The Optionee may not sell or otherwise dispose
of such shares in the absence of either a registration statement under
the Act or an exemption from the registration provisions thereunder,
with respect to which the Optionee shall have delivered to the
Corporation an opinion of counsel, in form satisfactory to the
Corporation, that, under the circumstances, registration is not
required. The certificates representing such shares shall bear a legend
as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred in the absence of either an effective registration
statement under the Securities Act of 1933, as amended (the
"Act") with respect to such shares, or an exemption from the
registration provisions of the Act, with respect to which the
Corporation shall have received an opinion of counsel, in form
satisfactory to it, that, under the circumstances,
registration under the Act is not required.
6. This option shall be exercisable during the life of the Optionee only
by the Optionee and the Optionee's guardian or legal representative and
after death only by the Optionee's legal representative.
Notwithstanding the following provisions of this Section 6, no option
shall be exercisable after the Expiration Time. If the Optionee's
consulting arrangement or employment with the Corporation terminates
for any reason other than (i) For Cause, (ii) death or (iii)
termination by the Optionee other than For Good Reason, the option may
be exercised (to the extent it was exercisable immediately preceding
such termination) until 90 days after the date of such termination. If
the option was not exercisable immediately preceding such termination
of employment, the option shall terminate upon such termination of
employment.
If the Optionee's consulting arrangement or employment with the
Corporation is terminated For Cause or by the Optionee other than For
Good Reason, the option shall terminate immediately upon such
termination of the consulting arrangement or employment, regardless of
whether the option was exercisable immediately preceding such
termination of employment.
Upon the death of the Optionee while in active service with the
Corporation, the person or persons to whom the Optionee's rights under
the option are transferred by will or the laws of descent and
distribution may exercise the option until the expiration of 12 months
after the date of the Optionee's death, but only to the extent the
option was exercisable immediately preceding the Optionee's death. If
the option was not exercisable immediately preceding the Optionee's
death, the option shall terminate upon the Optionee's death.
7. If dividends payable in Common Stock during any fiscal year of the
Corporation exceed an aggregate of 5% of the Common Stock issued and
outstanding at the beginning of such fiscal year, or if, during any
fiscal year
17
<PAGE> 18
of the Corporation, there is one or more splits, subdivisions, or
combinations of shares of Common Stock resulting in an increase or
decrease by more than 5% of the shares outstanding at the beginning of
the year, the number of shares available under this option shall be
increased or decreased proportionately, as the case may be, without
change in the aggregate exercise price. Common Stock dividends, splits,
subdivisions, or combinations during any fiscal year which do not
exceed, in the aggregate, 5% of the Common Stock issued and outstanding
at the beginning of such year shall be ignored for purposes of this
option. All adjustments shall be made as of the day such action
necessitating such adjustment becomes effective.
In case the Corporation is merged or consolidated with another
corporation, or in case the property or stock of the Corporation is
acquired by another corporation, or in case of a reorganization or
liquidation of the Corporation, the Board of Directors of the
Corporation, or the board of directors of any corporation assuming the
obligations of the Corporation hereunder, shall either (i) make
appropriate provisions for the protection of this option by the
substitution on an equitable basis of appropriate stock or other
property of the Corporation, or appropriate stock or other property of
the merged, consolidated or otherwise reorganized corporation, provided
only that such substitution of options or other property shall comply
with the requirements of Section 424 of the Code, or (ii) give written
notice to the Optionee that his options, which will become immediately
exercisable (if not already immediately exercisable), must be exercised
within 30 days of the date of such notice (but not later than the
Expiration Time) or they will be terminated.
8. The grant and exercise of this option, and the Corporation's obligation
to sell and deliver shares upon the exercise of this option, shall be
subject to the requirement that, if at any time the Board of Directors
of the Corporation shall determine, in its discretion, that the
listing, registration or qualification of the shares issuable or
transferable upon exercise thereof upon any securities exchange or
under any state or Federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition
of, or in connection with, the granting of this option, the issue,
transfer, or purchase of shares thereunder may not be exercised in
whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Board of Directors of the Corporation.
The Corporation shall not be obligated to sell or issue any shares of
Common Stock in any manner in contravention of the Securities Act of
1933, as amended or any state securities law.
9. This Agreement shall not give the Optionee any right with respect to
continuance as a consultant or an employee of the Corporation, nor
shall it be a limitation in any way on any legal right which the Board
of Directors of the Corporation, the Corporation's stockholders or an
officer of the Corporation may have to terminate the Optionee as an
employee at any time.
10. The Optionee shall have no rights as a stockholder with respect to any
shares issuable or transferable upon exercise of the option until the
date a stock certificate is issued to the Optionee for such shares,
and, except as otherwise expressly provided in this Agreement, no
adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
11. All notices hereunder shall be in writing, and if to the Corporation,
shall be delivered personally to the Secretary of the Corporation or
mailed to the address provided in the preamble of this Agreement,
addressed to the attention of the Secretary, and if to the Optionee,
shall be delivered personally or mailed to the Optionee at the address
provided in the preamble of this Agreement. Such addresses may be
changed at any time by notice from one party to the other.
12. All decisions or interpretations made by the Board of Directors of the
Corporation with regard to any question arising hereunder shall be
binding and conclusive on the Corporation and the Optionee.
13. This Agreement shall bind and inure to the benefit of the parties
hereto and the successors and assigns of the Corporation and, to the
extent provided in Sections 6 and 8, the executors, administrators,
legatees and heirs of the Optionee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PUBLICARD, INC.
By: _______________________________
Name:
18
<PAGE> 19
________________________________
Jan-Erik Rottinghuis
19
<PAGE> 20
Exhibit I
EXERCISE NOTICE
The undersigned, pursuant to an Option Agreement dated
November __, 1999 between the undersigned and PubliCARD, Inc. (the
"Corporation"), hereby irrevocably elects to exercise purchase rights
represented by said option agreement for, and to purchase thereunder, _______
shares of the Common Stock (the "Shares") of the Corporation covered by said
Option Agreement and herewith makes payment in full therefor pursuant to Section
3 of such Option Agreement.
The undersigned (i) hereby agrees, represents and warrants
that I will not dispose of the shares unless a registration statement under the
Securities Act of 1933, as amended, covering the shares is in effect or, in the
opinion of counsel to the Company, an exemption from such registration is
available, and (ii) hereby acknowledges that the number of shares hereafter
subject to the Option Agreement referred to above is hereafter reduced by the
number of shares which I have hereby elected to purchase.
Very truly yours,
Jan-Erik Rottinghuis
Social Security Number _______________
Address: ______________________
____________________
Dated: ____________________
20
<PAGE> 1
EXHIBIT 10.13
PUBLICARD, INC.
1999 LONG TERM INCENTIVE PLAN
PubliCARD, Inc., a Pennsylvania corporation, (the "Company")
has adopted the 1999 Long-Term Incentive Plan (the "Plan"), effective as of
August 4, 1999, to (1) attract and retain key employees, (2) motivate
participants to achieve long-term goals, (3) encourage employees to acquire a
proprietary interest in the Company through the ownership of Company stock, and
(4) reward consultants to the Company who are not employees of the Company
("Consultants").
ARTICLE I
DEFINITIONS
When used herein, the following terms shall have the meaning
set forth below, unless the context clearly indicates otherwise:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Cause" shall mean (a) the conviction of the holder of a Plan
Award of a felony or a crime involving moral turpitude or (b) the commission by
the holder of a Plan Award of a public or notorious act which subjects the
Company to public disrespect, scandal or ridicule and which adversely affects
the value of the services to the Company of the holder of the Plan Award.
1.3 "Change in Control" shall mean:
(i) any person within the meaning of Sections
13(d) and 14(d) of the Securities Exchange
Act of 1934 (other than the Company or any
Subsidiary or any trustee or other fiduciary
holding securities under an employee benefit
plan of the Company or any Subsidiary),
becoming the beneficial owner (within the
meaning of Rule 13d-3 under the Securities
Exchange Act of 1934) directly or
indirectly, of securities of the Company
representing thirty percent (30%) or more of
the combined voting power of the Company's
then outstanding securities;
(ii) a majority of the directors elected at any
special or annual meeting of stockholders
are not individuals nominated by the
Company's incumbent Board, or individuals
who are members of the Company's Board at
any one time shall immediately thereafter
cease to constitute a majority of the Board;
(iii) the approval of the Company's stockholders
of the merger or consolidation of the
Company with another corporation, the sale
of substantially all of the Company's assets
or the liquidation or dissolution of the
Company, unless, in the case of a merger or
consolidation, at least two-thirds (2/3) of
the directors in office immediately prior to
such merger or consolidation constitute at
least two-thirds (2/3) of the members of the
board of directors of the surviving
corporation of such merger and
consolidation. Notwithstanding anything
herein to the contrary, unless specifically
provided in advance by the Board, a Change
in Control shall not be deemed to have
occurred as a result of any event that
occurs on or after the date the Company
files a voluntary petition to reorganize
under Chapter 11 of the United States
Bankruptcy Code or to liquidate under
chapter 7 of such Code, or following the
filing of an involuntary bankruptcy petition
against the Company.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
<PAGE> 2
1.5 "Committee" shall mean the Compensation Committee of the
Board, as appointed pursuant to Section 2.1 hereof.
1.6 "Common Stock" shall mean the common stock of the Company, par
value $.10 per share.
1.7 "Company" shall mean PubliCARD, Inc.
1.8 "Disability" shall mean (a) the definition of "disability"
used in any employment agreement between a Participant and the Company or (b)
for any Optionee who has not entered into an employment agreement with the
Company, the inability, by reason of bodily injury or physical or mental
desease, or any combination thereof, of the Optionee to perform his customary
duties with the Company for a period of ninety (90) days (whether or not
consecutive) in any period of one hundred and eighty (180) consecutive days.
1.9 "Employee" shall mean an officer or other employee of the
Company or any Subsidiary.
1.10 "Fair Market Value" per share of Common Stock as of a
particular date shall mean, unless otherwise determined by the Board:
(i) the closing sales price per hare of Common
Stock on a national securities exchange for
the business day preceding the exercise date
on which there was a sale of Shares on such
exchange;
(ii) if clause (i) does not apply and the shares
of Common Stock are then quoted on the
National Association of Securities Dealers
Automated Quotation system (known as
"NASDAQ"), the closing price per share of
Common Stock as reported on such system for
the business day preceding the exercise date
on which a sale was reported;
(iii) if clause (i) or (ii) does not apply and the
shares of Common Stock are then traded on an
over-the-counter market, the closing price
per share of Common Stock in such
over-the-counter market for the business day
preceding the exercise date; or
(iv) if the shares of Common Stock are not then
listed on a national securities exchange or
traded in an over-the-counter market, such
value as the Board in its discretion may
determine.
1.11 ""Good Reason" shall mean a significant change in the nature or
scope of the authorities, powers, functions, or duties normally attached to an
Employee's position with the Company.
1.12 "Grantee" shall mean an Employee or Consultant who is granted
an SAR.
1.13 "ISO" shall mean an Option which meets the requirement of
Section 422 of the Code.
1.14 "NQSO" shall mean an Option that does not qualify as an ISO.
1.15 "Option" shall mean either an ISO or a NQSO, as the context
requires and as reflected in the applicable Option Agreement.
1.16 "Option Agreement" shall mean an agreement between the Company
and an Optionee setting forth the terms of any Option.
1.17 "Optionee" shall mean the recipient of an Option.
2
<PAGE> 3
1.18 "Participant" shall mean any Employee or Consultant to whom a
Plan Award of any kind has been made.
1.19 "Plan Award" shall mean an award of Options, restricted stock,
SARs or other equity-based award as the Committee determines.
1.20 "SAR" shall mean a Stock Appreciation Right granted pursuant
to ArticleVI of the Plan.
1.21 "Subsidiary" shall mean any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50 percent
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
1.22 "Termination of Employment" shall mean the date on which the
employment relationship between the Company or any Subsidiary and a Participant
terminates for any reason, including, without limitation, resignation, death,
disability or retirement, excluding, at the discretion of the Committee, a
termination of employment followed immediately by the commencement of a
consulting relationship between the Company or a Subsidiary and a former
employee.
ARTICLE II
PLAN ADMINISTRATION
2.1 COMMITTEE. The Plan shall be administered by the Committee
which shall consist of at least two members of the Board who shall be appointed
by and serve at the pleasure of the Board, provided that each committee member
must qualify as an "outside director" as such term is defined in Section 162(m)
of the Code, unless the Board determines otherwise, in its sole discretion. Any
vacancies in the Committee shall be filled by the Board. Committee members may
resign at any time by delivering thirty (30) days' advance written notice to the
Board, and may be removed by the Board at any time for any reason.
2.2 DUTIES AND POWERS OF THE COMMITTEE. The Committee shall adopt
rules and regulations for carrying out the administration of the Plan as it
deems appropriate. The Committee shall have the power and the authority to
interpret and construe the Plan and the agreements pursuant to which Plan Awards
are made, and any interpretation and decision by the Committee with regard to
any question or matter arising under the Plan shall be final and binding on all
persons. Subject to the provisions hereof, the Committee from time to time shall
determine the terms and conditions of all Plan Awards, including, but not
limited to: (a) selecting the persons to whom Plan Awards are granted, (b)
determining whether the Plan Award to any individual should be Options, SARs,
Restricted Stock or any combination thereof, and the number of Options, SARs and
shares of Restricted Stock to be granted to any Employee or consultant, (c)
determining the time or times at which Plan Awards shall be granted, (d)
determining the duration of each Plan Award, (e) imposing any restrictions
applicable to Plan Awards, and (f) imposing any other terms and conditions it
deems appropriate for Plan Awards. The Committee also shall have the authority
and discretion to determine the extent to which Plan Awards will be structured
in order to comply with Section 162(m) of the Code.
2.3 MAJORITY RULE. The Committee shall act by a majority of its
members in attendance at a meeting at which a quorum is present or by a
memorandum or other written instrument signed by all Committee members.
2.4 COMPENSATION. Members of the Committee shall receive such
compensation for their services as may be determined by the Board, in its sole
discretion. All expenses and liabilities which any member of the Committee
incurs in connection with administering the Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants, appraisers,
brokers or other persons to assist them, and shall be entitled to rely on the
advice of such persons.
3
<PAGE> 4
ARTICLE III
SHARES SUBJECT TO THE PLAN
3.1 SHARES OF STOCK SUBJECT TO THE PLAN. (a) Except as provided in
Section 10, the aggregate number of shares of Common Stock that may be issued or
transferred pursuant to Plan Awards shall not exceed 3,000,000 which may be
authorized and unissued shares or previously issued shares acquired by the
Company and held in treasury, or any combination thereof. Any shares subject to
a Plan Award which for any reason terminates, expires, or is forfeited may be
subject to a new Plan Award, to the extent consistent with applicable law. If an
Option or related SAR is exercised for stock, the shares covered by such Option
or SAR shall not thereafter be available for grant pursuant to the Plan.
(b) The maximum number of shares of common stock that may be
issued with respect to Options intended to be ISOs shall be 3,000,000. The
maximum number of Options that may be granted to any individual in any year
shall be 500,000.
ARTICLE IV
TERM
4.1 TERM. All Plan Awards must be made within ten years from
August 4, 1999.
ARTICLE V
STOCK OPTIONS
5.1 TERMS OF OPTIONS. At the time an Option is granted, the
Committee shall determine (a) the number of Options to be granted, (b) whether
the Options are to be ISOs or NQSOs, (c) the exercise price of each Option,
provided that the exercise price of any Option that is intended to be an ISO
shall be at least equal to the Fair Market Value of the Common Stock on the date
of grant; not less than 110% of Fair Market Value in the case of a grant to an
Employee who owns more than 10 percent of the total combined voting power of all
classes of stock of the Company or any Subsidiary (a "10% Stockholder"), and (d)
subject to Section 5.3 hereof, the period during which an Option shall vest, and
become exercisable; provided, however, that no Option shall be exercisable after
the tenth (10th) anniversary of the date on which it was granted (the fifth
(5th) anniversary in the case of an ISO granted to a 10% Stockholder).
Notwithstanding the foregoing or anything else herein to the contrary, the
Committee may, in its sole discretion and subject to whatever terms and
conditions it deems appropriate, accelerate the exercisability of an Option at
any time.
5.2 MANNER OF EXERCISE. All or a portion of an exercisable Option
shall be deemed exercised upon the Optionee's delivery to the Secretary of the
Company of: (a) a written notice of exercise, delivered in person or by first
class mail to the Secretary of the Company at the Company's principal executive
office, in the form prescribed by the Committee and executed by the Optionee or
such person as is then authorized to exercise the Option, (b) payment in full of
the exercise price in cash, by check, or, if the Committee so permits, by
transferring previously owned shares of Common Stock (valued at Fair Market
Value on the exercise date) or any combination thereof, (c) such representations
and documents as the Committee, in its sole discretion, deems necessary or
advisable to effect compliance with all applicable provisions of the Securities
Act of 1933, as amended, and any other federal or state securities laws or
regulations. The Committee may, in its sole discretion, also take whatever
additional actions it deems appropriate to effect such compliance including,
without limitation, placing legends on share certificates and issuing
stop-transfer notices to agents and registrars, and (d) in the event that the
Option shall be exercised pursuant to Section 5.3 by any person or persons other
than the Optionee, appropriate proof of the right of such person or persons to
exercise the Option. Not less than one hundred (100) shares may be purchased at
any time upon the exercise of an Option unless the number of shares of Common
Stock so purchased constitutes the total number of shares then purchased under
the Option or the Committee determines otherwise in its sole discretion.
5.3 EXERCISABILITY FOLLOWING TERMINATION OF EMPLOYMENT. Subject to
the Committee's discretion, following an Optionee's Termination of Employment,
his or her Options shall be exercisable as follows:
4
<PAGE> 5
(a) Any Option which is not exercisable on the date of such
Termination of Employment shall not be exercisable thereafter.
(b) If an Optionee voluntarily resigns without Good Reason or
is terminated for Cause, all Options shall terminate as of the day before the
date of the Optionee's Termination of Employment, whether then exercisable or
not.
(c) If an Optionee's Termination of Employment is due to
death, Disability, or retirement on or after reaching age 60, any exercisable
Option held by the Employee shall remain exercisable for their original term,
provided that (i) any ISOs must be exercised within ninety (90) days following
Termination of Employment by reason of death or retirement and one (1) year
following Termination by reason of Disability; and (ii) any Option intended to
be an ISO that is not exercised within such period shall be treated as an NQSO
and shall remain exercisable for its original term.
(d) Upon an Optionee's Termination of Employment for any other
reason, any exercisable Options shall remain exercisable for a period of thirty
(30) days from the date of his Termination of Employment, but not later than the
original expiration date of the Option, and shall thereafter terminate.
(e) Upon a Change in Control of the Company, all Options held
by an Optionee that are not then exercisable shall become exercisable
immediately, and shall remain exercisable for their original term.
5.4 EXERCISABILITY FOLLOWING TERMINATION OF CONSULTING ARRANGEMENT.
Upon the termination of a consulting arrangement for any reason, any Options
then held by a consultant that are not exercisable shall expire on such date and
any Options that are then exercisable shall remain exercisable for thirty (30)
days following such termination and may not thereafter be exercised, provided
that such termination was not due to the misfeasance or nonfeasance of the
consultant, in which case all Options shall be void and no longer exercisable as
of the date of termination of the arrangement.
5.5 OPTION AGREEMENTS. Each Option shall be evidenced by a written
stock option agreement in such form, not inconsistent with the Plan, as the
Committee shall approve from time to time, in its sole discretion, which
agreements need not be identical, and shall be subject to such terms and
conditions as the Committee may prescribe, consistent with this Plan.
5.6 RELOAD OPTIONS. The Committee shall have the authority (but not the
obligation) to include within any Option Agreement a provision entitling the
Optionee to a further Option (a "Reload Option") if the Optionee exercises the
Option evidenced by the Option Agreement, in whole or in part, by surrendering
other shares of Common Stock held by the Optionee in accordance with the terms
and conditions of the Option Agreement. Any such Reload Option shall not be an
ISO; shall be for a number of shares equal to the number of surrendered shares;
shall have an exercise price equal to the Fair Market Value of the Common Stock
on the date of exercise of the original Option; shall become exercisable if the
purchased shares are held for a period of time established by the Committee; and
shall be subject to such other terms and conditions as the Committee, in its
sole discretion, may determine.
5.7 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATE. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
Common Stock purchased upon the exercise of any Option or portion thereof prior
to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification
of such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body which the Committee shall, in its sole and absolute discretion,
deem necessary or advisable;
5
<PAGE> 6
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its sole and
absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such
shares, including payment of any applicable withholding tax.
5.8 Rights as Stockholders. The holders of Options shall not be, nor
have any of the rights or privileges of, stockholders of the Company in respect
of any shares purchasable upon the exercise of any part of an Option unless and
until certificates representing such shares have been issued by the Company to
such holders.
ARTICLE VI
STOCK APPRECIATION RIGHTS
6.1 GRANT OF STOCK APPRECIATION RIGHTS. The Committee may grant a Stock
Appreciation Right (a) in connection and simultaneously with the grant of an
Option, (b) with respect to a previously granted Option, or (c) independent of
an Option. An SAR shall be subject to such terms and conditions not inconsistent
with this Plan as the Committee shall impose, and shall be evidenced by a
written Stock Appreciation Right Agreement, which shall be executed by the
Grantee and an authorized officer of the Company. The Committee, in its
discretion, may determine whether an SAR is to qualify as performance-based
compensation as described in Section 162(m) of the Code, and Stock Appreciation
Right Agreements evidencing SARs intended to so qualify shall contain such terms
and conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code. Without limiting the generality of the preceding sentence,
the Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition to the grant of an SAR that the Employee or consultant
surrender for cancellation some or all of the unexercised Options, awards of
Restricted Stock, SARs, or other rights which have been previously granted to
him under this Plan or otherwise. An SAR, the grant of which is conditioned upon
such surrender, may have an exercise price lower (or higher) than the exercise
price of the surrendered Option or other award, may cover the same (or a lesser
or greater) number of shares as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, exercise period or any other term or condition of such
surrendered Option or other award.
6.2 CHARACTERISTICS OF STOCK APPRECIATION RIGHTS.
(a) A SAR that is granted in connection with a particular
Option (i) may be granted for no more than the number of shares of Common Stock
subject to such Option, (ii) shall be exercisable only when and to the extent
the related Option is exercisable, and (iii) shall entitle the Grantee (or other
person entitled to exercise the Option) to surrender to the Company the
unexercised portion of any then exercisable Option to which such SAR relates and
to receive from the Company in exchange therefor an amount determined by
multiplying the difference obtained by subtracting the exercise price of the
Option from the Fair Market Value of a share of Common Stock on the date of
exercise of the SAR by the number of shares of Common Stock with respect to
which the SAR shall have been exercised, subject to any limitations the
Committee may impose.
(b) A SAR (i) which is independent of and not related to an
Option shall be exercisable in such installments as the Committee may determine;
shall cover such number of shares of Common Stock as the Committee may
determine; subject to Section 6.3, shall be exercisable only while the grantee
is an Employee or a Consultant, and (ii) such SAR shall entitle the Grantee (or
other person entitled to exercise the SAR) to exercise all or a specified
portion of the SAR and to receive from the Company an amount determined by
multiplying the difference obtained by subtracting the price per share at which
the SAR was granted from the Fair Market Value of a share of Common Stock on the
date of exercise of the SAR by the number of shares of Common Stock with respect
to which the SAR shall have been exercised, subject to any limitations the
Committee may impose.
6
<PAGE> 7
6.3 EXERCISE FOLLOWING TERMINATION OF EMPLOYMENT AND CONSULTANCY.
Subject to the Committee's discretion, (i) an Employee whose employment
terminates while he or she is holding exercisable SARs shall be entitled to
exercise such SARs for the same period as exercisable Options may be exercised
pursuant to Section 5.3(a)-(f) hereof (whether or not any such SARs were awarded
in connection with any Option), and (ii) any SARs held by a consultant, whether
or not exercisable, shall terminate on the date the consultancy arrangement
terminates, unless the Committee determines otherwise.
ARTICLE VII
RESTRICTED STOCK
7.1 AWARD OF RESTRICTED STOCK
(a) The Committee shall from time to time, in its sole and
absolute discretion, (i) determine the purchase price, if any, and form of
payment for Restricted Stock; provided, however, that the purchase price shall
be no less than the par value of the Common Stock at the time an award is made,
and (ii) determine any other terms and conditions applicable to such Restricted
Stock, consistent with this Plan.
(b) Upon the selection of an Employee or consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on the
issuance of such Restricted Stock as it deems appropriate.
(c) Notwithstanding the foregoing or anything to the contrary
herein, each Restricted Stock Agreement shall provide that, upon a Change in
Control, any restrictions on Restricted Stock held by a Participant shall lapse
and be of no further force or effect, and the holder thereof shall be treated as
the owner of such Stock thereafter.
7.2 RESTRICTIONS. All shares of Restricted Stock issued under this Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide, which
restrictions may include, without limitation, restrictions concerning voting
rights and transferability and restrictions based on duration of employment with
the Company, Company performance and individual performance; provided, however,
that the Committee may, on such terms and conditions as it may determine to be
appropriate, remove any or all of the restrictions imposed by the terms of the
Restricted Stock Agreement. Restricted Stock may not be sold or encumbered until
all restrictions terminate or expire.
7.3 TERMINATION OF EMPLOYMENT. Except as otherwise expressly provided
for herein, any shares of Restricted Stock which are subject to restriction upon
an Employee's Termination of Employment with the Company for any reason or when
a consulting arrangement terminates, as applicable, shall be forfeited and the
Participant shall have no further rights to or with respect to such shares.
7.4 REPURCHASE OF RESTRICTED STOCK. The Committee shall provide in the
terms of each individual Restricted Stock Agreement that upon a Termination of
Employment or, if applicable, upon a termination of any consulting relationship
between the restricted stockholder and the Company, the Company shall have the
right but not the obligation, to purchase any Restricted Stock held by such
employee or consultant at a cash price per share equal to the price paid by the
Employee or consultant for such Restricted Stock; provided, however, that
provision may be made that no such right of repurchase shall exist in the event
of a Termination of Employment or termination of consultancy without Cause, or
because of retirement, death, disability, or otherwise.
7.5 RESTRICTED STOCK AGREEMENT. Restricted Stock shall be issued only
pursuant to a written Restricted Stock Agreement, which shall be executed by the
selected Employee or consultant and an authorized officer of the Company and
which shall contain such terms and conditions as the Committee shall determine,
consistent with this Plan.
7.6 ESCROW. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been
7
<PAGE> 8
removed. While such shares are held by the escrow holder, the Participant shall
have, unless otherwise provided by the Committee, all the rights of a
stockholder with respect to said shares, subject to any restrictions among other
shareholders of Common Stock, including the right to receive all dividends and
other distributions paid or made with respect to the shares; provided, however,
that in the discretion of the Committee, any extraordinary distributions with
respect to the Common Stock shall be subject to the restrictions set forth in
Section 7.2.
7.7 LEGEND. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to be
placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Restricted Stock Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE VIII
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
8.1 CAPITAL ADJUSTMENTS. (a) If dividends payable in Common Stock
during any fiscal year of the Company exceed in the aggregate 5% of the Common
Stock issued and outstanding at the beginning of such fiscal year, or if there
is during any fiscal year of the Company one or more splits, subdivisions, or
combinations of shares of Common Stock resulting in an increase or decrease of
more than 5% of the shares outstanding at the beginning of the year, the number
of shares available under the Plan shall be increased or decreased
proportionately, as the case may be, the number of shares subject to SARs and
the related Fair Market Value thereof as of the date of grant shall be increased
or decreased proportionately, as the case may be, and the number of shares
deliverable upon the exercise thereafter of any Options theretofore granted
shall be increased or decreased proportionately, as the case may be, without
change in the aggregate purchase price. Common Stock dividends, splits,
subdivisions, or combinations during any fiscal year which do not exceed in the
aggregate 5% of the Common Stock issued and outstanding at the beginning of such
year shall be ignored for purposes of the Plan. All adjustments shall be made as
of the day such action necessitating such adjustment becomes effective.
(b) MERGER OR CONSOLIDATION. If the Company is merged or
consolidated with or into another corporation, or if the Common Stock or
substantially all of the Company's assets are exchanged for the stock of another
corporation, or in case of a reorganization or liquidation of the Company, the
Board, or the board of directors of any corporation assuming the obligations of
the Company hereunder, shall either (i) make appropriate provisions for the
protection of any Plan Awards by the substitution on an equitable basis of
appropriate stock or other property of the Company, or appropriate stock or
other property of the merged, consolidated, or otherwise reorganized
corporation, provided only that such substitution of options or other property
shall comply with the requirements of Section 424 of the Code for ISOs, or (ii)
terminate all restrictions relating to Restricted Stock awards and give written
notice to Optionees that their Options and any SARs or other Plan Award, will
become immediately exercisable, notwithstanding any waiting period or other
restriction otherwise prescribed by the Committee, and must be exercised within
a stated period of the date of such notice or they will be terminated.
ARTICLE IX
TERMINATION AND AMENDMENT OF THE PLAN
9.1 (a) The Committee shall have the right to amend or suspend the
Plan, in whole or in part, or to terminate the Plan at any time; provided,
however, that no such action shall effect or in any way impair the rights of a
recipient under any Plan Award theretofore granted; and, provided further, that,
except as provided in Article VIII, unless first duly approved by the
stockholders of the Company entitled to vote thereon at a meeting (which may be
the annual meeting) duly called and held for such purpose, or by a consent of
stockholders, no amendment or change shall be made in the Plan that: (a)
increases the total number of shares which may be issued or transferred under
the Plan; (b) changes the purchase price hereinbefore specified for the shares
subject to options; (c) extends the period during which Plan Awards may be
granted or exercised; or (d) changes the designation of persons eligible to
receive Plan Awards.
(b) TERMINATION DATE The Plan shall, in all events, terminate
on August 3, 2009, or on such earlier date as the Board of Directors may
determine. Any Option or SAR outstanding at the termination date shall
8
<PAGE> 9
remain outstanding until it has either expired or has been exercised. Any
Restricted Stock outstanding at the termination date shall remain subject to the
terms of the Plan until the restrictions thereon shall have lapsed.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 EFFECTIVE DATE. The Plan shall become effective August 4, 1999,
the date of its adoption by the Board of Directors, subject, however, to
approval by the stockholders of the Company within twelve (12) months next
following such Effective Date; and if such approval is not obtained, the Plan
and any and all Plan Awards granted during such interim period shall terminate
and be of no further force or effect.
10.2 RIGHTS AS AN EMPLOYEE. Nothing in the Plan, the grant or holding
of a Plan Award, or in any agreement entered into pursuant to the Plan shall
confer to any holder of Plan Award any right to continue in the employ of the
Company or Subsidiary or to continue a consulting arrangement with the Company
or any Subsidiary, or interfere in any way with the right of the Company or any
parent or Subsidiary of the Company to terminate a Participant's employment or a
consulting arrangement at any time.
10.3 WITHHOLDING. It shall be a condition to the performance of the
Company's obligation with respect to any Plan Award that a Participant pay, or
make provision satisfactory to the Company for the payment of, any taxes which
the Company is obligated to collect with respect to the issuance, vesting or
exercise of any Plan Award, including any Federal, state, or local withholding
taxes.
10.4 OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee, in its sole
and absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate, any such restriction shall be set forth in the Stock Option
Agreement and may be referred to on the certificates evidencing such shares. The
Committee may require the Employee to give the Company prompt notice of any
disposition of shares of Common Stock acquired by exercise of an ISO within (a)
two years from the date of granting such ISO to such Employee, or (b) one year
after the transfer of such shares to such Employee. The Committee may direct
that the certificates evidencing shares acquired by exercise of an Option refer
to such requirement to give prompt notice of disposition. Notwithstanding the
foregoing, with the consent of the Committee and subject to such requirements as
it shall determine, a Participant may transfer an Option for no consideration to
or for the benefit of his spouse, parents, children (including step- and
adoptive children) and grandchildren, or to a trust for the benefit of such
individuals, or to a partnership or limited liability company for one or more
such individuals.
10.5 RIGHTS AS A STOCKHOLDER. Subject to Section 7.5, a recipient of a
Plan Award (other than a restricted stock award) shall have no rights as a
stockholder with respect to any shares issuable or transferable upon exercise
thereof until the date a stock certificate is issued to him for such shares,
and, except as otherwise expressly provided in the Plan, no adjustment shall be
made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
10.6 NON-ASSIGNABILITY OF PLAN AWARDS. Except as set forth in Section
10.4, no Plan Award shall be sold, pledged, assigned or transferred by the
recipient, except by will or by the laws of descent and distribution or pursuant
to a "qualified domestic relations order," as such term is defined in the Code
or Title I of the Employee Retirement Income Security Act of 1974, as amended.
During the lifetime of a recipient, Plan Awards shall be exercisable only by him
or his personal representative or guardian, except that an Option transferred
pursuant to a "qualified domestic relations order" may be exercised by the
transferee. No Plan Award or interest therein may be sold, pledged, attached, or
otherwise encumbered other than in favor of the Company, and no Plan Award shall
be liable for the debts, contracts or engagements of the holder of a Plan Award
or his or her successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, encumbrance, assignment or any other means
whether such disposition may be voluntary or involuntary or by operation of law
or judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy) and any attempt to do so shall be null and
void and of no force or effect.
10.7 LEAVE OF ABSENCE. In the case of a holder of a Plan Award on an
approved leave of absence, the Committee may, if it determines that to do so
would be in the best interests of the Company, provide for continuation
9
<PAGE> 10
of Plan Awards during such leave of absence, such continuation to be on such
terms and conditions as the Committee determines to be appropriate.
10.8 OTHER RESTRICTIONS. Each Plan Award shall be subject to the
requirement that, if at any time the Board of Directors or the Committee shall
determine, in its discretion, that the listing, registration, or qualification
of the shares issuable or transferable upon exercise thereof upon any securities
exchange or under any state or Federal law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of such Plan Award or the issue, transfer, or
purchase of shares thereunder, such Plan Award may not be exercised in whole or
in part unless such listing, registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Board of Directors. The Company shall not be obligated to sell or issue any
shares of Common Stock in any manner in contravention of the Securities Act of
1933, as amended, or any state securities law.
10.9 GOVERNING LAW. This Plan and any agreements hereunder shall be
interpreted and enforced under the internal laws of the State of New York
without regard to conflicts of law thereof.
10.10 NO WAIVER. No modification or waiver of any of the provisions of
this Plan shall be effective unless in writing and signed by the party against
whom it is sought to be enforced.
10
<PAGE> 1
EXHIBIT 10.14
PUBLICARD, INC.
1999 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE.
The purpose of the Plan is to promote the interests of the
Company and its shareholders by increasing the proprietary and personal interest
of nonemployee members of the Board in the growth and continued success of
PubliCARD, Inc. (the "Company") by granting them Options to purchase shares of
the Company's stock.
2. DEFINITIONS.
Whenever the following terms are used in this Plan, they shall
have the meaning specified below unless the context clearly indicates to the
contrary.
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE IN CONTROL" shall mean the occurrence of any of the
following:
(i) any person within the meaning of Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (other than the Company or any
Subsidiary or any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary), becoming the beneficial
owner, within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, directly or indirectly, of securities of the Company representing [thirty
percent (30%)] or more of the combined voting power of the Company's then
outstanding securities;
(ii) a majority of the directors elected at any special or
annual meeting of stockholders are not individuals nominated by the Company's
incumbent Board, or individuals who are members of the Company's Board at any
one time shall immediately thereafter cease to constitute a majority of the
Board;
(iii) the approval of the Company's stockholders of the
merger or consolidation of the Company with another corporation, the sale of
substantially all of the Company's assets or the liquidation or dissolution of
the Company, unless, in the case of a merger or consolidation, at least
two-thirds (2/3) of the directors in office immediately prior to such merger or
consolidation constitute at least two-thirds (2/3) of the members of the board
of directors of the surviving corporation of such merger and consolidation.
Notwithstanding anything herein to the contrary, unless specifically provided in
advance by the Board, a Change in Control shall not be deemed to have occurred
as a result of any event that occurs on or after the date the Company files a
voluntary petition to reorganize under Chapter 11 of the United States
Bankruptcy Code or to liquidate under chapter 7 of such Code, or following the
filing of an involuntary bankruptcy petition against the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COMPANY" shall mean PubliCARD, Inc., a Delaware corporation,
and any successor corporation.
"DISABILITY" shall mean the inability, by reason of bodily injury
or physical or mental disease, or any combination thereof, of the Optionee to
perform his customary duties as a Nonemployee Director for a period of ninety
(90) days (whether or not consecutive) in any period of one hundred and eighty
(180) consecutive days.
"FAIR MARKET VALUE" per Share as of a particular date shall mean,
unless otherwise determined by the Board:
(i) the closing sales price per Share on a national
securities exchange for the business day preceding the exercise date on which
there was a sale of Shares on such exchange;
<PAGE> 2
(ii) if clause (i) does not apply and the Shares are then
quoted on the National Association of Securities Dealers Automated Quotation
system (known as "NASDAQ"), the closing price per Share as reported on such
system for the business day preceding the exercise date on which a sale was
reported;
(iii) if clause (i) or (ii) does not apply and the Shares
are then traded on an over-the- counter market, the closing price for the Shares
in such over-the-counter market for the business day preceding the exercise
date; or
(iv) if the Shares are not then listed on a national
securities exchange or traded in an over-the-counter market, such value as the
Board in its discretion may determine.
"NONEMPLOYEE DIRECTOR" shall mean a member of the Board who is
not an employee of the Company.
"OPTION" shall mean an option to purchase Shares granted pursuant
to the Plan. Options granted under the Plan are not intended to be "incentive
stock options" within the meaning of Section 422 of the Code.
"OPTION AGREEMENT" shall mean an Option Agreement to be entered
into between the Company and an Optionee, which shall set forth the terms and
conditions of the Options granted to such Optionee.
"PARTICIPANT" shall mean a Nonemployee Director who is granted
an Option under the Plan.
"PLAN" shall mean this PubliCARD, Inc. 1999 Stock Option Plan
for Non-employee Directors, as hereinafter amended from time to time.
"SHARE" shall mean a share of the Company's common stock, .10
par value.
3. SHARES SUBJECT TO THE PLAN.
(a) SHARES SUBJECT TO THE PLAN. Subject to adjustment as set
forth in Section 3(b), the maximum number of Shares that may be issued or
transferred pursuant to Options under this Plan shall be 750,000 which may be
authorized but unissued Shares or Shares held in the Company's treasury, or a
combination thereof. Any Shares subject to an Option that cease to be subject
thereto may again be the subject of Options hereunder.
(b) CHANGES IN COMPANY'S SHARES. In the event the Board
determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Shares,
or other similar corporate event, affects the value of the Shares such that an
adjustment is required in order to preserve the benefits or potential benefits
available under this Plan, the Board shall have the right, in its sole
discretion, and in such manner as it may deem equitable, to: (x) adjust the
number and kind of Shares available for issuance pursuant to the Plan and
subject to outstanding Options, and (y) adjust the grant or exercise price with
respect to any Option or (z) make provision for a cash payment to an Optionee or
a person who has an outstanding Option (in an amount equal to the then
difference between the exercise price and the Fair Market Value of a Share).
4. PARTICIPATION.
Each Nonemployee Director shall be a participant in the Plan.
5. TERMS OF OPTIONS AND SHARES.
(a) Terms. The Options granted hereunder shall have the following
terms and conditions:
(i) Exercise Price. The exercise price of any Option shall
be one hundred percent (100%) of the Fair Market Value of a Share as of the date
the Option is granted.
2
<PAGE> 3
(ii) TERM. Subject to the discretion of the Board, the
term of an Option shall be five
years from the date it is granted.
(iii) VESTING. An Option shall become exercisable at the
discretion of the Board, as embodied in the Option Agreement covering such
Option, provided, however, that any Options that are not exercisable prior to a
Change in Control shall become exercisable on the date of such Change in Control
and shall remain exercisable for the remainder of the Term thereof.
(iv) NUMBER. Each current Nonemployee Director shall
receive an Option grant of 30,000 Shares as of the Effective Date and an
additional grant of 30,000 Shares each calendar year thereafter so long as he
remains a Nonemployee Director. Any individual who is not an employee of the
Company who is elected to the Board after the Effective Date shall receive an
Option to purchase (a) 30,000 shares as soon as practicable after such election
and (b) an additional 30,000 shares in each calendar year thereafter so long as
he remains a Nonemployee Director. Notwithstanding the foregoing, the Board
shall have the discretion to grant additional Options to any Participant at such
times, in such amounts, and subject to such other terms and conditions, as it
deems appropriate.
(b) TERMINATION OF SERVICE. All outstanding Options held by an
Optionee shall terminate immediately if such individual ceases to be a member of
the Board for any reason other than death, retirement on or after age 65, or
Disability. If an Optionee ceases to be a member of the Board due to death,
retirement on or after age 65, or Disability, all outstanding Options held by
such Optionee that are exercisable on such date shall remain exercisable for
their Term, and shall thereafter terminate.
(c) OPTION AGREEMENT. Options shall be granted only pursuant to a
written Option Agreement, which shall be executed by the Optionee and an
authorized officer of the Company and which shall contain such terms and
conditions as the Board shall determine, consistent with the Plan.
(d) NON-TRANSFERABILITY. No Option granted under the Plan shall
be transferable by the Optionee to whom granted otherwise than by will or the
laws of descent and distribution, and an Option may be exercised during the
lifetime of such Optionee only by the Optionee or his guardian or legal
representative. The terms of such Option shall be binding upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee.
Notwithstanding the foregoing, with the consent of the Board and subject to such
requirements as it shall determine, a Participant may transfer an Option for no
consideration to or for the benefit of his spouse, parents, children (including
step- and adoptive children) and grandchildren, or to a trust for the benefit of
such individuals, or to a partnership or limited liability company for one or
more such individuals.
(e) METHOD OF EXERCISE. The exercise of an Option shall be made
only by a written notice delivered in person or by first class mail to the
Secretary of the Company at the Company's principal executive office, specifying
the number of Shares to be purchased and accompanied by full payment therefor
and otherwise in accordance with the Option Agreement pursuant to which the
Option was granted. The exercise price for any Shares purchased pursuant to the
exercise of an Option shall be paid in full upon such exercise in cash, by check
or, at the discretion of the Board and upon such terms and conditions as the
Board shall approve, by transferring previously owned Shares to the Company, or
any combination thereof. Any Shares transferred to the Company as payment of the
exercise price shall be valued at their Fair Market Value on the day preceding
the date of exercise of such Option. If requested by the Board, the Optionee
shall deliver the Option Agreement evidencing the Option to the Secretary of the
Company who shall endorse thereon a notation of such exercise and return such
Option Agreement to the Optionee. Not less than one hundred (100) Shares may be
purchased at any time upon the exercise of an Option unless the number of Shares
so purchased constitutes the total number of Shares then purchasable under the
Option or the Board determines otherwise in its sole discretion.
(f) RIGHTS AS STOCKHOLDER. No Optionee shall be deemed for any
purpose to be or to have the rights and privileges of the owner of any Shares
subject to any Option unless and until (a) the Option shall have been exercised
pursuant to the terms thereof, and (b) the Company shall have issued the Shares
to the Optionee.
3
<PAGE> 4
6. ADMINISTRATION.
The Plan shall be administered by the Board. Subject to the
provisions of the Plan, the Board shall be authorized to interpret and construe
the Plan and the Option Agreements, to establish, amend, and rescind any rules
and regulations relating to the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan and to carry out its
purpose. The determinations of the Board in the administration of the Plan, as
described herein, shall be final and conclusive. The Secretary shall be
authorized to implement the Plan in accordance with its terms and to take such
actions of a ministerial nature as shall be necessary to effectuate the intent
and purposes thereof.
7. OTHER PROVISIONS.
(a) EFFECTIVE DATE. The Plan shall become effective as of August
4, 1999, (the "Effective Date"), subject, however, to approval by the
shareholders of the Company within twelve (12) months next following the
Effective Date, and, if such approval is not obtained, any Option grants made
hereunder shall terminate and be of no further force or effect.
(b) AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. The Plan
may be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from time to time by the Board; provided, however,
that, except as provided in Section 3(b), no amendment, suspension nor
termination shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Option theretofore granted, and provided,
further, that unless first duly approved by the stockholders of the Company
entitled to vote thereon at a meeting (which may be the annual meeting) duly
called and held for such purpose or by a consent of stockholders, no amendment
or change shall be made in the Plan that: (a) increases the total number of
shares which may be issued or transferred under the Plan or; (b) changes the
exercise price for an Option. No Options may be granted during any period of
suspension nor after termination of the Plan, and in no event may any awards be
granted under the Plan after August 3, 2009, on which date the Plan shall
terminate unless earlier terminated by action of the Board.
(c) GOVERNING LAW. The Plan and the rights of all persons
claiming hereunder shall be construed and determined in accordance with the laws
of the State of New York without giving effect to the choice of law principles
thereof.
(d) REGULATIONS AND OTHER APPROVALS. (i) The obligation of the
Company to sell or deliver Shares with respect to Options granted under the Plan
shall be subject to all applicable laws, rules and regulations, including all
applicable federal and state securities laws, and the obtaining of all such
approvals by governmental agencies as may be deemed necessary or appropriate by
the Board.
(ii) The Board may make such changes as may be necessary
or appropriate to comply with the rules and regulations of any government
authority.
(iii) Each Option is subject to the requirement that, if
at any time the Board determines, in its sole discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
the issuance of Shares, no Options shall be granted or payment made or Shares
issued, in whole or in part, unless listing, registration, qualification,
consent or approval has been effected or obtained free of any conditions as
acceptable to the Board.
(iv) In the event that the disposition of Shares acquired
pursuant to the Plan is not covered by a then current registration statement
under the Securities Act, and is not otherwise exempt from such registration,
such Shares shall be restricted against transfer to the extent required by the
Securities Act or regulations thereunder, and the Board may require any
individual receiving Shares pursuant to the Plan, as a condition precedent to
receipt of such Shares, to represent to the Company in writing that the Shares
acquired by such individual are acquired for investment only and not with a view
to distribution. the certificate for such shall include any legend that the
Board deems appropriate to reflect any restrictions on transfer.
4
<PAGE> 5
(e) WITHHOLDING OF TAXES. No later than the date as of which an
amount first becomes includible in the gross income of an Optionee for federal
income tax purposes with respect to Options granted under this Agreement, the
Optionee shall pay to the Company, or the Optionee (or his designated
beneficiary) shall make arrangements satisfactory to the Company regarding the
payment of, any federal, estate, or local taxes of any kind required by law to
be withheld with respect to such amount. The obligations of the Company under
this Agreement shall be conditioned on such payment or arrangements, and the
Company shall, to the extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to the employee.
(f) TITLES; CONSTRUCTION. Titles are provided herein for
convenience only and are not to serve as a basis for interpretation or
construction of the Plan. The masculine pronoun shall include the feminine and
neuter and the singular shall include the plural, when the context so indicates.
5
<PAGE> 1
EXHIBIT 21.1
PUBLICARD, INC
AND SUBSIDIARY COMPANIES
LIST OF SIGNIFICANT SUBSIDIARIES
<TABLE>
<CAPTION>
State of Jurisdiction
Subsidiary of Incorporation
- ---------- ----------------
<S> <C>
Absec Ltd. Northern Ireland
Amazing Smart Card Technologies, Inc. California
Boxsterview, Inc. Delaware
Continental Distilling Corporation Delaware
Darkrats, Inc. Delaware
Fentronics, Inc. Delaware
Greenwald Industries, Inc. Delaware
Greenwald Intellicard, Inc. Delaware
Greystone Peripherals, Inc. California
Hanten Acquisition Co. Delaware
Kidde Systems, Inc. Delaware
LTA Disposition Corporation Delaware
Nevco Housewares, Inc. Delaware
Orr-Schelen-Mayeron & Associates, Inc. Minnesota
Publicker Chemical Corporation Louisiana
Publicker Gasohol, Inc. Delaware
Publicker, Inc. Delaware
Rouglas-Dandall, Inc. Delaware
Sagrocry, Inc. Pennsylvania
Tritheim Technologies, Inc. Florida
</TABLE>
<PAGE> 1
EXHIBIT 23.1
PUBLICARD, INC.
AND SUBSIDIARY COMPANIES
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-3 File Nos. 33-9344,
333-80447, 333-87597 and 333-89917 and Registration Statements on Form S-8 File
Nos. 33-56838, 33-88876, 333-72411, 333-73037, 333-73307 and 333-74169.
/s/Arthur Andersen LLP
Stamford, Connecticut
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,236,000
<SECURITIES> 0
<RECEIVABLES> 1,812,000
<ALLOWANCES> 92,000
<INVENTORY> 903,000
<CURRENT-ASSETS> 11,445,000
<PP&E> 1,525,000
<DEPRECIATION> 462,000
<TOTAL-ASSETS> 45,488,000
<CURRENT-LIABILITIES> 8,415,000
<BONDS> 0
0
0
<COMMON> 2,619,000
<OTHER-SE> 27,780,000
<TOTAL-LIABILITY-AND-EQUITY> 45,488,000
<SALES> 1,930,000
<TOTAL-REVENUES> 1,930,000
<CGS> 978,000
<TOTAL-COSTS> 16,296,000
<OTHER-EXPENSES> 1,218,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 158,000
<INCOME-PRETAX> (16,720,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,720,000)
<DISCONTINUED> (18,999,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,719,000)
<EPS-BASIC> (1.88)
<EPS-DILUTED> (1.88)
</TABLE>
